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Transcript

Daily Market Podcast May 8 · M6 Capital Daily Market Podcast

• 0:00
  SPEAKER_00: Good morning.
• 0:01
  SPEAKER_00: This is Chris Myers with M6 Capital Management with our daily market letter for Friday, May 8th.
• 0:06
  SPEAKER_00: Walking in this morning, July corn is down one and three quarters at 465 and three quarters.
• 0:12
  SPEAKER_00: July soybeans are up two at 1194.
• 0:15
  SPEAKER_00: And June crude is unchanged at 9480.
• 0:19
  SPEAKER_00: As far as international news goes, this U.S.-Iran mess is still not over, obviously.
• 0:26
  SPEAKER_00: One moment we're told that a peace deal is close.
• 0:29
  SPEAKER_00: The next moment the U.S.
• 0:30
  SPEAKER_00: and Iran are exchanging attacks and blaming the other for it.
• 0:34
  SPEAKER_00: It really does not seem that this mess is over or will be over anytime soon.
• 0:39
  SPEAKER_00: Crude oil is now$6 off of the lows from two days ago.
• 0:44
  SPEAKER_00: As far as corn news goes, uh export sales for corn continue to be very strong in USDA's weekly report yesterday.
• 0:51
  SPEAKER_00: We sold 1.4 million tons of U.S.
• 0:53
  SPEAKER_00: corn for export last week.
• 0:56
  SPEAKER_00: However, to reach USDA's corn export forecast, we only need to be selling around 300,000 tons of corn a week.
• 1:03
  SPEAKER_00: So it certainly appears that USDA's export forecast for corn is too low.
• 1:09
  SPEAKER_00: So ending stocks continue to get a little smaller.
• 1:13
  SPEAKER_00: And it is interesting that our export business is pretty well scattered amongst a lot of different customers in the world.
• 1:20
  SPEAKER_00: So corn demand stays good.
• 1:23
  SPEAKER_00: Also, uh I've got a chart in there today showing that Argentina's corn uh harvest is now at 30%, which is quite normal for this date.
• 1:33
  SPEAKER_00: And reported yields so far continue to be quite good.
• 1:37
  SPEAKER_00: Uh we're expecting a big corn crop from Argentina, as has been the case.
• 1:42
  SPEAKER_00: But this dryness and this heat in Brazil is taking more off of that corn crop than we have added in Argentina.
• 1:49
  SPEAKER_00: So net net South American corn production is actually still losing ground.
• 1:53
  SPEAKER_00: I'm still in the camp that we are threatening global corn supplies, and CBOT corn should be well supported for a while.
• 2:02
  SPEAKER_00: As of today, here's a list of grain area plantings that we are losing so far this year.
• 2:10
  SPEAKER_00: U.S.
• 2:10
  SPEAKER_00: corn, Ukraine corn, multiple countries across Europe, including Romania, France, Hungary, Poland, have all reported smaller corn seedings.
• 2:19
  SPEAKER_00: Uh, wheat area is supposed to be down in Australia, Canada, and Argentina.
• 2:25
  SPEAKER_00: And we've been in touch with farming groups in Brazil and Argentina, and farmers there report that uh this next season, which we planted our fall, uh, that they will have smaller corn plantings in both Argentina and Brazil.
• 2:41
  SPEAKER_00: That's a pretty long list.
• 2:43
  SPEAKER_00: Thus, I'm still in the camp that we have zero margin for error on crops in the northern hemisphere this spring and summer, and especially the U.S.
• 2:52
  SPEAKER_00: crop.
• 2:53
  SPEAKER_00: Moving on to soybeans, Argentina's soybean harvest is finally making some progress after a very slow start due to uh rains and wet conditions.
• 3:03
  SPEAKER_00: I've got a chart in there showing that um harvest progress is still one and a half to two weeks behind.
• 3:09
  SPEAKER_00: And actually, if you go back and look at the data, this is the slowest start to a soybean harvest in Argentina in over 20 years.
• 3:18
  SPEAKER_00: Thus, their crush rate has been slow.
• 3:21
  SPEAKER_00: They've got open weather for the next two weeks, and they should allow harvest to make big progress.
• 3:25
  SPEAKER_00: Um, we are already seeing meal prices uh beginning to break in Argentina from the expanding crush.
• 3:33
  SPEAKER_00: However, if we look at USDA at USDA's report yesterday on weekly export sales, they continue to be big.
• 3:42
  SPEAKER_00: Uh, this is going to keep domestic meal prices firm.
• 3:45
  SPEAKER_00: If you go back and you add up year-to-date U.S.
• 3:49
  SPEAKER_00: soybean meal exports plus outstanding sales, this is the largest total we have ever had for this date.
• 3:58
  SPEAKER_00: Soybean oil demand is still big.
• 4:01
  SPEAKER_00: Renewable diesel processing margins are huge.
• 4:04
  SPEAKER_00: Meal demand remains strong until we can see oil or meal demand back off considerably.
• 4:11
  SPEAKER_00: I just don't see CBOT uh soybeans being able to sustain much of a break.
• 4:17
  SPEAKER_00: On to cattle news, um, the close on the close yesterday, we had June cattle at uh 250 45, we had August cattle at 246.30, and we had October cattle selling at 24040.
• 4:30
  SPEAKER_00: All of those prices are down in the neighborhood of$3 from what they were a week ago.
• 4:36
  SPEAKER_00: As far as cattle news, there's that old saying, live by the sword, die by the sword.
• 4:41
  SPEAKER_00: And this absolutely applies to our cattle market.
• 4:43
  SPEAKER_00: We have been on one heck of a roller coaster ride in cattle lately.
