Latest / M6 Capital Daily Market Podcast / Daily Market Podcast Aug 6

Transcript

Daily Market Podcast Aug 6 · M6 Capital Daily Market Podcast

• 0:00
  SPEAKER_00: Good morning.
• 0:01
  SPEAKER_00: It's Chris Myers with M6 Capital Management.
• 0:04
  SPEAKER_00: Happy, happy Thursday.
• 0:06
  SPEAKER_00: Um, before we get started this morning, uh, a couple of things.
• 0:10
  SPEAKER_00: Number one, I am going to be out of the office tomorrow traveling.
• 0:14
  SPEAKER_00: So uh I am not going to have uh internet connection where I'm going to be.
• 0:18
  SPEAKER_00: So uh I will not be issuing a um daily market letter tomorrow morning.
• 0:24
  SPEAKER_00: We'll be back bright and early on Monday morning.
• 0:27
  SPEAKER_00: So today we'll also include weekly cattle comments.
• 0:31
  SPEAKER_00: Uh and second, there's a lot, lot, a lot of moving parts in uh in our markets today.
• 0:38
  SPEAKER_00: Uh corn, beans, and cattle.
• 0:41
  SPEAKER_00: So let's get started.
• 0:43
  SPEAKER_00: Um this is our daily market letter for Thursday morning on August 6th.
• 0:49
  SPEAKER_00: And December corn walking in this morning is up a quarter at 460.
• 0:53
  SPEAKER_00: November beans are up one and a quarter at 1176.
• 0:56
  SPEAKER_00: December meal is up 130 at 316.90.
• 1:00
  SPEAKER_00: September crude is up$1.10 at 76.30.
• 1:04
  SPEAKER_00: As for corn news this morning, the U.S.
• 1:06
  SPEAKER_00: corn market is really set up for a very volatile crop report out of the USDA next week.
• 1:12
  SPEAKER_00: Uh, and that's pretty much going to drive what the market does for the next several days, I believe.
• 1:17
  SPEAKER_00: First of all, the market needs to sell the question of the U.S.
• 1:20
  SPEAKER_00: crop before it can ever decide which direction it wants to go next.
• 1:24
  SPEAKER_00: USDA has been using a trend yield of 183, 183 bushels per acre for months and months.
• 1:29
  SPEAKER_00: That will change next week.
• 1:31
  SPEAKER_00: Uh, and we have two farmer surveys that have been released this week, uh, one from Stone X, another from SP Global, which is the old uh Informa, the old Sparks companies that I worked for many, many years ago.
• 1:44
  SPEAKER_00: One of these yields was 184.8, bigger than the 183, obviously, and the other one was 182.
• 1:52
  SPEAKER_00: And then we have these crop condition ratings that apply something under 183.
• 1:57
  SPEAKER_00: So the market really has no clear indication.
• 2:00
  SPEAKER_00: It's just more and more confusion.
• 2:03
  SPEAKER_00: Next, we have the question of planted area.
• 2:05
  SPEAKER_00: USDA can alter planted area on this report if they so desire.
• 2:11
  SPEAKER_00: And there have been, there are quite a few in the market that fully expect USDA to raise corn planted area next Wednesday due to the fact that we have far less than normal prevent plant this year.
• 2:24
  SPEAKER_00: We had no major planting issues.
• 2:27
  SPEAKER_00: And the fact that USDA has got an overall drop in total cropped land this year.
• 2:34
  SPEAKER_00: So I'm not in the camp of us dramatically, of the USDA dramatically increasing corn planted area, but the thought is out there.
• 2:43
  SPEAKER_00: And then we have percent harvested, yet another variable we got to deal with next week.
• 2:48
  SPEAKER_00: It would not be a shock to anyone for USDA to increase abandonment and lower harvested area in several of the plain states.
• 2:56
  SPEAKER_00: So, net net, we have a lot of moving parts in the USDA crop report for the corn production number next week.
• 3:03
  SPEAKER_00: And then let's throw in on top of all that that USDA should lower the EU corn crop and they should increase U.S.
• 3:11
  SPEAKER_00: corn exports.
• 3:12
  SPEAKER_00: Who knows if they're going to do either one?
• 3:14
  SPEAKER_00: But it all makes for a very interesting day next Wednesday.
• 3:17
  SPEAKER_00: And as such, I fully expect CBOT corn market to bounce around erratically and really do a whole lot of nothing between now and next Wednesday until we get this USDA report out of the way.
• 3:28
  SPEAKER_00: This time next week, hopefully we are all a whole lot smarter.
• 3:32
  SPEAKER_00: Hopefully.
• 3:34
  SPEAKER_00: As for soybean news, China continues to buy U.S.
• 3:37
  SPEAKER_00: bean cargoes every day.
• 3:38
  SPEAKER_00: The government in China is auctioning off some of their old soybean inventories.
