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Transcript

Daily Market Podcast Aug 19 · 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 on Wednesday, August 19th.
• 0:07
  SPEAKER_00: Walking in this morning, December corn is up three cents at 491.
• 0:12
  SPEAKER_00: November beans are up 11 and 3 quarters at 12.28 and a half.
• 0:16
  SPEAKER_00: December meal is up 220 at 321.
• 0:19
  SPEAKER_00: And October crude oil is up 60 cents at 84.70.
• 0:23
  SPEAKER_00: As far as corn news this morning, ProFarmers Tour continues to be bullish.
• 0:30
  SPEAKER_00: They traveled through Indiana and Nebraska yesterday on day tour, day two, sorry, of their four-day tour.
• 0:36
  SPEAKER_00: And again, field counts strongly point towards a smaller corn yield in both states.
• 0:42
  SPEAKER_00: Matter of fact, ear counts in Nebraska were the lowest in 10 years.
• 0:47
  SPEAKER_00: So we're now looking at a corn yield in all four states that they traveled through so far being below USDA's estimates last week.
• 0:57
  SPEAKER_00: The two biggest states that they'll travel to will be obviously Illinois and Iowa, two biggest corn producers for years.
• 1:05
  SPEAKER_00: They will cover those two states today and tomorrow.
• 1:09
  SPEAKER_00: I think we increasingly have to entertain the likelihood that the U.S.
• 1:15
  SPEAKER_00: corn yield is going to come in two to three bushels below USDA's latest 180.7 bushel per acre estimate last week.
• 1:26
  SPEAKER_00: And that becomes crazy bullish at some point down the road.
• 1:30
  SPEAKER_00: So let's walk through that scenario.
• 1:32
  SPEAKER_00: If we have a yield of 100, let's call it 178 bushels, plus or minus, and exports remain big, which we talked about that, we just do not have enough supplies elsewhere in the world to um account for the massive global corn demand right now.
• 1:50
  SPEAKER_00: So it's US and Argentina, then at some point prices have to go high enough to slow down demand.
• 1:59
  SPEAKER_00: Can't slow it down on exports, you have to slow it down domestically.
• 2:04
  SPEAKER_00: So what I mean by that is corn prices have to go high enough, very likely next spring and summer, to slow down domestic use of corn.
• 2:15
  SPEAKER_00: And today that price would be well over$6, maybe even closer to$7.
• 2:22
  SPEAKER_00: Now I know that sounds crazy, being as you look at July corn today is trading$517.
• 2:29
  SPEAKER_00: Well, let's look at a couple of other data points this morning.
• 2:34
  SPEAKER_00: Um, yesterday, Brazil issued their July data for corn grind going to ethanol.
• 2:40
  SPEAKER_00: That was up a whopping 23% from a year ago.
• 2:45
  SPEAKER_00: I've got a chart of this on bottom of page one.
• 2:48
  SPEAKER_00: But corn grind for ethanol is steadily growing.
• 2:51
  SPEAKER_00: This is hugely taken away from the amount of corn that Brazil can export.
• 2:56
  SPEAKER_00: Just one more reason why U.S.
• 2:58
  SPEAKER_00: export demand remains big.
• 3:01
  SPEAKER_00: So, again, if the crop ends up being smaller, the U.S.
• 3:06
  SPEAKER_00: is the one that's got to cut back on demand.
• 3:09
  SPEAKER_00: Um, or prices have to go ridiculously higher to slow down uh uh export demand.
• 3:16
  SPEAKER_00: So, in a nutshell, a smaller U.S.
• 3:19
  SPEAKER_00: corn crop is bullish.
• 3:20
  SPEAKER_00: There's simply no way around it.
• 3:22
  SPEAKER_00: And maybe longer term it just gets crazy bullish down the road.
• 3:27
  SPEAKER_00: As far as soybeans go, the pro farmer uh soybean pod counts in both Indiana and Nebraska were not impressive.
• 3:34
  SPEAKER_00: Matter of fact, their pod counts uh they count pods in a three foot by three-foot square area.
• 3:39
  SPEAKER_00: They were down four percent in Nebraska and down 10%.
