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Daily Market Podcast May 15 · M6 Capital Daily Market Podcast

• 0:00
  SPEAKER_00: Good morning.
• 0:00
  SPEAKER_00: This is Chris Myers with M6 Capital Management with our daily market letter for Friday, May 15th.
• 0:06
  SPEAKER_00: Walking in this morning, July corn is down 5.5 at 462.
• 0:10
  SPEAKER_00: July soybeans are down 11.5 at 1181.
• 0:13
  SPEAKER_00: And June crude is up 290 at 99.80.
• 0:18
  SPEAKER_00: In Corn News, yesterday was all about speculators who had gotten a little ahead of themselves and wanted to get a little bit smaller.
• 0:25
  SPEAKER_00: And the trigger was China news or lack thereof.
• 0:29
  SPEAKER_00: There was no new news on China purchasing U.S.
• 0:33
  SPEAKER_00: grains, so we sold off.
• 0:34
  SPEAKER_00: There is, however, news that China is considering lowering or dropping their import tax on U.S.
• 0:41
  SPEAKER_00: corn and U.S.
• 0:42
  SPEAKER_00: wheat.
• 0:43
  SPEAKER_00: But nothing official yet.
• 0:45
  SPEAKER_00: Yesterday, CBOT corn dropped 13 cents and beans absolutely collapsed.
• 0:51
  SPEAKER_00: Then overnight, Trade Representative Greer simply stated that China will make large purchases of American products over the next three years.
• 1:02
  SPEAKER_00: The complete blandness of this comment and the lack of any details is evidently not what this market wanted.
• 1:09
  SPEAKER_00: It seems that ag products were not nearly as big a part of these meetings as what it was advertised beforehand.
• 1:16
  SPEAKER_00: So now what?
• 1:18
  SPEAKER_00: I am still absolutely in the camp that CBOT corn will be very well supported on this break.
• 1:24
  SPEAKER_00: We are still looking at fantastic U.S.
• 1:26
  SPEAKER_00: corn export demand.
• 1:27
  SPEAKER_00: Ethanol production has picked back up after some seasonal downtime the last several weeks.
• 1:33
  SPEAKER_00: And we still have smaller grain production in multiple locations around the world.
• 1:37
  SPEAKER_00: This story has not changed.
• 1:39
  SPEAKER_00: If you're an end user, breaks like this should be seen as an opportunity to buy corn.
• 1:44
  SPEAKER_00: Moving on to soybeans, at one point yesterday, July soybeans were down 47 cents.
• 1:50
  SPEAKER_00: They finished down 36.
• 1:51
  SPEAKER_00: Speculators had accumulated huge longs in beans and meal and oil.
• 1:55
  SPEAKER_00: We've talked about this all before.
• 1:58
  SPEAKER_00: And no new Chinese purchases.
• 2:00
  SPEAKER_00: Seems like all that was all it took to pop the soybean bubble.
• 2:04
  SPEAKER_00: Do I see this as a major change in direction for the soybean market?
• 2:08
  SPEAKER_00: Absolutely not.
• 2:09
  SPEAKER_00: Demand for U.S.
• 2:10
  SPEAKER_00: soybean products remained super strong.
• 2:13
  SPEAKER_00: Matter of fact, export sales yesterday for soybean meal were huge, and exports were spread.
• 2:20
  SPEAKER_00: The export business was spread across a lot of countries from Asia to Central America to Europe.
• 2:26
  SPEAKER_00: I think this was simply speculators who had plowed into soybeans and did not like the lack of new bullish news from the Chinese trip and decided to get smaller.
• 2:38
  SPEAKER_00: That's it.
• 2:39
  SPEAKER_00: I still believe that CBOT soybeans will be very well supporting this break.
• 2:43
  SPEAKER_00: U.S.
• 2:43
  SPEAKER_00: crush margins remain crazy big with July board crush margins this morning at$3.50.
• 2:51
  SPEAKER_00: That's crazy.
• 2:53
  SPEAKER_00: Moving south, Argentina soybean harvest is really picking up in advance 24% last week to reach 58% harvested, but this is still way behind average.
• 3:05
  SPEAKER_00: Argentine crush is picking up also, and so are their meal exports.
• 3:09
  SPEAKER_00: But so far this is not slowing down U.S.
• 3:11
  SPEAKER_00: meal export demand at all.
• 3:13
  SPEAKER_00: But we do need to keep an eye on this.
• 3:16
  SPEAKER_00: For a chart, today I've got on the bottom of page one, I've got the uh cumulative long positions in for speculators in CBOT corn plus wheat plus soybeans plus meal plus oil.
• 3:31
  SPEAKER_00: And it's big, okay?
• 3:32
  SPEAKER_00: And I think that was what we saw yesterday.
• 3:35
  SPEAKER_00: Maybe they had just gotten a little bit too big and decided to get a little smaller.
• 3:40
  SPEAKER_00: Moving on to cattle news.
• 3:42
  SPEAKER_00: Uh going home yesterday, June cattle were right at 252, August cattle were 246, and October cattle were 238.
• 3:52
  SPEAKER_00: The last week in cattle, uh, live cattle and feeder cattle markets have been one of the most volatile weeks I have ever witnessed in my career.
