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Transcript

Daily Market Podcast Jul 17 · 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 Friday, July 17th.
• 0:06
  SPEAKER_00: Walking in this morning, we have December corn is up a half at 464 and a half.
• 0:12
  SPEAKER_00: November beans are up two and a half at 1197.5.
• 0:15
  SPEAKER_00: September crude is up 210 at 8030.
• 0:20
  SPEAKER_00: As far as corn news this morning, um, bombings continue in the Black Sea and the Sea of Azov between Russia and Ukraine.
• 0:28
  SPEAKER_00: Hot dry weather continues to plague Europe.
• 0:30
  SPEAKER_00: And we have hot dry weather the next several days here in the U.S., particularly in the plains and the Western Corn Belt.
• 0:35
  SPEAKER_00: But all of that's already priced in the market.
• 0:38
  SPEAKER_00: December corn is 40 cents off its lows, 40 cents above its lows two and a half weeks ago.
• 0:45
  SPEAKER_00: The next data point the market will really focus on is USDA's crop condition ratings on Monday.
• 0:50
  SPEAKER_00: We fully expect U.S.
• 0:52
  SPEAKER_00: corn conditions to drop to decline several points, but that's that really needs to happen.
• 1:01
  SPEAKER_00: In China remains an unknown.
• 1:03
  SPEAKER_00: At current price levels, the market is not assuming any U.S.
• 1:08
  SPEAKER_00: corn exports go to China.
• 1:11
  SPEAKER_00: I still remain in the account that CBOT corn has much more upside than it has downside.
• 1:17
  SPEAKER_00: If China shows up buying U.S.
• 1:19
  SPEAKER_00: corn, that happens sooner rather than later.
• 1:22
  SPEAKER_00: As far as soybean news this morning, CBOT soybeans backed off a little bit yesterday.
• 1:28
  SPEAKER_00: It was interesting that the export sales report confirmed that China has already bought some 30 vessels of U.S.
• 1:35
  SPEAKER_00: soybeans through last week.
• 1:37
  SPEAKER_00: We suspect they bought another 12 to 15 cargoes this week.
• 1:40
  SPEAKER_00: So far, that would total a little over 2 million tons.
• 1:44
  SPEAKER_00: For reference, China is crushing around 10 million tons of beans a month.
• 1:49
  SPEAKER_00: Trump is expected to meet with Chinese officials again in early September.
• 1:55
  SPEAKER_00: So we suspect that China is using the cheaper soybean prices out of the U.S.
• 2:01
  SPEAKER_00: for September, October, November shipment period to add up some purchases prior to that meeting with Trump, more or less just to get in good graces.
• 2:11
  SPEAKER_00: The Chinese have yet to drop the soybean import tariff, and they have yet to buy any U.S.
• 2:17
  SPEAKER_00: corn or wheat.
• 2:19
  SPEAKER_00: Interestingly, soybean export sales to other nations were decent, and we expect that to get even better in coming weeks and months because the price spread between us and Brazil.
• 2:33
  SPEAKER_00: I tentatively lean towards soybean meal supplies building in the United States.
• 2:40
  SPEAKER_00: Crush is big, obviously.
• 2:42
  SPEAKER_00: Meal export pace is slowing down, but this very slow farmer selling pace in Argentina remains a potential problem.
• 2:50
  SPEAKER_00: It seems that farmers in Argentina are waiting for an artificial break in the exchange rate, much like the government gave them last year.
• 3:00
  SPEAKER_00: We need to watch what's going on in Argentina and see if their meal exports begin to slow down.
• 3:06
  SPEAKER_00: So far they have not, but I still don't like it at all.
• 3:10
  SPEAKER_00: As for soybean oil, some data was released after the close yesterday showing that U.S.
• 3:17
  SPEAKER_00: biofuel production, basically renewable diesel and biodiesel production in June was massive.
• 3:24
  SPEAKER_00: So if we look at kind of summarize things up, we got bean exports are decent, crush is huge, bean oil demand is big, crush margins stay big in the U.S.
• 3:37
  SPEAKER_00: And CBOT soybeans remain well supported, at least for now.
• 3:42
  SPEAKER_00: Longer term, I still think it's gonna be hard to rally this market, but in the near term we can still go a little bit higher.
• 3:49
  SPEAKER_00: As for cattle news this morning, um semi cattle have been a total disaster lately.
• 3:55
  SPEAKER_00: Uh, this is accumulation of several items popping up on top of each other.
• 4:00
  SPEAKER_00: Speculators have been a massive loan and they're racing each other to get out.
• 4:05
  SPEAKER_00: We have way too many fat cattle that are on feed, and cattle feeders are wanting to sell them, and beef prices are falling.
• 4:12
  SPEAKER_00: Clearly, that combination is just not good for us.
• 4:15
  SPEAKER_00: In the last three weeks, cash cattle in Kansas have broken$18.
• 4:18
  SPEAKER_00: Semi-August futures, live cattle futures have broken$24.
• 4:23
  SPEAKER_00: Both of those are massive breaks in a short time period.
• 4:27
  SPEAKER_00: And today, buying cattle to go into a feed line in Kansas is somewhere between a$230 and$250 ahead loser.
