The market has went back and forth with a risk off tone this week. The risk off tone carried through on Thursday though as the emerging currency was rocked with Turkey’s central bank cutting 2% from it’s interest rates. This move shocked some in the business community world wide as Turkey has been struggling with inflation and a currency the Lira that was already down 20% against the US dollar. The news of the interest rate cut put even more pressure on the currency and caused it to drop another 2% against the dollar on Thursday. Overall impact to commodities is somewhat limited, but Turkey is a buyer of US cotton and it just got more expensive with their currency devaluing.
In the outside equity markets economic data has been mixed this week. Companies have posted solid financial reports. Housing starts fell to an annualized rate of 1.555 million units in September. That was well below analyst expectations of 1.621 million. While one month does not define a trend the August numbers were revised to 1.580 million, down from the 1.615 million originally reported. The data is starting to point towards consumers not wanting to build new homes due to cost, labor and supply shortages.
The Biden Administration is trying to trim on their large spending bill going from $3.5 trillion to $2 trillion. It still looks like there is a lot of headwinds for the massive spending legislation. That is positive for Wall Street as they like government in log jam and not creating new obstacles to operate business around.
In the grain complex there were early week gains, but Thursday grains joined the larger market complex in a risk off attitude. Correlation between commodities has increased in recent times. Mike Zuzolo, Global Commodity Analytics, in his midday market commentary highlighted that soybeans and lean hogs have has a near 90% correlation in recent months. Arlan Suderman with Stone X highlights that crude oil and soybean oil have a 92% correlation in the last 30 days. Some of this correlation could be due to vegetable oils being seen more as energy with the rise of renewable diesels. Malaysian palm oil futures which trade in Asia also seemed to steer the soybean oil and soybean market this week. When Malaysian palm oil futures made record highs soybean oil followed suite. When profit taking caused a reversal in palm oil futures, soybean oil likewise retreated on Thursday.
Exports were fairly quiet this week. Thursday saw the only flash sale with 130,000 MT of corn being sold to Mexico.
Exports sales and shipments for the week ending October 14th were good for corn and soybeans. Soybean sales were over 2.8 MMT up sharply from the previous week. China of course helped to rally such a large sale with purchasing nearly 1.9 MMT. Soybean exports were 2.2 MMT up 29% week to week with China again being the top destination at 1.66MMT. Corn export sales were 1.3 MMT up 22% week to week. Unknown destinations were the largest purchaser of corn at 456,000 MT. China was not noted as a purchaser further down the list so it is likely that unknown destinations was mostly China. Corn exports for the US were 1.04 MMT. That was up 14% week to week and Mexico was the top destination at 447,500 MT. That was double 2nd and 3rd top destinations Japan and China.
Export inspections on Monday showed the US is finally rid of the slow downs caused by Hurricane Ida weeks ago. Corn inspected for export totaled 972,000 MT and soybeans inspected for export totaled nearly 2.3 MMT. Both were well above the previous week. Year to date though is a different story with corn nearly 1.5 MMT behind year ago levels and soybeans over 6 MMT behind the previous year. Some analysts are pointing to last year being an exceptional year for grain exports as China was being forced to come close to Phase 1 expectations. That doesn’t seem to be here in 2021. Overall shipments are still strong and near pace for USDA estimates, but not encouraging bulls to run the market sharply higher.
Meanwhile in South America Brazil soybean planting is progressing with Mato Grosso 45% complete compared to 8% last year, which means that Brazilian exports will be available 30-45 days earlier than last season. The big question from South America and eventually into the US is how farmers handle sharply higher fertilizer costs. China is trying to reduce exports and is a major player in global fertilizer production. Josh Linville fertilizer risk management specialist highlights that China accounts for approximately 39% of the global phosphate operating capacity and approximately 32% of world exports (equates to around 4.6MMT). China also accounts for approximately 1/3rd of the global urea market (180 – 200MMT). Higher input costs could curb demand and cause farmers to utilize less which in turn curbs yields and could help keep stocks of available grain under pressure. However we can’t put the cart ahead of the horse. At this point there is no indication that the higher prices have caused dramatically lower usage of fertilizer inputs.