• 4:02
  SPEAKER_00: The average daily range from high to low in June cattle last week, in the last five days actually, was$5.20.
• 4:10
  SPEAKER_00: And the average in August feeder cattle was even worse, is$8.50.
• 4:15
  SPEAKER_00: This is ridiculous.
• 4:17
  SPEAKER_00: There is no way to trade this.
• 4:19
  SPEAKER_00: There is no way for producers or consumers to manage their risk in this market.
• 4:24
  SPEAKER_00: Somewhat like grains, both live cattle and feeder cattle have massive spec loan positions.
• 4:30
  SPEAKER_00: The news from Trump this week, first part of the week, that he was possibly going to lower import taxes on beef.
• 4:37
  SPEAKER_00: And then the next day, he totally backed off that idea.
• 4:40
  SPEAKER_00: That's not helping our situation at all.
• 4:42
  SPEAKER_00: I am absolutely in the camp that cattle prices and beef prices are both too high right now.
• 4:48
  SPEAKER_00: Cash cattle is up for another$4 this week.
• 4:52
  SPEAKER_00: That makes an$18 rally in three weeks.
• 4:55
  SPEAKER_00: Packers are losing nearly$300 per head that they process right now.
• 5:01
  SPEAKER_00: There is no question Packers are slowing down kills.
• 5:05
  SPEAKER_00: And then we've got this ongoing labor union issue and the shutdown of Cargill's plant at Fort Morgan, Colorado, and that's also helping to keep kills small.
• 5:13
  SPEAKER_00: Don't get me wrong, beef demand remains strong.
• 5:16
  SPEAKER_00: Kills are small, weights are big, that's making up for it.
• 5:20
  SPEAKER_00: Beef imports are up with our high prices, and beef exports are down.
• 5:26
  SPEAKER_00: So, net net, U.S.
• 5:28
  SPEAKER_00: consumers are eating the same amount of beef as they were a year ago, but beef prices are up 13% from a year ago.
• 5:37
  SPEAKER_00: That's the definition of strong demand.
• 5:40
  SPEAKER_00: But with these cash cattle going up so much the last three weeks, Packers have been trying to push beef prices higher, and that just ain't working.
• 5:49
  SPEAKER_00: I think the beef market and the cattle market are just too high right now.
• 5:54
  SPEAKER_00: Longer term, we're doing a lot of damage to this cattle market, to the structure of the cattle market.
• 5:59
  SPEAKER_00: Packers are losing way too much money.
• 6:01
  SPEAKER_00: For example, um, Cargill's beef section lost just under$1 billion in the last 12 months.
• 6:10
  SPEAKER_00: Tyson reported losing a little over$1.1 billion in the last 12 months.
• 6:16
  SPEAKER_00: The entire beefpacking industry is hemorrhaging money.
• 6:20
  SPEAKER_00: I'm convinced that we will very likely see multiple beefpacking locations shut down in the next two, maybe three quarters.
• 6:28
  SPEAKER_00: They can't continue to exist like this.
• 6:31
  SPEAKER_00: As for the market outlook, I remain in the camp that live cattle are vulnerable to the downside, irregardless of how high this cash market is right now.
• 6:40
  SPEAKER_00: As for feeders, I was in central Nebraska yesterday meeting with some clients, uh, a lot of cattle guys up there.
• 6:47
  SPEAKER_00: They are not seeing cow calf operations expand.
• 6:51
  SPEAKER_00: It's way too dry.
• 6:52
  SPEAKER_00: Pasture conditions are not good.
• 6:54
  SPEAKER_00: And the same story exists basically from Texas all the way to the Canadian border.
• 6:59
  SPEAKER_00: At these high prices, it is way too hard for a rancher to breed a heifer and keep her on the farm if pastures look this bad this time of year.
• 7:08
  SPEAKER_00: And banks are not wanting to loan money to expand your herd or to buy a cow, not at these prices.
• 7:15
  SPEAKER_00: So it certainly looks like we are not expanding this beef herd.
• 7:19
  SPEAKER_00: If you're going to expand the beef herd, you need to be breeding a heifer right now, and that ain't happening.
• 7:25
  SPEAKER_00: So that means that we very likely see tight feeder numbers well into 27, and I think likely well into early part of 2028.
• 7:36
  SPEAKER_00: So that keeps feeder prices very elevated for a long period of time.
• 7:42
  SPEAKER_00: Moving on to weather, looks like we're going to have a wet next several days uh going across the upper part of the corn belt, uh, particularly in um uh Minnesota, Wisconsin, uh, Iowa, Illinois.
• 7:59
  SPEAKER_00: And then in the 6 to 10, looks like we're gonna have another round of rains coming from Texas across all the way uh to Tennessee and Alabama over to Georgia.
• 8:10
  SPEAKER_00: Uh the temperatures look like they're going uh we've gotten past these cool temperatures.
• 8:16
  SPEAKER_00: We're gonna go back to normal, to above normal temperatures for the foreseeable future.
• 8:20
  SPEAKER_00: And at least going forward, it looks like the southern part of the United States is gonna stay pretty wet.
• 8:25
  SPEAKER_00: That's it for today.
• 8:26
  SPEAKER_00: Thanks for listening.
• 8:27
  SPEAKER_00: Talk to you on Monday.