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Transcript

Daily Market Podcast Aug 20 · 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 on Thursday, August 20th.
• 0:06
  SPEAKER_00: Walking in this morning, December corn is up four at 5.02.
• 0:10
  SPEAKER_00: November soybeans are up three and a quarter at$12.40.5.
• 0:14
  SPEAKER_00: December meal is up$1.50 at$3.27.10.
• 0:18
  SPEAKER_00: And October crude is up$2.50 at$86.90.
• 0:25
  SPEAKER_00: This market is, grain market is turning very, very bullish.
• 0:31
  SPEAKER_00: CBOT corn continued higher yesterday and again last night.
• 0:35
  SPEAKER_00: The market is becoming more and more worried about a smaller U.S.
• 0:39
  SPEAKER_00: corn crop, and rightfully so.
• 0:42
  SPEAKER_00: Given ProFarmers' tour results so far, we can easily argue for a smaller corn crop in all five states that they've gone through.
• 0:52
  SPEAKER_00: Today will be day four of the tour, and the tour's field counts and yield estimates last night in Illinois implies a yield 12 to 15 bushels below USDA's yield last week for Illinois.
• 1:08
  SPEAKER_00: That is very bullish.
• 1:11
  SPEAKER_00: The data strongly points to a U.S.
• 1:15
  SPEAKER_00: corn yield eventually ending up at a 176 to 177 bushel area.
• 1:22
  SPEAKER_00: This is well below USDA's yield last week of 180.7.
• 1:27
  SPEAKER_00: Now things get really interesting.
• 1:30
  SPEAKER_00: Now we are entering in a situation where we do not have enough corn to meet current demand levels.
• 1:36
  SPEAKER_00: So the million dollar question is this what happens to price?
• 1:40
  SPEAKER_00: Well, econ 101 says you have to take price high enough until demand slows down.
• 1:47
  SPEAKER_00: Well, in the current global situation, it is very hard to slow down U.S.
• 1:52
  SPEAKER_00: corn exports.
• 1:53
  SPEAKER_00: There is simply not enough global corn supplies.
• 1:56
  SPEAKER_00: U.S.
• 1:57
  SPEAKER_00: exports need to be huge.
• 1:59
  SPEAKER_00: We may have to ration demand in the U.S.
• 2:02
  SPEAKER_00: domestic market.
• 2:03
  SPEAKER_00: So let's take a look at those pieces.
• 2:05
  SPEAKER_00: The cattle market has historically taken a lot of pain before they slow down.
• 2:12
  SPEAKER_00: Months and months of pain.
• 2:14
  SPEAKER_00: Chicken and hog markets have shown us in recent years, especially if you go back to 2022 when we had expensive corn and meal, they learned that they can simply raise the price of their meat and get by for multiple months.
• 2:29
  SPEAKER_00: So slowing down the U.S.
• 2:31
  SPEAKER_00: livestock markets is not nearly as easy as it sounds.
• 2:35
  SPEAKER_00: So that leaves ethanol.
• 2:37
  SPEAKER_00: Maybe we slow down ethanol exports a little bit.
• 2:40
  SPEAKER_00: Um, but let's not forget 85-86% of all U.S.
• 2:46
  SPEAKER_00: consumption of ethanol is mandated by law.
• 2:49
  SPEAKER_00: So maybe we slow down ethanol a little, but not a lot.
• 2:54
  SPEAKER_00: For months and months, we have discussed all the potential bullish factors that could impact corn.
• 2:58
  SPEAKER_00: Well, quite a few pieces are falling into place now.
• 3:02
  SPEAKER_00: And the way I look at this market today, it seems that this rally in corn is just getting started.
• 3:10
  SPEAKER_00: Here's how I see the roadmap unfolding for corn.
• 3:14
  SPEAKER_00: USDA lowers the crop over the next several months.
• 3:18
  SPEAKER_00: CBOT corn trades steadied higher in the time period.
• 3:22
  SPEAKER_00: We see what South Americans crop, South American corn crops look like this fall.
• 3:28
  SPEAKER_00: But by the time you get to next spring and next summer, we simply will not have enough corn.
