Market Watch with Austin Schroeder
July 2, 2020
Cause for Celebration
It was a pretty good week to be a bull! As we look at the table of commodities and the weekly changes, only hogs were left out of the bull party and by a measly 55 cents! If you’re a bull heading into the long weekend, this was a cause for celebration! (like we needed another reason) Taking it at face value, everyone in the ag world should be happy, but that depends on which side of the fence you ride. Cattle feeders or hog finishers aren’t necessarily happy about the sharp moves in corn and meal. Neither are ethanol or soy crush plants happy about beans, etc. I guess the grain bulls thought it was their time to run, and it also reminds us why managing risk is important! As we try to look past all that has happened in 2020, we know it has been hard to focus on the good. However, as we close out another week, I think we can all find a reason to celebrate. As catchy tune will tell us, we are the Land of the Free and the Home of the Brave! Have a great 4th everyone!
Corn futures shot up like a bottle rocket this week with a 25 ½ cent gain since last Friday. That set them up for the largest weekly price jump in more than a year (even with a 5 cent drop on Thursday)! We’ll start with the obvious news from the week. NASS threw everyone a curve ball on Tuesday with both the Acreage and Stocks reports. The first and major reason for the rally was a 4.9 million acre drop in corn acres from the March Intentions report to 92 million, well below any estimates. June 1 stockpiles of corn were up 22 mbu from a year ago at 5.224 bbu, above what most traders had in mind. Most of that had to do with demand, as May corn used for ethanol down 34.72% from a year ago at 299.9 mbu, but up 22.4% from April. May exports, however, posted the second largest total on record for the month at 224.4 mbu. Monday’s Crop Progress report indicated conditions improving 2 points on the Bruger500 index to 383. Weekly EIA data showed 900,000 bpd of ethanol produced for the week of June 26, up 7,000 bpd wk/wk. Stocks, meanwhile, dropped to a 30-month low at 20.164 million barrels. There are still some concerns with rising COVID cases and states rolling back reopening phases. Keeping with the weekly theme, export sales of corn totaled 361,100 MT for old crop and 262,700 MT for new crop during the week of June 25. Total export commitments are now 94% of the USDA projection, vs. the 100% avg.
Wheat caught bulls also caught a bit of the action, with all three exchanges in the green. CBT saw the largest move (+3.38%), with KC up 1.6%, and MPLS squeezing out a ¼ cent gain. Wheat was also involved with this week’s reports, al beit not as much of a major market mover. All wheat acreage was seen at 44.250 million acres, below estimate and a 405,000 acre drop from Intentions. Most of that was from spring wheat, with a 390,000 acre reduction to 12.2 million acres. June 1 wheat stocks, also signaling the 19/20 carryout total, were tallied at 1.044 bbu. That was larger than most in the trade had expected, but still down 36 mbu yr/yr. This week’s Crop Progress report showed winter wheat at 41% harvested, with ratings up 2 points @ 341 on the Brugler500 index. Spring wheat ratings fell another 6 points to 371 on the Brugler500. Moving to export data, Census released the monthly totals from May, showing 86.25 mbu in wheat shipments. Weekly wheat export sales were in the middle of the range estimates at 414,300 MT. That brought commitments for 20/21 wheat exports to 28% of the USDA forecast, vs. the 30% average for this time of year.
Soybeans also held double digit gains this week with July up 27 ½ cents. The product values were actually supportive this week, with meal up 4.04% and oil 2.79% higher. Beans got a majority of their support from the Tuesday reports, as NASS showed increased acres, but only by 315,000 from the Intentions report to 83.825 million acres. Analysts were looking for an additional 1 million. The Grain Stocks report was fairly neutral vs. estimates with 1.386 bbu of soybeans on hand as of June 1. Down 397 mbu from last year, it was still the second largest stockpile at the end of the third quarter on record. Wednesday’s monthly crush report showed 179.53 mbu of beans crushed in May, a record for the month. May export data was also released this week, with Census showing 72.2 mbu in shipments. That was down 20.44% from last year but the third largest for May since the early 80s. As we switch to the weekly data, condition ratings saw a 2 point bounce this week to 378 on the Brugler500. The Export Sales report indicated that 214,700 MT of old crop bean were purchased in the week of June 25. That was a MY low but typical for the time of year. New crop sales totaled 841,700 MT. US 19/20 export commitments are now up to 100% of the USDA projection vs. the 102% average.
Cotton futures continued the ag market’s list of bull moves, with July up 3.35% since last Friday. Cotton also had a seat at Tuesday’s Acreage table with NASS tossing the market a bone. Producer surveys indicated that total US cotton acres were around 12.185 million acres, which is nearly 1 million below the average trade guess. It was also a 1.528 million acre drop from the Intentions report back in March. On Monday, NASS showed condition ratings back up just 2 points to 317 on the Brugler500 index. Data out from Census this week showed that US exporters shipped 1.238 million bales of cotton in May. That was a 4-year low, thanks in part to impacts from COVID. Export sales of just 67,300 RB of 19/20 upland cotton was sold in the week of 6/25, with 246,200 RB for new crop most of which was China. Old crop US cotton export commitments are now 122% of the full-year USDA forecast vs. the 107% average. The Adjusted World Price for cotton was up 53 points to 50.13 cents/lb, shrinking the LDP to 1.87 cents/lb. Both are in effect through next Thursday.
Live cattle futures may be peaking their head out of the sideways trend that had taken place most of June. With the help of a near limit move on Thursday, August was up 4.19% on the week. Cash trade was slightly lower this week, with the South in a range of $93-95 and the North $95-96 live and $154-155 dressed. Feeder futures were playing along with the fats, as August was up 2.49% on the week, despite a jump in projected feed costs via an 8% move in corn. The CME feeder cattle index was back down 69 cents from last week to $129.13. Wholesale beef prices saw more weakness this week, as Choice boxes slipped 1.4% since last Thursday, with Select boxes down 0.6% in that same time frame. Weekly cattle slaughter is estimated at 484,000 head for the week through Thursday, up 5,000 from last week. The holiday on Saturday should limit kills this week, but the weekly kills are an improvement as we have been running par with last year. Census data showed May beef exports at 62,121 MT, which converts to ~188.48 million lbs on a carcass basis. That would be down 30.8% from last year and an 11-year low thanks in part to lost production.
Lean hogs were the weakest link this week, as they can’t seem to catch any traction without much support from the index. In total July hogs were down 1.21% on the week adding to the contract’s fifth straight week of losses. The CME Lean Hog index was up, but only by 41 cents from last week at $45.28. The pork carcass cutout value was up $1.41 (2.2%) this week. That was mainly led by the loins and hams, as all other cuts were lower. This week’s hog slaughter through Thursday was up 21,000 head from the same 4 days last week at 1.867 million head. It was still running a few thousand behind last year. May exports of pork didn’t seem to be all that hurt by the lost production, as Census showed a total of 208,472 MT in shipments. When using USDA conversions, that is ~617.81 million lbs on a carcass basis, which is only down 3.7% from April and a May record.
Coming back from the Holiday weekend, USDA will release the Export Inspections report first thing Monday morning (10 am CDT). We will also be updated with the national crop ratings via the Crop Progress report that afternoon. Skip ahead to Wednesday and the EIA will release ethanol production and stocks numbers from this week. The weekly Export Sales report will be released on Thursday morning, with July cotton futures expiring that day as well. Friday closes out the week with the monthly updates to the Crop Production and WASDE reports from USDA.
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