• 4:47
  SPEAKER_00: Cash markets are super strong, much stronger than what I imagine they'd be right now.
• 4:51
  SPEAKER_00: Beef prices uh seem to have bottomed, and Packers are trying to push beef prices higher, but that really ain't working too well.
• 5:00
  SPEAKER_00: And we have speculators that continue to buy more and more and more, and you end up with days like yesterday.
• 5:07
  SPEAKER_00: Yesterday, there was simply a rumor that Trump was going to have a meeting in the White House with Brazilian President Lula, and possibly in that meeting, they would discuss more beef imports from Brazil.
• 5:23
  SPEAKER_00: That was all it took for this market to absolutely collapse yesterday.
• 5:28
  SPEAKER_00: Uh CME Cattle Futures at one point were down$6.50.
• 5:34
  SPEAKER_00: Um, to put that into perspective, that is$2,600 a contract.
• 5:39
  SPEAKER_00: That's the equivalent of breaking 52 cents a bushel on soybeans in a given day.
• 5:45
  SPEAKER_00: That's a big deal.
• 5:47
  SPEAKER_00: But it didn't take much news for that to happen simply because the speculators are so loaded up long here.
• 5:53
  SPEAKER_00: Uh, feeder cattle followed right along.
• 5:56
  SPEAKER_00: I think it's pretty clear we're getting way, way too far out over our skis uh right now.
• 6:02
  SPEAKER_00: Prices are too high for where I think this should be right now.
• 6:06
  SPEAKER_00: And it just did not take much to break this thing.
• 6:08
  SPEAKER_00: Meanwhile, beef packers are in the U.S.
• 6:11
  SPEAKER_00: are losing their shirt.
• 6:13
  SPEAKER_00: Margins are about as bad as I've ever seen.
• 6:15
  SPEAKER_00: We estimate they're losing over$150 for every animal, every head they process.
• 6:22
  SPEAKER_00: Um, we're getting reports from retailers that they are canceling some orders of beef, especially on some of the uh higher end and the better steak cuts.
• 6:31
  SPEAKER_00: Clearly, they're just not moving at the grocery store counter.
• 6:34
  SPEAKER_00: Ground beef seems to still be doing quite well.
• 6:37
  SPEAKER_00: So, where does this leave us in the short run?
• 6:40
  SPEAKER_00: Seasonally, uh, the market tends to trade flat to maybe a little bit higher this time of year.
• 6:46
  SPEAKER_00: And then we take another big leg up in August, September time period.
• 6:51
  SPEAKER_00: I believe it'll be hard to push the market much higher right here, right now, especially with speculators already being such a big long.
• 6:58
  SPEAKER_00: Then we've still got this looming situation with New World Screwworm in Mexico.
• 7:04
  SPEAKER_00: New cases continue to show up within 60 to 100 miles of the U.S.
• 7:08
  SPEAKER_00: border.
• 7:08
  SPEAKER_00: It's simply a matter of time before we get it.
• 7:11
  SPEAKER_00: Obviously, a fly doesn't know what a border looks like, right?
• 7:15
  SPEAKER_00: Um, we all know what's going to happen with news on the day that we get um that first report.
• 7:22
  SPEAKER_00: It's gonna be headlines like flesh-eating infections in the U.S.
• 7:26
  SPEAKER_00: beef herd.
• 7:27
  SPEAKER_00: I still remember the first case of Mad Cow or BSE that we got in the U.S.
• 7:31
  SPEAKER_00: in December of 03.
• 7:33
  SPEAKER_00: February futures were trading around$90, and we dropped$16 before we traded.
• 7:39
  SPEAKER_00: That was 18% down.
• 7:41
  SPEAKER_00: To put that in perspective, if we drop the same percentage today, that would be a$45 drop in uh cattle prices.
• 7:51
  SPEAKER_00: That's monumental.
• 7:53
  SPEAKER_00: I'm not saying this gonna happen, it just puts it all in perspective, especially with these funds being loaded up so long.
• 7:59
  SPEAKER_00: So I'm in the camp that cash, uh, cattle, and CME futures are too high right now.
• 8:04
  SPEAKER_00: Packers are struggling to move to beef, and kill cuts are coming.
• 8:09
  SPEAKER_00: I think the best thing that's that could happen in this futures market is to break, clean up some of this spec position.
• 8:16
  SPEAKER_00: Packers pick the kills back up, beef prices stabilizes, and then when we get back into August, September, October, we can make a run to new highs all over again.
• 8:26
  SPEAKER_00: As far as weather, uh seeing the mid-south just cannot get out of the rainy situation from Dallas across Louisiana, southern Arkansas, across Mississippi, all the way to the Carolinas.
• 8:39
  SPEAKER_00: Looks like it stays wet.
• 8:41
  SPEAKER_00: Um, we've got a little bit more rain uh coming up in the central and the eastern corn belt.
• 8:46
  SPEAKER_00: Uh parts of the eastern corn belts would really like to dry out a little bit.
• 8:50
  SPEAKER_00: Net net, uh, I really don't see that this is going to impact uh planting much uh in the grand scheme of life.
• 8:57
  SPEAKER_00: Argentina looks like it's gonna be wide open, bone dry for the next 10 days, allowing um uh harvest progress, particularly in the case of soybeans, which is gonna allow their crust to pick up and meal exports to pick up there.
• 9:10
  SPEAKER_00: That's all I've got today.
• 9:11
  SPEAKER_00: Y'all have a good weekend.
• 9:12
  SPEAKER_00: We'll talk to you on Monday.
• 9:13
  SPEAKER_00: Thanks.