• 3:34
  SPEAKER_00: And CBOT corn at that point stages a very impressive rally.
• 3:41
  SPEAKER_00: Like we may see July corn trade above$7.
• 3:45
  SPEAKER_00: July corn this morning is five and a quarter.
• 3:50
  SPEAKER_00: And this scenario where we have to ration demand, history tells us that we will invert this market a lot, meaning that May and July 2027 contracts rally to a big premium over December 27.
• 4:07
  SPEAKER_00: The front of the market goes up a lot to slow down demand.
• 4:12
  SPEAKER_00: So buckle up.
• 4:14
  SPEAKER_00: This is going to be a wild ride.
• 4:16
  SPEAKER_00: And if we ever see the EU or China come in and start buying U.S.
• 4:22
  SPEAKER_00: corn, we rally even faster.
• 4:25
  SPEAKER_00: If we have any crop issues in South America, we rally faster.
• 4:30
  SPEAKER_00: This corn market is becoming incredibly bullish.
• 4:35
  SPEAKER_00: As far as soybeans go, the pro farmer soybean podcasts in Illinois were down 3% from last year, versus USDA's current yield being up 7% from last year.
• 4:48
  SPEAKER_00: Yet again, these podcasts keep suggesting smaller crops.
• 4:53
  SPEAKER_00: But unlike corn, soybeans in the corn belt still have a solid month of growing conditions that will hugely impact yields.
• 5:00
  SPEAKER_00: However, with these soybean field counts coming from the ProFarmer Tour, the market will now worry if this U.S.
• 5:07
  SPEAKER_00: soybean crop is smaller.
• 5:09
  SPEAKER_00: If we lose one or two bushels off the U.S.
• 5:12
  SPEAKER_00: soybean crop, we have an issue.
• 5:15
  SPEAKER_00: U.S.
• 5:16
  SPEAKER_00: soybean exports are growing by the week, and U.S.
• 5:19
  SPEAKER_00: crush continues to be record paced.
• 5:22
  SPEAKER_00: That would be a recipe for soybean basis firming up.
• 5:25
  SPEAKER_00: No doubt U.S.
• 5:26
  SPEAKER_00: crush margins stay strong.
• 5:28
  SPEAKER_00: If crushers have to pay up for beans, then the value of meal and oil goes up also.
• 5:33
  SPEAKER_00: Moving south, soybean plantings are expected to increase in both Brazil and Argentina this fall.
• 5:38
  SPEAKER_00: The market will now watch that planting season very, very closely.
• 5:42
  SPEAKER_00: Any planting issues in South America, and we could quickly uh that could quickly turn bullish for CBOT soybeans.
• 5:49
  SPEAKER_00: So for now, Chicago soybeans remain bullish, and it's a market that is concerned about a smaller U.S.
• 5:57
  SPEAKER_00: crop at the same time that export demand for U.S.
• 6:01
  SPEAKER_00: beans is getting bigger.
• 6:03
  SPEAKER_00: Moving on to weather, um the next four or five, six days, light scattered rains in the corn belt and even into the six to ten day time period.
• 6:14
  SPEAKER_00: And we keep these smoking hot temperatures in the southwest and across the mid-south, really all the way across the entire south, from Texas to the Carolinas, um, today, tomorrow, and even well into the weekend.
• 6:31
  SPEAKER_00: And if we look at further out, it looks like we're gonna have above normal to much above normal temperatures, really, for the whole corn and soybean growing areas, um, even for the next two weeks out.
• 6:47
  SPEAKER_00: Okay.
• 6:48
  SPEAKER_00: Uh pre-sip looks like it's gonna be normal ish to below normal, and temperatures stay warm.
• 6:55
  SPEAKER_00: So this crop needs a break.
• 6:57
  SPEAKER_00: We need these temperatures to back off, and we need rains, uh, particularly in some of the northern corn belt areas to pick up.
• 7:05
  SPEAKER_00: But that's just not what the forecast calls for.
• 7:08
  SPEAKER_00: That's it for today.
• 7:09
  SPEAKER_00: Thanks for listening.
• 7:10
  SPEAKER_00: We'll be back tomorrow.