Tag Archives: commodities

Summary

Can we go back to last week? It was a lot easier to talk about the markets then because they were moving higher. This past Monday though threw the brakes on everything putting the market into an old fashioned risk off atmosphere. Tuesday tried to mount a comeback, but there has been plenty of selling since. Friday is likely to be indifferent as still weighing heavy on the macro or broad market picture is the possibility of another round of US stimulus being on hold as the death of a Supreme Court Justice has the Congress and President’s full attention. The financial sector has also been thrown into turmoil this week with reports  of fraud and money laundering stinging some of the worlds largest banks including HSBC, Barclays and Deutsche .

Enough of the doom and gloom there has been some positive economic data on the week. Starting on Tuesday the weekly Redbook showed year on year retail sales up 1.5% for last week. That was better than the previous week’s -1.2%. It was also the first positive retail sales growth since late July/early August. One week doesn’t mean a lot in the big picture, but it could be a start to some retail resurgence.

Wednesday saw more positive housing data with MBA Mortgage applications rising 6.8% on the week ending September 18, after falling 2.5% on the week prior; new home purchases rose 3.4% after falling 0.5% in the previous week, while refinancing’s increased by a sharp 8.8% on the week to last Friday, after declining by 3.7% in the week prior. These were strong numbers despite a rebound in the average 30-year mortgage rate to the highest level since mid-August (though that’s still only 3.10%); mortgage applications are up 25% year-over-year despite rising prices, with some economists pointing to a massive overall pandemic shift to the “home office” going forward – U.S. workers are investing more in their homes with the new norm.

Existing home sales rose to an annualized rate of 6.000 million in August, up 2.4% from the 5.860 million unit pace in July and slightly above analyst expectations of 5.965 million. The August increase follows a robust 24.7% increase in July as people rushed to take advantage of record low mortgage rates. The pace of August existing home sales was up 10.5% year-on-year, up from an 8.7% year-on-year pace in July. The housing market continues to be one of the hottest sectors of the economy, due to those low interest rates.

Energy production data on Wednesday showed US crude oil stocks down 1.6 million barrels. Which was better than what many expected. Unfortunately US gasoline and other distillates actually increased. As a result energy futures were mixed.

For the week ending September 18 US ethanol production decreased 2.2%, or 21,000 barrels per day (b/d), to 906,000 b/d. US ethanol stocks in the same time frame increased 1.0%, 20,000 barrels to 20.0 million barrels, which was 11.1% below year-ago volumes. Inventories increased across all regions except the Midwest (PADD 2) and Rocky Mountains (PADD 4). The volume of gasoline supplied to the U.S. market, a measure of implied demand, ticked up 0.4% to 8.52 million b/d (130.53 bg annualized). Gasoline demand remained 8.9% lower than a year ago.

Grain bulls are lost steam from last week’s strong gains and almost gave fully into the bears. Thursday’s trade did see a little resilience in the wheat markets with Chicago settling in the green. That could be helped with dry conditions in the US hard red winter wheat belt. Along with developing La Nina conditions in the pacific. Argentina also saw a late frost on their wheat crop this week. Although damage is not suspected to be huge. As for corn a rising dollar is putting the breaks on energy futures. That is hurting ethanol margins and in turn corn demand. The latest crop progress report also shows harvest is starting around the country for most row crops and outside of Iowa most yields aren’t horrible. Soybeans had an impressive run to the upside the last couple of weeks. That has come to an end this week with most of the contracts now back below $10. Going into the week the funds were heavy in the soybeans with open interest rising to 974,373 contracts, which was just below the record open interest posted in early 2017. However with the heavy selling this week that open interest has quickly retracted. That could have helped create momentum for the computer traders to push the market lower.

USDA announced sales up to Thursday when for the first time since September 2nd there were no sales to announce. On Monday the USDA announced sales of 171,000 MT of soybeans to unknown destinations, 132,000 MT of soybeans to China and 132,000 MT of soybeans to Pakistan.  Tuesday USDA announced 4 flash sales. Two to China; 266,000 MT of soybeans and 140,000 MT of corn. Two to unknown destinations; 264,000 MT of soybeans and 320,000 MT of corn. Wednesday China purchased 132,000 MT of soybeans. Unknown destinations purchased 126,000 MT of soybeans.

Livestock ended mixed on Thursday just ahead of the quarterly hogs and pigs report from USDA. Overall it seems cattle are taking full advantage of a soft lean hog market and moving higher. Cattle were also supported with increase export sales from USDA. Last week beef net export sales increased 26%. Beef exports increased 24%. Pork net export sales on the other hand dropped 25% from last week’s huge sale. China and Mexico were still the top buyers though. Pork exports were up 25% though with China taking delivery of nearly 11,000 MT. As for the quarterly hogs and pigs report the data was neutral to slightly bearish showing a slight increase in market ready hogs from the June report. Analysts are debating the data though suggesting that a larger market hog supply would not be justifying the current strong cash market.

