Latest / M6 Capital Daily Market Podcast / Daily Market Podcast May 22

Transcript

Daily Market Podcast May 22 · M6 Capital Daily Market Podcast

• 0:00
  SPEAKER_00: Good morning.
• 0:01
  SPEAKER_00: This is Chris Myers with M6 Capital Management.
• 0:04
  SPEAKER_00: This is our daily market letter on Friday, May the 22nd.
• 0:09
  SPEAKER_00: And happy, happy Friday.
• 0:12
  SPEAKER_00: We have got a lot to discuss today.
• 0:14
  SPEAKER_00: First off, don't forget that Monday is Memorial Day and markets will be closed and our offices will be closed.
• 0:22
  SPEAKER_00: So there will be no communications for me on Monday.
• 0:26
  SPEAKER_00: Grain markets will reopen on their regular nighttime schedule at 7 p.m.
• 0:32
  SPEAKER_00: Monday night.
• 0:51
  SPEAKER_00: So take note of that.
• 0:53
  SPEAKER_00: So let's get started.
• 0:54
  SPEAKER_00: Walking in this morning, July corn is up two and a quarter at 464 and a half.
• 1:00
  SPEAKER_00: July soybeans are up five and a quarter at 1199 and a half.
• 1:06
  SPEAKER_00: And June crude is up 230 at 98.60.
• 1:11
  SPEAKER_00: So on to corn, we're being knee-jerked around.
• 1:14
  SPEAKER_00: One day it's China news, one day it's crude oil.
• 1:18
  SPEAKER_00: Today, crude oil is higher, so corn and beans are higher.
• 1:22
  SPEAKER_00: But behind the scenes, we are still threatening global grain supplies, especially corn supplies.
• 1:28
  SPEAKER_00: And U.S.
• 1:30
  SPEAKER_00: corn demand is still really big.
• 1:31
  SPEAKER_00: Feed demand is up.
• 1:33
  SPEAKER_00: Your chicken numbers are up.
• 1:34
  SPEAKER_00: We covered that earlier this week.
• 1:36
  SPEAKER_00: Cattle numbers are steady with a year ago, but cattle weights are huge, therefore consuming more corn.
• 1:42
  SPEAKER_00: Hog numbers are steady with a year ago.
• 1:45
  SPEAKER_00: Ethanol is big.
• 1:47
  SPEAKER_00: Corn exports are huge.
• 1:50
  SPEAKER_00: I've got a chart today on the bottom of page one that shows outstanding U.S.
• 1:55
  SPEAKER_00: corn export sales as of mid-May.
• 1:58
  SPEAKER_00: This is corn that has been sold but not yet shipped.
• 2:02
  SPEAKER_00: This is an enormous amount of corn sold for export.
• 2:07
  SPEAKER_00: But this total does not include anything to China.
• 2:11
  SPEAKER_00: We are already tied with record large corn export sales on this date.
• 2:17
  SPEAKER_00: If China comes in and begins buying, U.S.
• 2:19
  SPEAKER_00: corn exports go to some level that we have never ever seen before.
• 2:25
  SPEAKER_00: Moving south, we have been reporting on the horribly dry weather in Brazil, but further south, it does appear that the corn crop in Argentina is getting bigger and bigger.
• 2:34
  SPEAKER_00: Harvested yields are coming in huge.
• 2:37
  SPEAKER_00: Estimates are now around 64 million tons for the Argentine corn crop versus earlier thoughts of 60 to 61 million tons.
• 2:45
  SPEAKER_00: But this larger crop in Argentina is not enough to offset the bad crop in Brazil.
• 2:51
  SPEAKER_00: Combined corn production between the two nations, Brazil and Argentina, is now 6 million tons down from last year.
• 3:00
  SPEAKER_00: Just two months ago, the market was expecting combined production between Brazil and Argentina to be up 8 to 10 million tons.
• 3:09
  SPEAKER_00: Net net, I'm sorry, net net, the bigger story has not changed.
