The future has finally come to fruition this week as the Biden Administration takes the oath and officially assumes the Presidency. The equities continue to lick their chops on coming fiscal stimulus. While there is the concern what happens with Covid-19 under the new administration and growing cases around the globe.
The week was fairly light on economic data with nothing Monday or Tuesday. Towards the end of the week though the housing data available is fairly strong. Housing starts rose to an annualized rate of 1.669 million units in December, beating analyst expectations of 1.558 million. Furthermore, November starts were revised to 1.578 million, up from the 1.547 million originally reported. Permits for new housing starts rose to 1.709 million in December, up from 1.635 million the previous month and beating analyst expectations of 1.610 million.
Back to the topic of the next round of federal stimulus. All the information around the stimulus plan to this point has been that it will be around 10% of the US GDP or 1.95 trillion dollars. Even with this strong shot into the economy there is no plan for the Federal Reserve to back down from their current stimulus plans. The Fed is currently pumping $120 billion per month into the economy. That makes the Fed balance sheet $7.3 billion, up 77% over the past year. M1 money supply is at $6.7 billion, up 70% year-on-year. The nation’s fiscal debt sits at $27.8 trillion. It’s that fear of debt overload that is keeping equities in check. The incoming debt has also taken it’s toll on the US dollar. The US Dollar Index continues to trade around 90.10 which is basically a multi year low.
Before the official transition of power rhetoric against China in the US heated up. With both the outgoing Trump administration firing it’s final volley at China and the incoming Biden administration making strong statements. Treasury Secretary pick Janet Yellen said she would take a stiff stance against China in her senate confirmation hearing. Then the State Department labeled the Chinese government’s policies targeting ethnic Uighur Muslims and other minorities in the northwest region of Xinjiang as “genocide.” China’s foreign ministry has fired back telling AP, “Outgoing U.S. Secretary of State Mike Pompeo is a “doomsday clown” and his designation of China as a perpetrator of genocide and crimes against humanity was merely “a piece of wastepaper.”
The major concern for most traders and analyst is that China will use it’s most powerful economic weapon and not purchase exports from the US. However that hasn’t happened yet as China appears somewhat dependent on US commodities as South America gets off to a slow harvest.
USDA announced in flash sales of 136,000 MT of soybeans, and 132,000 MT of soybeans to China this week. China was also the destination for 46.8 million bushels of US soybeans last week.
Not helping China stop buying from the US is the South American supply is still slow in coming to the ports. Mato Grasso Brazil’s soybean harvest as of Monday was estimated to only be 1% complete. That was 4% behind the 5 year average. Argentina is now experiencing a truck driver strike and Stone X is reporting that only 10% of the normal truck traffic is moving commodities to the ports in Argentina.
With all of this in mind the grain market was lower though out the week. The lower prices started last Friday and momentum traders made sure to stay in the market through Thursday. Corn was able to make a slight turnaround on Thursday. Overall though one day and one week do not establish a new trade direction. The long term trend still looks friendly with strong to steady demand in the world. Along with supplies that continue to look tight or at least inaccessible at the current time.
The livestock market has steadily moved higher all week. Feeder cattle continue to unwind spreads against the grain. The cash feeder cattle market continues to see large volume this week, but mixed prices. Kyle Bumsted touched on these points in his Thursday appearance on the Fontanelle Final Bell. He expects volume to decrease over the next couple weeks as pens are filled and no one is ready for grass cattle yet.
Technically speaking the April live cattle contract may have finally had a break through being able to top $120 on Thursday and settling at $119.95. However if follow through support doesn’t develop on Friday $120 could continue to be a point of resistance. The intermonth spreads are also low for this time of year. Most calendar spreads stands just around $5 and is usually closer to $10 this time of year.
Lean hogs were soft and followers of the soybean market early on, but were able to establish their momentum by Thursday. A higher cash index and stronger carcass cutout helped to turn the market. Most notably was a sharp increase in picnic, ham and belly prices.
Reuters reported Thursday night that China is now seeing new strains of the African Swine Fever virus that may be coming from illicit vaccines. According to Reuters the new strain isn’t as deadly, but can still substantially impact production with low performing litters and fewer live births.
Cash cattle started to trade in Kansas and Texas Wednesday after the Fed cattle exchange with live cattle trading at $110. Dressed trade followed suite in the North on Thursday ranging $169-$173. Both live and dressed prices continue to be about steady with last week.
The Fed Cattle Exchange Auction today listed a total of 1,547 head, of which 567 actually sold, 980 head were listed as unsold, as they did not meet the reserve prices, that ranged from $110 to $112. Opening prices ranged from $108 to $109, high bids ranged from $110.50 to $111. The state by state breakdown looks like this: KS 299 total head, all 299 head sold at $110.75(grid based); TX 1,248 total head, with 268 head sold at $110.50-$111.00(live), 980 head went unsold.
For the week ending January 09, 2021, Imported Beef Passed for Entry in the U.S. totaled 34,280, 133.91% of the previous week and 109.63% of the 4-week average.
Expected Slaughter numbers Friday
117,000 hd today 116,000 hd wk ago 121,042 hd yr ago
69,000 hd Sat 61,000 hd wk ago 33,009 hd yr ago
496,000 hd today 495,000 hd wk ago 489,549 hd yr ago
322,000 hd Sat 257,000 hd wk ago 328,536 hd yr ago
Midday Carcass Value Friday
Choice up 1.85 223.05
Select up 3.24 213.52
C/S Spread 9.53
Carcass up 3.64 83.90
Bellies up 7.48 133.92
- Corn dn 18 1/2 – 23 3/4
- Soybeans dn 56 1/2 – 58 1/2
- Chicago dn 23 1/4 – 26 1/4
- Kansas City dn 21 1/2 – 22 1/2
- Livestock Settlements
- Live Cattle up 0.75 – 2.62
- Feeder Cattle up 1.37 – 5.00
- Lean Hogs up 1.52 – 2.25
- Class III Milk dn 0.01 up 0.27
Pre-Opening Market Broker Commentary
Mark Gold, Top Third Ag Marketing, comments that grains sold off in the overnight trade, but came off their lows following the export sales report.
Jerry Stowell, Country Futures, looks at what may impact the livestock futures today. Livestock may see selling pressure given the risk off sentiment in the equities.
Mike Zuzolo, Global Commodity Analytics, takes a look at the midday trade. The grain complex moved into full risk off territory at the midday.
John Payne, Daniel’s Ag Marketing, takes a closer look at today’s grain close. Grains sell off sharply, but Payne see’s opportunity ahead.
Jack Fenske, York Commodities, looks at the closing market numbers. The Friday selling was more intense then Fenske expected and he is ready to sell rallies.