• 3:43
  SPEAKER_00: I mean, sorry, let me back up.
• 3:44
  SPEAKER_00: They were down four percent in Indiana, 10% in Nebraska, down from last year.
• 3:49
  SPEAKER_00: USDA's yield estimates last week were up four percent in Indiana and down 13% in Nebraska.
• 3:59
  SPEAKER_00: So, net net, obviously that would, you know, the market's gonna take that as a smaller, you know, bean yield in Indiana, no question about it.
• 4:07
  SPEAKER_00: So we discussed before this data is not super reliable.
• 4:11
  SPEAKER_00: Uh, there's still a lot of growing season left, but the market will shoot first and ask questions later.
• 4:16
  SPEAKER_00: The market will take this data as a threat that the U.S.
• 4:20
  SPEAKER_00: soybean crop is getting smaller.
• 4:22
  SPEAKER_00: And if you look at other news this morning, weekly crush rates in China remain big.
• 4:29
  SPEAKER_00: China continues to buy U.S.
• 4:30
  SPEAKER_00: soybeans on a regular basis, U.S.
• 4:32
  SPEAKER_00: exports to other destinations are growing.
• 4:35
  SPEAKER_00: So, Netnet, what does this mean if the U.S.
• 4:39
  SPEAKER_00: crop is down a little bit?
• 4:41
  SPEAKER_00: Well, at first glance, U.S.
• 4:43
  SPEAKER_00: soybean crush rates will remain big.
• 4:45
  SPEAKER_00: Our soybean oil demand here, going for biofuels, is just simply too big.
• 4:51
  SPEAKER_00: So that likely means somewhere down the road we produce excess meal that we gotta get rid of.
• 4:57
  SPEAKER_00: If soy deep, if soybean demand has to slow, it's got to come from exports, which is very different than the snare for corn.
• 5:07
  SPEAKER_00: So that uh if you look at prices this morning, uh U.S.
• 5:12
  SPEAKER_00: Gulf soybeans for October and November are still 40 to 50 cents a bushel cheaper than Brazilian beans.
• 5:19
  SPEAKER_00: So if we're gonna slow exports, we gotta take prices high enough that international buyers switch that back to Brazil.
• 5:27
  SPEAKER_00: Which obviously means higher prices.
• 5:29
  SPEAKER_00: So as long as the market fears a smaller U.S.
• 5:32
  SPEAKER_00: soybean crop, CBOT soybeans remain firm.
• 5:36
  SPEAKER_00: Just simple as that.
• 5:37
  SPEAKER_00: Um, if we move on to weather, we've got some um uh light rains coming across the next several days uh in the central and eastern part of the corn belt, and then we're kind of mostly light and scattered for next week.
• 5:50
  SPEAKER_00: Uh we've still got smoking hot temps from oh, let's call it southern Kansas across to Georgia and the Carolinas the next several days.
• 6:03
  SPEAKER_00: And I've got a soil moisture map on the bottom of page two, and this really has become the land of haves and halves-nots.
• 6:11
  SPEAKER_00: And Iowa, Illinois, Indiana, sitting with very good moisture.
• 6:18
  SPEAKER_00: Matter of fact, parts of Indiana and Illinois could probably do with less range.
• 6:22
  SPEAKER_00: But then areas to the north, Minnesota, Wisconsin, Michigan, dry.
• 6:26
  SPEAKER_00: They need some more rain.
• 6:28
  SPEAKER_00: And areas south of that, um, the mid-south and into the southern plains are bone dry, smoking hot, and they need a break.
• 6:37
  SPEAKER_00: We are maturing crops super fast down there.
• 6:40
  SPEAKER_00: Matter of fact, corn harvest in parts of the mid south is already done, and soybean harvest is already started.
• 6:47
  SPEAKER_00: So um we need to shift the uh the range to either northern areas or southern areas, and that just does not look to be in the cars anytime soon.
• 6:56
  SPEAKER_00: So uh that's it for today.
• 6:58
  SPEAKER_00: Thanks for listening.
• 6:58
  SPEAKER_00: We'll be back tomorrow.