The markets this week have went from fear and selling to happy and buying.
The equity markets sold off on Monday with concerns about China’s largest real estate developer facing default. Evergrande has $305 billion in liabilities. With that Evergrande paid $83.5 million in interest on bonds that are due in 2022. Then they have to pay $47.5 million in interest by next Wednesday for bonds that are due in 2024. So far China’s Central Party has not offered a bailout saying they are willing to let their largest development company fail. That shows to financial analysts that China isn’t as concerned as other with letting the company fail. However no one is sure just how invested other global firms and banks are into Evergrande. By the end of the week there is also chatter that China is pumping cash into their economy to try and back fill any fallout from Evergrande. Right now the concerns have subsided, but they may turn up again next week.
Also putting more calm in the market at the end of the week is the Federal Reserve continuing to be doveish to the US economy. On Wednesday afternoon the FOMC announced they would not taper or back off from their monthly $120 billion asset purchases. Tapering would likely be announced and explained after the November FOMC meeting. The Fed is also staying the course and not raising US interest rates until 2022 and 2023. The Fed also continues to call the current inflation in the US economy simply transitory and nothing to be overly concerned about.
Grains were met with resistance early in the week with broad pressure across all markets. By Wednesday the market had turned around with oats surprisingly leading the way higher with a daily limit move higher. For one of the first times in history oats are actually trading 30 cents premium to the corn market.
The bullish energy continued through to Thursday with the US dollar index dropping over 0.5% letting wheat be the leader to the top side. It should be noted that both Chicago and Kansas City wheat futures are now trading at similar prices. It has been over a year since we have seen this type of price action.
Export sales were in line with analyst expectations with corn at 373,000 MT and soybeans at 902,900 MT. Looking at data from last year though sales are noticeably lower. For the same week in 2020 the US sold over 2 MMT of corn and nearly 3 MMT of soybeans. This has some analyst concerned that the US isn’t selling more grain during peak selling time as South America is between crops and has sold most of their old crop.
EIA data shows for the week ending September 17, US ethanol production dropped 11,000 barrels per day (b/d), to 926,000 b/d. US ethanol production was 2.2% above the same week last year, which was affected by the pandemic, but 1.8% below the same week in 2019. US ethanol stocks increased to 20.1 million barrels. This is the first rise in US ethanol stocks in 8weeks. Inventories built across all regions except the East Coast (PADD 1) and Midwest (PADD 2).
In the livestock trade cattle continue in a boring choppy sideways pattern. Cash in the country is continuing at similar price levels to last week and the boxed beef cutout continues to erode. The good news is that the open interest has slowly increased this week. New money in the market could be the start of a bullish trend. Some of that support will come in Friday if the cattle on feed report is beneficial to bullish traders. Once again placements are the highly contested pre report number with analyst at about a 7% range from top to bottom.
Lean hogs will also have more data out on Friday in the latest quarterly hogs and pig report.
USDA released cold storage data on Wednesday afternoon and showed that there was a slight build in beef and pork supplies month to month. However cold storage stocks of beef and pork are well below year ago levels still.
In the country cash trade kicked off on Wednesday. Northern dressed trade at mostly $198, about $1 lower than last week’s weighted average basis Nebraska. Some of these cattle are set for delivery the weeks of October 4th or October 11th. Southern live deals are marked at mostly $124, about steady with last week’s weighted averages. Some asking prices remain firm around $125 in the South, and $200 in the North
The Fed Cattle Exchange Auction today listed a total of 3,941 head, of which 444 actually sold, 628 were scratched from the auction and 2,869 head were listed as unsold, as they did not meet the reserve prices, that ranged from $122 to $124.50. Opening prices ranged from $118 to $122, high bids ranged from $124 to $124.25. The state-by-state breakdown looks like this: TX 2,958 total head, with 444 head sold at $124 to $124.25, 1,886 head went unsold and 624 were scratched from the auction, note of these 624 head that were scratched, 273 head were sold at $124 before the Fed Cattle Exchange Auction started. KS 533 total head, all of which went unsold; NE 450 total head, all of which went unsold.
For the week ending September 11, 2021, Imported Beef Passed for Entry in the U.S. totaled 38,663, 82.62% of the previous week and 82.80% of the 4-week average.
Daily Slaughter Estimates Friday
116,000 hd today 119,000 hd wk ago 112,785 hd yr ago
53,000 hd Sat 62,000 hd wk ago 58,856 hd yr ago
472,000 hd today 473,000 hd wk ago 461,935 hd yr ago
237,000 hd Sat 171,000 hd wk ago 223,513 hd yr ago
Friday midday carcass cutout
Choice dn 1.31 304.29
Select up 1.36 276.35
C/S Spread 27.94
Carcass up 9.57 113.86
Bellies up 2.32 179.05
Daily Broker Commentary
Pre-opening grains with Mark Gold of Top Third Ag Marketing
Pre-opening livestock with Jerry Stowell of Country Futures
Midday market commentary with Mike Zuzolo of Global Commodity Analytics
Closing grain commentary with John Payne Daniels Ag Marketing
Closing market commentary with Jack Fenske with York Commodities