• 3:43
  SPEAKER_00: Most of these beans are two to three years old, clearing out space for incoming U.S.
• 3:48
  SPEAKER_00: beans.
• 3:49
  SPEAKER_00: Both products, meal and oil, uh have sunk to the lowest levels in several weeks.
• 3:56
  SPEAKER_00: As for the meal, U.S.
• 3:57
  SPEAKER_00: interior meal offers continue to slip as U.S.
• 4:02
  SPEAKER_00: harvest approaches, and we all expect a big bean crop coming.
• 4:06
  SPEAKER_00: Bean supplies will be big.
• 4:08
  SPEAKER_00: The question on better U.S.
• 4:10
  SPEAKER_00: meal exports is still not answered yet.
• 4:13
  SPEAKER_00: You still have issues in both Brazil and Argentina that we have not solved.
• 4:18
  SPEAKER_00: As for soybean oil, the breaking crude and the break-in fuel and diesel prices has pressured bean oil prices down to recent lows.
• 4:26
  SPEAKER_00: Renewable diesel production is rocking and rolling.
• 4:29
  SPEAKER_00: Veg oil demand in the U.S.
• 4:31
  SPEAKER_00: is getting bigger by the month.
• 4:33
  SPEAKER_00: So that scenario is still going, but we're being dragged around by crude oil prices.
• 4:40
  SPEAKER_00: As for the U.S.
• 4:41
  SPEAKER_00: crop next week, it does seem that most are expecting USDA to stay at their current 53 bushel an acre yield or maybe even raise a little.
• 4:49
  SPEAKER_00: I fully believe that USDA should not even issue a soybean yield estimate in August.
• 4:54
  SPEAKER_00: We do not know enough about the soybean crop yet.
• 4:57
  SPEAKER_00: We have way too much growing season ahead of us.
• 4:59
  SPEAKER_00: But nevertheless, here we are.
• 5:01
  SPEAKER_00: So I would be in the camp of a steady to slightly higher yield out of the USDA.
• 5:07
  SPEAKER_00: I really don't see CBOT soybeans have much of a direction in the next month or so.
• 5:12
  SPEAKER_00: We have so much growing season ahead of us.
• 5:15
  SPEAKER_00: Uh and demand, as we have talked about before, demand is super, super strong.
• 5:20
  SPEAKER_00: Now, if USDA comes out with some shocker in its report next week, then all bets are off.
• 5:26
  SPEAKER_00: Again, like I said in corn, hopefully we are a whole lot smarter this time next week.
• 5:31
  SPEAKER_00: I've got a map on the bottom of page one that I encourage everybody to take a look at.
• 5:37
  SPEAKER_00: This is uh a map of um the entire Mississippi basin and current water stages.
• 5:46
  SPEAKER_00: You've got quite a few locations that are starting to show up that already have low water warnings.
• 5:52
  SPEAKER_00: And uh particularly in the lower mist, you have a lot of locations that are uh if the forecast for the next two weeks hold true, a lot more stations will be at low water warnings uh in the next two weeks.
• 6:06
  SPEAKER_00: And at that point, then we'll have to start reducing drafts.
• 6:10
  SPEAKER_00: So this could be an issue.
• 6:12
  SPEAKER_00: Uh, we just need to keep on top of this.
• 6:15
  SPEAKER_00: As for cattle comments, again, this is gonna be my weekly cattle uh comments because I'm I'm out tomorrow.
• 6:22
  SPEAKER_00: The U.S.
• 6:23
  SPEAKER_00: cattle industry is an absolute and total mess right now.
• 6:27
  SPEAKER_00: Um, pasture conditions have deteriorated in the plains, hay prices are sky high, cattle prices have dropped like a rock, packers are cutting kills, even closing some plants.
• 6:38
  SPEAKER_00: And on top of all that, we're told that the U.S.
• 6:40
  SPEAKER_00: and Mexican border will reopen later this month, but that whole situation is riddled with issues.
• 6:47
  SPEAKER_00: So let's start with the pasture and hay conditions.
• 6:50
  SPEAKER_00: The government has opened up CRP lands in several plain states to grazing and cutting hay.
• 6:56
  SPEAKER_00: Um, not that that's going to really help a whole lot.
• 6:59
  SPEAKER_00: Grass conditions are bad in most areas.
• 7:01
  SPEAKER_00: Maybe you've got some isolated parts of Kansas and Nebraska that have had some okay rains lately and they're doing fine.
• 7:07
  SPEAKER_00: But the rest of the area, from Texas to North Dakota, Montana, are basically all in bad shape.
• 7:14
  SPEAKER_00: Prices for quality hay are super strong.
• 7:16
  SPEAKER_00: It makes for a very difficult situation if a rancher was considering breeding some efforts and expanding his herd.
• 7:22
  SPEAKER_00: Just not very user-friendly for that idea.