According to EIA data for the week ending October 15, US ethanol production increased 64,000 barrels per day (b/d) to 1.096 million b/d. This is the third-highest volume on record and just 12,000 b/d below the all-time record. US ethanol production was 20.0% above the same week last year, which was affected by the pandemic, and 10.0% above the same week in 2019.
US ethanol stocks increased 1.2% to 20.1 million barrels. Stocks were 1.8% above the year-ago level but 6.0% below the same week in 2019. Inventories increased across all regions except the West Coast (PADD 5).
In the livestock trade cattle are back and forth this week with little direction or momentum. Fund money is likely sidelined until Friday when the latest cattle on feed number are released. Thursday did see feeder cattle with a few buyers as traders unwound a spread against the corn market.
Meanwhile lean hogs are trying to decide what to think with China released 3rd quarter pork production data showing a 43% increase year over year. Likely indicating that Chinese hog herd is back to 90% of pre African swine fever levels. Mike Zuzolo with Global Commodity Analytics highlighted in his midday market commentary that China also didn’t liquidate their market herd as hard as they have in the past and that helped to show they can still increase production if demand warrants.
Export data out on Thursday was not helpful to the livestock complex. Beef export sales were a marketing year low at 7,800 MT. That was a 50% weekly drop for beef export sales. The top buyer was Japan at 2,300 MT and China right behind them at 1,400 MT. Meanwhile beef exports were up 10% week to week at 17,100 MT. South Korea, Japan and China were the top destinations for US beef last week. Pork export sales were down 38% week to week at 20,900 MT. Mexico and South Korea were the top buyers. China was noticeably absent from the buying report on pork. Pork exports were up 11% at 32,800 MT. Mexico and Japan were the top destinations. China was third. There is some concern that China’s own pork production is coming online enough that they are now filling state held reserves on US pork and not purchasing more US pork.
In the country a light trade is getting going on Wednesday despite the fact that the Fed Cattle Exchange did not sell any cattle. Texas and Kansas are selling cattle at $124 live and Nebraska has sold cattle at $124 live $196 dressed. At these prices this is essentially fully steady with last week. This is not the direction many thought the cash market would go this week with high volume trade last week.
The Fed Cattle Exchange Auction today listed a total of 2,757 head, of which none actually sold, 362 were scratched from the auction and 2,395 head were listed as unsold, as they did not meet the reserve prices, that ranged from $121 to $126. Opening prices ranged from $120 to $122, high bids ranged from $123 to $124. The state-by-state breakdown looks like this: TX 1,137 total head, all of which went unsold; KS 1,299 total head, with none sold, 937 head went unsold and 362 were scratched from the auction; SD 252 total head, all of which went unsold; NE 69 total head, all of which went unsold. The Fed Cattle Exchange did a repeat on Thursday selling none of the cattle listed in the auction.
For the week ending October 09, 2021, Imported Beef Passed for Entry in the U.S. totaled 46,223, 97.72% of the previous week and 104.97% of the 4-week average.
Daily Slaughter Estimates Friday
118,000 hd today 109,000 hd wk ago 103,684 hd yr ago
54,000 hd Sat 54,000 hd wk ago 61,966 hd yr ago
475,000 hd today 474,000 hd wk ago 487,052 hd yr ago
233,000 hd Sat 254,000 hd wk ago 241,908 hd yr ago
Thursday midday carcass cutout
Choice up 0.44 280.47
Select up 1.01 263.81
C/S Spread 16.66
Carcass up 7.95 104.82
Bellies up 47.17 208.36
Daily Broker Commentary
Pre-opening grains with Ed Dugan 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