• 4:38
  SPEAKER_00: So far in 2026, cattle feeders have looked out.
• 4:43
  SPEAKER_00: They've seen the poor profitability of buying feeders, and they hold on to existing cattle a little bit longer.
• 4:50
  SPEAKER_00: That has worked okay as long as cash cattle prices were holding steady to even going up a little bit.
• 4:57
  SPEAKER_00: But this break, this massive break in cash cattle, uh is costing the cattle feeding industry a lot of money in the last several weeks.
• 5:06
  SPEAKER_00: To illustrate this point, next week we have the cattle feed report coming on next Friday.
• 5:12
  SPEAKER_00: We estimate that June placements into feedlots were likely down 2% from a year ago.
• 5:18
  SPEAKER_00: But June marketings out of feedlots were down three percent.
• 5:23
  SPEAKER_00: If we calculate the numbers for the first six months of 2026, cattle going into the feedlots were down 3% or about 300,000 head.
• 5:34
  SPEAKER_00: For the same six months, marketing out of feedlots were down 8% or about 900,000 head.
• 5:43
  SPEAKER_00: So the number on cattle on feed goes up.
• 5:47
  SPEAKER_00: The number of cattle going in are down 300,000, the number of cattle going out are down 900,000.
• 5:54
  SPEAKER_00: That's a 600,000 head increase in the number of cattle on feed.
• 5:59
  SPEAKER_00: That creates a situation where cattle that have been on feed for over 180 days, which is a long time period, is record large.
• 6:09
  SPEAKER_00: So, more than likely, this cash cattle market has not hit as lows yet.
• 6:14
  SPEAKER_00: Um, this thing may have to get uglier before it gets better.
• 6:17
  SPEAKER_00: As for beef prices, wholesale beef prices have seasonally declined in the last several weeks.
• 6:23
  SPEAKER_00: I've got a chart of this on the bottom of page two.
• 6:26
  SPEAKER_00: Uh, therefore, the Packer has every incentive to back off of cattle prices.
• 6:30
  SPEAKER_00: Uh, he's losing money also.
• 6:33
  SPEAKER_00: But this is a seasonal move, uh, and we'll turn around and we'll seasonally rather back out of this a month from now.
• 6:41
  SPEAKER_00: Excuse me.
• 6:42
  SPEAKER_00: Uh, this is certainly not a sign of poor beef demand.
• 6:46
  SPEAKER_00: Matter of fact, the last two months, if you look at retail beef prices, that's the prices at the grocery store.
• 6:52
  SPEAKER_00: The last two months, grocery store beef prices have averaged up 8% from a year ago.
• 6:59
  SPEAKER_00: But U.S.
• 7:00
  SPEAKER_00: beef production was down only 4%.
• 7:04
  SPEAKER_00: And let's not forget that beef imports are bigger, beef exports are smaller.
• 7:09
  SPEAKER_00: So if you go back to the old Econ 101 class we all took, that screams that you have very strong beef demand, uh, especially when beef prices are record high as compared to pork and chicken.
• 7:24
  SPEAKER_00: I gotta believe that some of this is related to these GLP1 drugs.
• 7:29
  SPEAKER_00: You've got to believe that's part of it.
• 7:31
  SPEAKER_00: So, um, CMA cattle still have some more downside.
• 7:37
  SPEAKER_00: Uh, speculators are not totally out.
• 7:39
  SPEAKER_00: And I remain in the in the camp that rallies in CME cattle should be sold uh in the upcoming weeks.
• 7:46
  SPEAKER_00: As for feeders, it's a totally different world.
• 7:48
  SPEAKER_00: I have long contended that we have tight feeder supplies coming for a long, long time.
• 7:54
  SPEAKER_00: But how does a high price for these feeders and the resulting horrible PL for the cattle feeding industry, how does that impact feeder prices?
• 8:05
  SPEAKER_00: Historically, cattle feeders may moan and complain and all they want to, but it usually takes them losing money on at least two turns of cattle before they really back off buying these expensive feeders.
• 8:21
  SPEAKER_00: They want to keep the hotel full.
• 8:24
  SPEAKER_00: So at the same time, most uh cattle, I'm sorry, most cow calf operations have decent grass right now, minus a few plain states, but most of the rest of the country has decent grass.
• 8:36
  SPEAKER_00: So it's either pay me now or pay me later.
• 8:39
  SPEAKER_00: But the rancher is more than likely going to get his high price for the feeder.
• 8:43
  SPEAKER_00: So cattle feeding margins stay bad, feeder prices stay well supported.
• 8:49
  SPEAKER_00: Moving on to weather, we've still got high, dry weather in the plain states in the western corn belt uh the next four or five days.
• 8:56
  SPEAKER_00: We've got very light rains across the corn belt next week, uh, and then we kind of return back to normalish type precip.
• 9:05
  SPEAKER_00: Temperatures remain uh something a little bit uh above normal.
• 9:09
  SPEAKER_00: But we don't have any major rage coming and setting in like we had a week and a half ago.
• 9:14
  SPEAKER_00: That's it.
• 9:15
  SPEAKER_00: Everybody have a good weekend.
• 9:16
  SPEAKER_00: We'll be back on Monday.