• 7:25
  SPEAKER_00: Next, we got cash cattle prices.
• 7:27
  SPEAKER_00: Um, they actually ended the last week up$2 and maybe we'll be up another$2 or so this week.
• 7:33
  SPEAKER_00: But we're still 30, some$30,$31 off the highs in late May.
• 7:39
  SPEAKER_00: And the issues there really have not changed.
• 7:41
  SPEAKER_00: We have way too many fat cattle that need to be killed.
• 7:44
  SPEAKER_00: We are importing huge amounts of beef, mainly due to the fact that UF beef prices are the highest in the world.
• 7:49
  SPEAKER_00: And we're exporting very little, again, for the same reason.
• 7:52
  SPEAKER_00: So let's just take a look at the month of July.
• 7:55
  SPEAKER_00: The number of fed cattle that were slaughtered were was down 7% from last year.
• 8:01
  SPEAKER_00: But cattle weights are huge.
• 8:03
  SPEAKER_00: Makes up for some of that.
• 8:04
  SPEAKER_00: Beef imports were up 15% from last year.
• 8:08
  SPEAKER_00: Beef exports are down 10.
• 8:11
  SPEAKER_00: So, net net, even with smaller cattle kills, these big cattle weights and the difference in net trade is keeping U.S.
• 8:20
  SPEAKER_00: beef supply equal to a year ago.
• 8:24
  SPEAKER_00: And this will only get worse from the trade side of that equation.
• 8:27
  SPEAKER_00: Food service companies in the U.S.
• 8:29
  SPEAKER_00: are getting more and more contracts every month with beef suppliers from Mexico, Argentina, and Brazil.
• 8:36
  SPEAKER_00: So this is gonna get worse.
• 8:38
  SPEAKER_00: In the near term, beef prices seem to have found some seasonal bottom.
• 8:42
  SPEAKER_00: I've got a chart of beef prices down below, and we seasonally rally for the next couple of weeks.
• 8:48
  SPEAKER_00: Uh we fully expect this rally to be short-lived.
• 8:52
  SPEAKER_00: Uh, and the same is gonna be true for cattle prices.
• 8:55
  SPEAKER_00: Uh, I still believe that we have not yet seen the lows in Fed cattle prices.
• 9:00
  SPEAKER_00: And I find it very interesting that the October and December futures are currently discounted to the cash market.
• 9:07
  SPEAKER_00: The futures prices are telling us that the market does not see cattle prices rallying.
• 9:12
  SPEAKER_00: They see cattle prices flat to lower through the end of the year.
• 9:15
  SPEAKER_00: Today, kind of hard to argue with that equation.
• 9:18
  SPEAKER_00: Longer term, into 2027, feeder supplies remain tight, calf and feeder prices should be remained firm.
• 9:25
  SPEAKER_00: But for us to get some sustained rally and fed cattle, we really need to first clean up this big overweight, fat front-end supply of cattle in the feedlights.
• 9:36
  SPEAKER_00: And that may take us a while.
• 9:39
  SPEAKER_00: As for the U.S.-Mexico border, yes, we're supposed to open one border crossing in New Mexico in two weeks and maybe another couple more, we don't know when.
• 9:48
  SPEAKER_00: But, and here's the caveat the cases of the New World Screwworm just across the border of Mexico have increased quite a bit in the last several weeks.
• 9:59
  SPEAKER_00: So, what happens when we when they find a positive case at the border?
• 10:04
  SPEAKER_00: Well, it's mixed opinions on that, but either one or two statements is gonna be true.
• 10:10
  SPEAKER_00: We either instantly close the border again, or at a minimum, it really, really, really slows down the inspections.
• 10:17
  SPEAKER_00: So, net net, it's gonna be a very slow go with cattle coming in from Mexico for a long, long time.
• 10:25
  SPEAKER_00: Um, as for weather, the maps continue to get a little bit wetter uh over the next several days in the central and eastern part of the corn belt, and even again for next week.
• 10:36
  SPEAKER_00: Um, you do have some again smoking hot temperatures from Texas up into Kansas, and uh by the time we get to the weekend, you've got some 100-100 plus um Oklahoma, Kansas, well up into Nebraska.
• 10:51
  SPEAKER_00: So again, uh those uh grain crops deteriorate and pasture conditions get even worse.
• 10:58
  SPEAKER_00: The uh the longer term forecast seems to be for decent uh normal to above normal precip for the corn belt.
• 11:06
  SPEAKER_00: But again, we've got temperatures that that stay pretty elevated.
• 11:10
  SPEAKER_00: Again, that's it for today, and that's it for this week.
• 11:13
  SPEAKER_00: Thanks for listening.
• 11:13
  SPEAKER_00: We'll be back on Monday.
• 11:14
  SPEAKER_00: Y'all have a great weekend.
• 11:15
  SPEAKER_00: Thanks a lot.