As the week draws to a close the market is trying to get back on it’s feet supported by strong economic data. However traders may still be shy of riskier assets with the highly contested US presidential election almost at the finish line. Wall Street and the broader market in general do not like uncertainty and the last week of October has piled on more than most could take. The week opened with rising Covid-19 cases around the world. By Friday most of Europe’s largest economies have now opted to go back into major lockdowns. This likely means another blow to the EU’s economy which was not off the floor from the spring shutdowns. Money flow quickly dried up in the Euro as traders wanted to hold the US dollar instead. On the week the Euro has lost more than 1.5% while the US dollar has appreciated 1.1%. The surge in the dollar also put more pressure on emerging currencies like the Chinese Yuan, and Russian Ruble. That could dampen US export opportunities.
Thursday though was a bright spot in the markets. The 3rd quarter GDP growth numbers were out and it beat analyst expectations with a growth of 33%. That actually reversed the loss seen in the second quarter at -31.2%. With such a sharp recovery underway trying to lock the US down again would likely be met with strong opposition. The GDP growth was backed with unemployment data as well. Weekly unemployment claims were below analyst expectations of 770,000 to 751,000. Continuing jobless claims fall another 400,000 to 22.65 million.
In the grain complex the word is take the money and run. Grain bulls attracted a lot of managed money into the complex leading up to this week. Managed money liked the weather story, shrinking supply story, and possible inflation that grains were due. Then as the needle moved from risk adverse to risk off on Wednesday managed money called chicken and started to move out of the market. By Thursday morning most corn contracts were back trading below $4 and struggled most of the day to try and get back above these levels. With managed money on the run analysts are in two camps. One Jack Fenske summed up nicely on Wednesday afternoon. Grains have established highs and now will see them as technical resistance. John Payne on the other hand believes the fundamental story is still strong and can bring grains back around. Both camps have there merits. For the fundamentals though Russia is still fairly dry. The US hard red winter wheat belt may be in for more dryness this winter into spring as a La Nina continues to develop over North America. Arlan Suderman, Stone X, did point out one odd anamoly with this La Nina writing, ” I should note that this La Nina is unusual, in that sea surface temperatures off the West Coast of the United States are quite warm. Typically those waters also cool in a La Nina, but they have not this time. There are only a couple of other years that saw similar conditions, and those two also leaned drier for the Southern Plains spring. Weather parameters can change and are not beholden to past analog years, but the current bias is that the longer-term Southern Plains dry pattern will continue into the spring.” South America finally has received moisture and put planting closer to on track, but the multi week delay will translate into a later harvest and thus later availability of grain at the ports. All of this supports the supply fundamentals for the bulls. As for demand soybeans continue to be a hot commodity, but at the end of the week corn has taken more of the spotlight. Ukraine is reported to have defaulted on a shipment of corn. As John Payne explained it’s not a huge impact to the market given most of Ukraine’s production is non GMO and sells to customers shy of US yellow number 2 corn. It does provide though that global supplies are tightening. China’s demand looks to continue as the Phase One Trade deal has taken a back burner to other pressing issues for the world’s largest economies. China however has been pushing a strong self sufficiency narrative in their state media. China also started it’s next 5 year strategic plan this week. While much of the plan will never come to light for those outside the country it’s believed China will be closely looking at it’s agriculture numbers and those who can supply them around the globe.
The USDA flash sale terminal lit up on Monday announcing 2 sales; 120,700 MT of soybeans sold to unknown and 135,000 MT of soymeal sold to the Philippines. Tuesday the USDA flash sale terminal was quiet. The third trading session it has set quiet in the month of October. Wednesday the purchases were back with Egypt purchasing 110,000 MT of soybeans, unknown destinations purchased 120,000 MT of soybeans and South Korea purchased 207,000 MT of corn with optional origin. Thursday Mexico bought 1,432,550 MT of corn and unknown destination purchased 140,000 MT of corn. Mexico’s purchase was just outside the 10th largest purchase of corn on record at 1.45 MMT.
The livestock complex by Friday has actually been a small beacon of hope amidst all the selling. Most analysts figured that cattle would sell off through this week given the bearish figures in last week’s cattle on feed report. While Monday was weaker the rest of the week cattle have continued to make steady gains. Partially due to the fact cattle offered oversold technical signals and a chance for technical traders to move money into. Cattle may have also benefitted from the lower grain market if any money was holding a spread in grains against livestock. Meanwhile the large growth in GDP helped convince traders to buy as a higher GDP typically means a higher consumption of beef.
As for the lean hogs they continued to be tied to the soybean lean hog spread. As beans sank so did hogs. Not helping to find support for the market was a shrinking carcass cutout.
Fed cattle trade in the country was quiet almost all week. Thursday saw a few deals develop in Eastern Nebraska $103 live. These cattle though were set for delayed delivery (week of 11/09). If the trend were to stay at the $103 it would be $1 lower than last week’s weighted average. In other areas Thursday brought a few scattered bids on the table, but no action. Feeders seem content to hold until Friday and packers haven’t seem to be in a big hurry either. Asking prices are around $108 to $110 in the South, and $168 in the North.
For the week ending October 17, 2020, Imported Beef Passed for Entry in the U.S. totaled 55,022, 148.16% of the previous week and 133.82% of the 4-week average.
Expected Slaughter numbers Friday
119,000 hd today 116,000 hd wk ago 118,466 hd yr ago
62,000 hd Sat. 51,000 hd wk ago 75,485 hd yr ago
488,000 hd today 488,000 hd wk ago 489,225 hd yr ago
251,000 hd Sat. 239,000 hd wk ago 239.019 hd yr ago
Midday Carcass Value Thursday
Choice up 1.50 207.29
Select up 1.99 191.57
C/S Spread 15.72
Carcass up 5.04 89.56
Bellies dn 2.10 119.48
- Corn dn 3/4 – 3
- Soybeans dn 1/4- 5 1/2
- Chicago Wht dn 4 1/4 -5
- Kansas City Wht dn 3/4 -1 1/4
- Live Cattle up 0.42 – 3.30
- Feeder Cattle up 1.28 – 1.82
- Lean Hogs dn 0.42 – 0.77
- Class III Milk up 0.21 – 0.37
Pre-Opening Market Broker Commentary
Mark Gold, Top Third Ag Marketing, discusses overnight grains and what the trade may see today. Grains will try to improve on Friday to end the week on a positive note.
Jerry Stowell, Country Futures, looks at what may impact the livestock futures today. Cash waited until Friday to develop and could be stronger.
Mike Zuzolo, Global Commodity Analytics, takes a look at the midday trade. Cash cattle could move higher this week.
John Payne, Daniel’s Ag Marketing, takes a closer look at today’s grain close. Ukraine may have boosted corn prices with reports that they defaulted on an export shipment.
Jack Fenske, York Commodities, looks at the closing market numbers.