The inflation bias comes back to the market this week. It has caused caution in Wall Street and excited the grain bulls.
Monday’s inflationary data was in the CPI or consumer price index. The CPI came in above analyst expectations for June increasing 0.9% month-on-month. That was an increase from from 0.6% in May and nearly doubling analyst expectations of a 0.5% increase. The CPI rose 5.4% year-on-year in June, beating analyst estimates that it would remain unchanged at 5.0%. The core CPI that excludes the more volatile food and energy sectors also rose 0.9% month-on-month in June, up from 0.7% gains in May and beating analyst estimates of 0.5%.
Then Thursday PPI data drove home the inflation concerns of Wall Street. PPI data for June showed a month-on-month increase of 1%, up from 0.8% the previous month. That was above analyst expectations of a decrease to 0.6%. The PPI was up 7.3% year-on-year in June, which is the largest in this data point’s short history since 2010. That compared to 6.6% in May and analyst expectations of 6.8% inflation at the wholesale level. The core PPI that excludes the more volatile food and energy sectors also rose 1.0% month-on-month in June, up from 0.7% in May and doubling analyst expectations of 0.5%. The core PPI rose 5.6% year-on-year in June, up from 4.8% in May and exceeding analyst expectations of 5.1%.
Yet Wall street hasn’t had too much of a negative reaction to the inflation though as the Fed continues to remain friendly to stimulus. Chairman Powell continues to say the inflation being experienced now is temporary and will not last long. Traders are moving money into inflation assets such as gold and silver on Thursday.
Grains benefitted from inflation concerns and it may have helped dislodge the weather bull from the sidelines. This week has still been a big week though with data out on Monday.
On Monday the USDA released their latest supply and demand estimates in the WASDE report. For the most part there was little surprise for the US row crops. USDA expects new crop ending stocks in a year to still be fairly tight with corn at 1.432 billion bushels, wheat at 665 million bushels, and soybeans at 155 million bushels. Corn and soybeans were a couple million bushels over analyst estimates. As for corn and soybean production USDA left trend line yields unchanged from the June report. Corn is predicted to produced 179.5 bushels/acre and soybeans 50.8 bushels/acre. That will create crop sizes of 15.165 billion bushels for corn and 4.405 billion bushels for soybeans.
The biggest change that some in the trade were waiting to confirm was the significant drop for the spring wheat crop. USDA expects an average yield of 30.7 bushels per acre. Mike Zuzolo in his midday market commentary below highlights that’s the worse yield the US have seen in over a decade. That brought the total wheat production number from USDA down to 1.746 billion bushels. That was 101 million bushels below the average trade estimate. Traders quickly moved money into the Minneapolis complex and surged the contract over 5% in a matter of moments.
The poor spring wheat crop was confirmed on Monday afternoon by the USDA crop progress report. The nations spring wheat crop is rated 16% good to excellent, unchanged from the previous week. Meanwhile the crop carries a poor to very poor rating of 55%, an increase of 5% week to week. North Dakota spring wheat declined 2% to 16% good to excellent. South Dakota spring wheat declined 4% to 3% good. Washington spring wheat declined 7% to 1% good.
Meanwhile the US corn crop condition improved 1% to 65% good to excellent. US soybean condition remained unchanged at 59% good to excellent.
Looking to South America USDA dropped their expectation for the second corn crop to 93 MMT in line with what CONAB predicted last week. However that is still North of what most analysts are expecting for South American corn production. AgRural projects Brazil’s second crop corn harvest at 59.1 MMT compared to 75.1 MMT last year.
Thursday’s export sales report was fairly neutral for grains. Wheat had the best new crop sales at 424,700 MT up 46% week to week. Unknown destinations were the top buyer at 132,700 MT. Wheat exports were 365,900 MT down 5% week to week. Japan was the top destination at 71,800 MT. Corn net sales for old crop were 138,800 MT new crop sales were 133,200 MT. Corn exports though were 1.061 MMT. A strong number, but still down 18% week to week. China took in 477,600 MT to be the top destination for US corn. Soybeans old crop export sales were 21,700 MT new crop sales were 290,800 MT. Mexico was the top purchaser at 248,000 MT.
As for the wheat market Egypt purchased 180,000 MT of wheat from Romania for $7/MT less then what they paid just a few weeks ago. SovEcon though also lowered Russia’s wheat production estimate 2.3 MMT on reports of below average yields for early harvest.
In the livestock trade live cattle and lean hog futures saw friendly data from the WASDE report. USDA expects a slight decline in pork production as farrowing’s will be slightly smaller than expected earlier in the year. Beef production will remain unchanged as carcass weights drop offsetting a higher slaughter number. USDA also expects export demand from Asia to continue steady gains and increase overall demand and US proteins.
Meanwhile feeder cattle futures continue to be the easy spread for managed money when it is buying corn. The cash market though appears to still be friendly to feeders with sales last week noting stronger prices for all classes of feeder cattle.
Thursday’s export sales day were disappointing for beef and pork. Beef export sales were down 61% at 9,300 MT. Japan top buyer at 3,000 MT. Beef exports were down 13% at 15,500 MT Japan 4,100 MT. Pork export sales were down 76% 10,600 MT, China was noticeably absent from this weeks report. Pork exports were at a marketing year low at 25,200. China only taking in 4,900 MT last week.
In the country there has been light to moderate business in the South yesterday at mostly $119 to $120. Some very light scattered deals were also reported in parts of the North at mostly $197 to $198. Asking prices are around $120 plus in the South, and $202 in the North.
The Fed Cattle Exchange Auction today listed a total of 4,322 head, of which 364 actually sold, 452 were scratched from the auction and 3,506 head were listed as unsold, as they did not meet the reserve prices, that ranged from $118 to $122. Opening prices ranged from $117 to $118 (1 lot of KS heifers opened at $95), high bids ranged from $117 to $119.50. The state by state breakdown looks like this: TX 3,547 total head, with 364 head sold at $117 to $119.50, 2,926 head unsold and 257 were scratched from the auction; KS 649 total head, none sold, 454 head unsold and 195 were scratched from the auction; OK 126 total head, all of which went unsold.
For the week ending July 03, 2021, Imported Beef Passed for Entry in the U.S. totaled 44,695, 99.57% of the previous week and 105.08% of the 4-week average.
Daily Slaughter Estimates Thursday
120,000 hd today 121,000 hd wk ago 117,196 hd yr ago
467,000 hd today 470,000 hd wk ago 471,418 hd yr ago
Thursday midday carcass cutout
Choice dn 0.65 272.23
Select up 0.38 254.13
C/S Spread 18.10
Carcass up 2.07 120.76
Bellies up 14.74 213.08
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