• 3:14
  SPEAKER_00: We are still longer-term bullish CBOT corn.
• 3:18
  SPEAKER_00: Moving on to soybeans, CBOT soybeans are awaiting some verification that China is back buying U.S.
• 3:25
  SPEAKER_00: beans.
• 3:26
  SPEAKER_00: The key signal that the market is looking for would be China dropping their 10% import duty on U.S.
• 3:33
  SPEAKER_00: soybeans.
• 3:34
  SPEAKER_00: If that happens, then it's game on.
• 3:38
  SPEAKER_00: Meanwhile, soybean harvested is advancing rapidly in Argentina, and their soybean crush and meal exports are advancing also.
• 3:46
  SPEAKER_00: But U.S.
• 3:47
  SPEAKER_00: meal exports remain stellar.
• 3:49
  SPEAKER_00: Outstanding U.S.
• 3:50
  SPEAKER_00: meal export sales are still massive.
• 3:53
  SPEAKER_00: This is keeping U.S.
• 3:55
  SPEAKER_00: crush margins at historically high levels.
• 3:57
  SPEAKER_00: Cash crush margins are around$4 a bushel in Western cornerbelt and over$4 a bushel in the Eastern Corn Belt.
• 4:06
  SPEAKER_00: This is ridiculously big.
• 4:09
  SPEAKER_00: This strong demand should keep CBOT soybeans well supported on any breaks.
• 4:14
  SPEAKER_00: We remain solidly in the camp that Chicago soybeans have limited downside, but we do need some confirmation from China if we're going to get a decent rally going.
• 4:27
  SPEAKER_00: Moving on to cattle, and this is where things are really changing.
• 4:30
  SPEAKER_00: Okay, a lot here to discuss.
• 4:33
  SPEAKER_00: First, let's talk about this$17 billion ag deal that was announced this past weekend.
• 4:40
  SPEAKER_00: There is a lot of talk that China will take a lot of U.S.
• 4:44
  SPEAKER_00: beef.
• 4:45
  SPEAKER_00: I will argue the other side of that.
• 4:47
  SPEAKER_00: If you look, and I've got a chart below on the bottom of page two that shows U.S.
• 4:53
  SPEAKER_00: beef sales annual beef shipped to China.
• 4:58
  SPEAKER_00: The only time in the last 20 years that China has taken U.S.
• 5:02
  SPEAKER_00: beef is immediately following their outbreak of African swine fever in their hog herd and that devastated their hog herd in 2018 and 19.
• 5:11
  SPEAKER_00: In the years following, they were short of protein, and they imported beef from the U.S., Brazil, Argentina, Australia, wherever they could find it, because they were short protein.
• 5:22
  SPEAKER_00: But 2025 was very small.
• 5:26
  SPEAKER_00: And so far, 2026 has been almost zero.
• 5:30
  SPEAKER_00: As part of Trump's trade meetings last week, China agreed to re-register 425 U.S.
• 5:37
  SPEAKER_00: meat facilities and 77 new ones to allow them to ship beef to China.
• 5:44
  SPEAKER_00: But let's not forget, all these uh restrictions were cancels, these registrations were canceled with a stroke of a pen a year ago.
• 5:54
  SPEAKER_00: So let's all agree that this is not written in concrete.
• 5:58
  SPEAKER_00: Many people, including the U.S.
• 6:00
  SPEAKER_00: Meat Export Federation, are beating their chest like some silverback gorilla, claiming that we will reopen and China is here to buy beef from the U.S.
• 6:11
  SPEAKER_00: I absolutely disagree.
• 6:14
  SPEAKER_00: China does not want beef from the U.S.
• 6:17
  SPEAKER_00: or anybody else.
• 6:18
  SPEAKER_00: Earlier this year, they put in place an import tariff quota, which was filled very quickly, whereas all beef imports from this point on come into China with a 55% import tariff.
• 6:33
  SPEAKER_00: So let's just call a spade a spade.
