The market did what it does best and traded volatile most of the week in both the equities and commodities. At the end though the stock market is still near all time highs and grains seem to be a suitable vehicle for inflation.
Outside equities were softer Thursday afternoon, but were still posting gains for the week. Economic data out on the week wasn’t great for inflation, but that turned into comments from the Federal Reserve saying they will continue to support the economic recovery in the US with low interest rates. The goal for the Fed is to hit 2+% inflation. The Fed says they have tools available to rein inflation in if it starts to move to far above 2%.
Out Wednesday morning was CPI or consumer price index data which gives some idea of inflation at the consumer/retail level. The CPI was up 1.4% year-on-year in January, matching the previous month, but below analyst expectations of 1.5%. The core CPI excludes the more volatile food and energy components. Core CPI was flat month-on-month in January, matching the previous month, but below analyst expectations of 0.2%. The core CPI was up 1.4% in January, down from analyst expectations that it would remain unchanged at 1.6%. The data shows less inflation pressure than expected, although the Federal Reserve pays more attention to the PCE numbers released later in the month.
Economic data out on Tuesday was from the NFIB. The small business optimism index, produced by the National Federation of Independent Businesses, slipped to 95.0 for January, down from 95.9 the previous month and below analyst expectations that it would rebound to its 47-year average of 98. The NFIB’s uncertainty index fell 8 points to 82 in January, but the percent of owners thinking it’s a good time to expand fell 4 points to 8%. Sales expectations fell 14 points to a net negative 4%. Earnings trends over the past three months dropped 7 points to a net negative 14% that reported higher earnings. The survey revealed that job growth continued in January, but they remain very cautious about the future.
The grain complex saw heavy selling Tuesday into Wednesday following the WASDE report. Thursday saw the corn and soybeans recover some of their earlier week losses.
The WASDE seemingly missed the change the grain stockpile balance sheet in the way the trade had expected. The US corn stockpile decreased 50 million bushels from the January WASDE to 1.5 billion bushels. Despite the recent aggressive corn purchases by China USDA only increased US corn exports by 1.27 MMT. China’s portion of those exports did increase 6.5 MMT to 24 MMT. It’s expected that with the increase in China’s business other customers will go where prices are more affordable to them. Thursday helped to stoke this fire for corn with a marketing year high in physical corn exports at 1,565,700 MT. That was up 57% from the previous week and 32% from the prior 4-week average. The top destinations for US corn was China (357,600 MT), Japan (314,000 MT), Mexico (288,000 MT), Colombia (129,600 MT), and Peru (78,400 MT).
Shipments were good and exports are running well ahead of year ago levels for all grains. Still there is the unknown if China will take delivery of all of the corn they have recently purchased. This past summer China pushed hard for farmers to increase corn production so the country could move towards self sufficiency. China also holds a lot of wheat in it’s state reserves. That means they could try to increase wheat in rations rather than buy more corn. In the WASDE report USDA increased China corn feeding by 6 mmt, while also raising China wheat feeding by 5 mmt. It is likely that the wheat feeding portion of this equation will continue to rise in the coming months.
South America continues to battle weather issues. Heavy rains have plagued the Brazilian soybean harvest from day one. Now the harvest is only 4.3% complete. That is 11.3% behind a year ago. However Argentina may overtake the US in the near term for export business. This week the Argentinian farmers union and Argentinian government came to an agreement that there will be no new export taxes on farm commodities. This now have placed them as the cheapest source for corn and soymeal in the world. This could be why on Wednesday USDA announced the cancellation of 132,500 MT of corn to unknown destinations.
When it comes to the long picture in the grains the bull still appears in the lead. On the week funds may have used the slight miss on balance sheets as a way to reset and reassess their commodity position. The equity market continues to hover at record highs leaving little room for sharp increases. Secure debt like US treasuries have cheap interest and physical cash is easy to come by with M1 money supply sitting at 6.812 trillion dollars. Globally grain stockpiles are still moderately tight. Just not as tight as the current price rationing was suggesting. Weather is still a big issue with wheat being hammered in the Northern hemisphere by cold. Meanwhile dryness has returned to the South American forecast. This looks to spell out a recipe for continued commodity inflation through 2021.
In the livestock pits the market has had a more bullish feel all week. Tuesday the WASDE showed increases to both US pork and beef production and likely tempered production in the second half of the year due to higher feed costs. Export data on Thursday was strong with beef sales over 17,000 MT and pork sales at nearly 37,000 MT. Carcass prices also supported livestock prices this week with the hog carcass climbing over $90 by Thursday. The choice and select cutout also seems to have found nearby support and flattened their recent decent.
In the country cash has once again been slow to develop. Between private auctions, the Fed Cattle exchange and a few live deals cash has been at $113-$114, but on light volume. Feeders have been holding for $115 live $182 dressed. It looks like they may get their wish on Friday.
The Fed Cattle Exchange Auction today listed a total of 1,251 head, of which 518 actually sold, 733 head were listed as unsold, as they did not meet the reserve prices, that ranged from $114 to $115. Opening prices were at $113, high bids ranged from $113 to $114. The state by state breakdown looks like this: TX 1,104 total head, with 518 head sold at $114.00, 586 head went unsold; KS 41 total head, all went unsold; OK 106 total head, all went unsold.
The special Fed Cattle Exchange Auction on Thursday was uneventful. It listed a total of 634 head (487 head in Texas, 41 head in Kansas and 106 head in Oklahoma) all of which went unsold, as they did not meet the reserve prices, that ranged from $114 to $114.50. Opening prices were at $113, high bids ranged from $113 to $114
The Texas Cash Pool Listed 771 head that ended up selling to for $114.20, which is $0.98 higher than a week ago. Other packers offered bids of $114.04, $113.22 and $113.01 for the cattle in Texas. The Kansas Cash Pool Listed 188 head that ended up selling for 114.20 as well. Other packers offered $114.00, $113.22 and $113.01.
The Cargill plant in Dodge City, KS has been closed for scheduled refrigeration systems maintenance since February 4th.
For the week ending January 30, 2021, Imported Beef Passed for Entry in the U.S. totaled 39,377, 109.43% of the previous week and 117.79% of the 4-week average.
Expected Slaughter numbers Thursday
116,000 hd today 113,000 hd wk ago 122,823 hd yr ago
495,000 hd today 488,000 hd wk ago 488,260 hd yr ago
Midday Carcass Value Thursday
Choice up 0.06 233.08
Select up 0.29 221.25
C/S Spread 11.83
Carcass up 6.02 92.88
Bellies up 14.95 159.16
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