Midweek brings a mixed market with grains and livestock trying to bounce back from early week slides/sell offs. The Fed released it’s latest announcement on interest rates and the trade is looking closely over what the Fed had to say to see if it sheds light on the future direction of interest rates in the US.
The Fed left interest rates unchanged 5.25%-5.5%. FOMC members remarked that they still expect to see another 0.25% interest rate hike still in 2023. Which basically says that they will in fact raise interest rates at the November meeting. The labor market is also still a sticking point for the Fed as they want to see unemployment at 3.8% at the end of 2023, 4.1% at the end of 2024 and 4.1% at the end of 2025.
When it comes to the Fed the thing to keep in mind that the Fed can only control nearby or short term interest rates. Longer term interest rates are much more susceptible to the supply and demand of the market. As the US Congress continues to spend at a deficit the US has to sell more debt to cover the funding. During the pandemic the Fed stepped in and purchased US debt to help keep stimulus pumping into the economy. As a result the US economy become essentially over stimulated and it lead to strong inflation. Now the Fed has pushed to try and reduce it’s balance sheet by over $1 trillion per year to pull stimulus cash back out of the economy. So if the Fed isn’t buying US debt that means someone else has too, but the usual suspects of Japan and China are also reducing their US debt positions. China has cut its ownership of U.S. debt certificates by another $13.6 billion in July in the latest data available, bringing its current holdings to 14-year lows after offloading $191.4 billion over the previous 16 months, while Japan reduced its holdings by $116.5 billion during the period. So it’s likely US debt will have to offer to pay more interest to attract new buyers. That could set up an interesting issue for the Fed and treasury to address in coming months and year.
The grain complex saw a turn around midweek with corn and soybeans being able to end higher. Wheat was mixed, but close to unchanged. Egypt had a tender out on Wednesday, but it was highly unlikely the US would have a successful export tender.
For the week ending September 15, US ethanol production dropped nearly 6% to 980,000 b/d, a 16 week low. US ethanol production was up nearly 9% from the same week last year and 4.0% above the five-year average for the week. US ethanol stocks increased 2.4% to 21.7 million barrels. Stocks were 3.6% less than the same week last year but 0.6% above the five-year average. Inventories built across all regions except the Midwest (PADD 2)—thinning to a 50-week low—and West Coast (PADD 5).
The US was able to export ethanol last week. Ethanol exports were estimated at 109,000 b/d (4.6 million gallons/day), a 60.3% increase from the prior week and the largest volume since July. Imports of ethanol totaling 20,000 b/d arrived into the East Coast, marking the second time this month that imports were reported.
In the livestock complex cattle and hogs were able to turn it around on Wednesday, after they had experienced back to back lower sessions on the week. The choice cut out’s erosion towards $300 has some concern about retail demand, but the market continues to hold in the upper end of a range bound trade.
Cattle on feed report is due out from USDA on Friday afternoon. The Wall Street Journal estimates were released on Tuesday showing the average analyst estimate for cattle on feed on Sept. 1 was 97.8%, cattle placed on feed 94.8%, and cattle marketed in August 94.4%. It’s interesting to note that in all the range of analyst estimates there are no estimates at or above 100%. Which would highlight no analyst believe the US fed or marketed fed cattle the same amount of cattle as a year ago.
This week the country fed cattle trade has been very quiet. There was a regional that bought some cattle on Tuesday at $186 live. There are dressed bids in Iowa on Wednesday at $292-$293/dressed. Major packers have yet to bid aggressively on the week.
For the week ending September 09, 2023, Imported Beef Passed for Entry in the U.S. totaled 39,696, 91.08% of the previous week and 91.00% of the 4-week average.
Daily slaughter estimates Wednesday
Cattle
126,000 hd today 126,000 hd wk ago 128,000 hd yr ago
Hogs
485,000 hd today 476,000 hd wk ago 491,000 hd yr ago
Wednesday Midday Carcass Cutout
Beef
Choice dn 0.78 301.34
Select dn 1.87 279.91
C/S Spread 21.43
Loads 127
Pork
Carcass dn 0.03 101.10
Bellies up 4.53 146.85
Loads 170
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 market commentary with John Payne of Hedge Point Global Markets