• 6:36
  SPEAKER_00: If they really wanted beef in their country, they wouldn't have a 55% tariff on bringing it in.
• 6:42
  SPEAKER_00: And that would be beef from Brazil, Australia, US, wherever they don't want it.
• 6:48
  SPEAKER_00: Their economy, Chinese economy, is in bad shape and beef consumption is going down.
• 6:54
  SPEAKER_00: And on top of that, U.S.
• 6:56
  SPEAKER_00: beef is by far the most expensive beef in the world today.
• 7:01
  SPEAKER_00: So it certainly seems that any claims that U.S.
• 7:04
  SPEAKER_00: beef will be flowing to China is really nothing more than some political talking points.
• 7:10
  SPEAKER_00: We are, however, told that maybe China takes more organ meat and more hides as part of the$17 billion, but beef meat is very likely not part of the equation.
• 7:23
  SPEAKER_00: So now to the part that's really changing.
• 7:27
  SPEAKER_00: Our outlook number, especially for late in the year, we are really changing that.
• 7:32
  SPEAKER_00: For a long, long time now, we have argued that cattle numbers will be tight, especially the last half of this year.
• 7:38
  SPEAKER_00: Matter of fact, we started off 2026 thinking that cattle on feed numbers by October, November, December, we'd be down somewhere in the neighborhood of 4% year over year.
• 7:50
  SPEAKER_00: Well, things have changed.
• 7:52
  SPEAKER_00: With all the dryness in the plains, we are seeing ranchers placing heifers in the feedlots and not holding them and breeding them.
• 8:00
  SPEAKER_00: USDA will have a cattle and feed report this afternoon, and we think placements in April will be up 5% versus year ago for the reasons we just mentioned.
• 8:10
  SPEAKER_00: This would put January through April placements down only 1% from last year.
• 8:16
  SPEAKER_00: And at the same time, packer margins are horrible.
• 8:20
  SPEAKER_00: Packers are cutting kills.
• 8:22
  SPEAKER_00: The end result is that cattle are still staying on feed longer and longer, and beef carcasses are a huge record.
• 8:31
  SPEAKER_00: Last week, carcass weights were up 47 pounds from a year ago.
• 8:35
  SPEAKER_00: That is unheard of.
• 8:37
  SPEAKER_00: The number of cattle in feed lots, over 180 days, is the highest it has ever been.
• 8:44
  SPEAKER_00: What all this is doing is combining to really change the last half of 2026.
• 8:50
  SPEAKER_00: So we are now looking at cattle on feed numbers similar to last year, and we have to assume that cattle weights will remain big.
• 8:59
  SPEAKER_00: So beef production in the third and fourth quarters of 2026 will very likely be something bigger than we saw last year.
• 9:10
  SPEAKER_00: This is a big shift from what we were earlier thinking.
• 9:13
  SPEAKER_00: So, as such, I am now in the camp that the cattle market is vulnerable to the downside and rallies in August and October should be sold.
• 9:23
  SPEAKER_00: And if you want proof as to how vulnerable it is to the downside, just look at yesterday.
• 9:27
  SPEAKER_00: It did not take very much for this thing to really sell off, and fat cattle be down six, and feeders were locked down the limit.
• 9:35
  SPEAKER_00: It didn't take much.
• 9:37
  SPEAKER_00: So on to weather, the mid the southeast and mid-south stays dripping wet for the next four or five days and well into even late next week.
• 9:50
  SPEAKER_00: The longer term outlook looks like we're going to continue to keep uh areas from, oh, let's say Texas, New Mexico, all the way over to Georgia and the Carolinas will continue to get normal to above normal rains.
• 10:04
  SPEAKER_00: Uh the corn belt looks like it'll be something in the normal camp going forward.
• 10:08
  SPEAKER_00: That's all we have for today.
• 10:10
  SPEAKER_00: Thanks for listening.
• 10:11
  SPEAKER_00: We'll be back on Tuesday.