Tuesday the cold storage report showed a monthly build in frozen red meat, but still well below year ago levels. Total red meat supplies in freezers were up 3% from the previous month but down 13% from last year. Total pounds of beef in freezers were up 5% from the previous month but down 2% from last year. Frozen pork supplies were up 2% from the previous month but down 23% from last year. Stocks of pork bellies were down 28% from last month and down 33% from last year.

In the country on Thursday cash finally started to develop on the week. Up to this point cash had been very light and not enough to establish a full market trend. The waiting though has paid off for the feeders that held out as Southern live trade was $105 and Northern dressed trade was $165. Both $2 higher than last week’s weighted averages.

The Fed Cattle Exchange Auction today listed a total of 683 head (two lots each in Kansas and Texas), of which 219 actually sold, 195 head were listed as unsold, and 269 head were listed as PO (Passed Offer). The state by state breakdown looks like this: TX 417 total head, with 148 head sold at $104.25, 0 head unsold, 269 head listed as PO ($104.25); KS 266 total head, with 71 head sold at $104.00, 195 head unsold, and 0 head listed as PO. The delivery date/price range breakdown is as listed: 1-9 day delivery: 464 head total, of which none sold; 1-17 day delivery 219 head total, all sold, with a price range of $104.00 to $104.25.

For the week ending September 12, 2020, Imported Beef Passed for Entry in the U.S. totaled 36,388, 84.37% of the previous week and 81.60% of the 4-week average.

Expected Slaughter numbers Friday

Cattle

120,000 hd today 117,000 hd wk ago 114,122 hd yr ago

Saturday

49,000 hd Sat. 53,000 hd wk ago 66,598 hd yr ago

Hogs

483,000 hd today 482,000 hd wk ago 481,661 hd yr ago

Saturday

225,000 hd Sat. 187,000 hd wk ago 284,954 hd yr ago

Midday Carcass Value Thursday

Beef

Choice up 1.71 215.78

Select up 0.59 208.19

C/S Spread 9.39

Loads  75

Pork

Carcass up 0.77 89.74

Bellies up 1.06 151.73

Loads 149

Grain Settlements

  • Corn dn 3 –  5 1/4
  • Soybeans dn 2 1/2 – 16 1/4
  • Chicago Wht dn 1/4 up 3/4
  • Kansas City Wht dn 1/2 – 1 1/2

Livestock Settlements

  • Live Cattle up 0.62 – 1.07
  • Feeder Cattle up 0.45 – 1.20
  • Lean Hogs dn 0.02 -1.07
  • Class III Milk dn 0.02 – 0.35

Pre-Opening Market Broker Commentary

Mark Gold, Top Third Ag Marketing, discusses overnight grains and what the trade may see today. Unknown destinations were back in the market for soybean meal.


Jerry Stowell, Country Futures,  looks at what may impact the livestock futures today. Quarterly hogs and pigs report may prove bearish for the lean hog market .


Mike Zuzolo, Global Commodity Analytics, takes a look at the midday trade. Wheat, weather and the dollar will be the market segments to watch into the close.


John Payne, Daniel’s Ag Marketing, takes a closer look at today’s grain close. Grains end mixed on Thursday. Payne believes it might take a South American crop issue to leg prices higher.


Jack Fenske, York Commodities, looks at the closing market numbers. Grains could have put highs in, but Fenske says seasonally grains put highs in next week.

Given the recent positive price action of grains and moves by the Federal Reserve the possibility for commodity inflation has started to become a possible reality.

Inflation in it’s nature is quite simple as it’s a general increase in prices and fall in the purchasing value of money. Arlan Suderman, Stone X, explains that often fund managers try to hedge or protect themselves against inflation by purchasing commodities. In mid August the Federal Reserve for the first time in nearly a quarter century unveiled a plan that look to move the US away from monetary policy that kept inflation at around 2%. Given several years of low inflation the Federal Reserve is now ready to let inflation go past 2% for a while before reeling it back in, to offset the years of low inflation. This again is a check mark for the commodity bull that is wanting inflation to help raise prices.

The second important check mark for a commodity bull is available cash to be invested into commodities. That is currently at an all time high and sets at 5.413 trillion dollars. This readily available cash is known as the M1 Money supply.

However Suderman is still cautious to say we could see strong commodity inflation like that of the early 2000s through 2013. That type of strong inflation tends to be more cyclical and Suderman has personally only seen it twice in his life time.

Hear more from Arlan Suderman, on how M1 money supply and commodity inflation go together: