Market Watch with Austin Schroeder
August 2, 2019
Here We Go Again
One thing I’ve noticed from Alan’s weekly MarketWatch column is that he often refers to songs from his younger days, an era well before mine. I decided to stick with that theme this week. Just when the Trade War was perhaps thawing a bit (we were back to talking face to face for the first time since May) stuff happened. As Whitesnake would say, “Here I Go Again,” or in this situation here we go again with more trade threats. Just when things were going conceivably well, we get a series of tweets from President Trump threatening to follow through with the proposed 10% tariffs on $300 billion of Chinses goods. The lyrics in the song “And I’ve made up my mind, I ain’t wasting no more time,” seem to describe what the President was thinking on Thursday. He played his Trump card, in hopes that placing tariffs on trade volume the Chinese can’t match would drive a resolution. The proposed tariffs won’t go into effect until September 1, so the US may be hoping for China to come to the table ahead of the next scheduled meeting in DC in Sep. China has hinted through back channels that moves to restrice critical rare earth metal supplies, tariffs on aircraft or other moves might be made to retaliate rather than negotiate.
Corn futures fell another 3.56% this week, following a 3.8% decline the previous prior. Weakening demand has been a huge factor in the recent drop from the June high. The weekly EIA report indicated ethanol production in the week that ended on July 26 dropped 8,000 barrels per day to 1.031 million bdp. Stocks rose to a record 24.468 million barrels as of that date. The other major demand factor, exports, showed old crop sales at 143,091 MT, with new crop at 129,608 MT, both below estimates. A slew of June demand data was also released this week, with the Grain Crushing report tallying 456.576 mbu of corn used for ethanol production. June exports from Census were the lowest since 2013 at 3.069 MMT (120.82 mbu). In the meantime, Brazil’s July corn exports were the largest since Dec 2015 at 6.317 MMT according to the country’s trade ministry data. Improving US crop conditions has also been a thorn in the sides of the corn bulls, with corn ratings up another 1% to 58% gd/ex, or 3 points higher at 354 on the Brugler500 index. The Commitment of Traders report confirmed the large managed money spec funds were continuing to exit their big long position. They reduced it by another 41,264 contracts (futures + options) in the week ending July 30, taking the net long position down to 111,952 contracts.
Wheat futures were down again in all three markets. MPLS was down 0.29% for the week, with September CBT SRW down 1% and KC HRW down 2.2%. The CHI/KC spread widened to 68 cents premium Chicago from 64 cents last week. Monday’s Crop Progress report indicated the winter wheat harvest slowly progressing its way North, moving 6% from the week prior to 75% complete (86% avg). Spring wheat ratings slipped 3% to 63% gd/ex or down 8 points on the Brugler500 index at 377. US Census data, released on Friday, showed June exports up 38.26% from last year at 2.156 MMT (79.22 mbu). The Friday Commitment of Traders report showed the large spec funds increasing their net long in Chicago by 2,831 contracts, taking it to 14,610 net long as of Tuesday. They trimmed 4,142 contracts from their net short in KC wheat during that reporting week, reducing it to -14,195. In MGE wheat, they added to their record net short position by 2,176 contracts, at -16,586 contracts.
Soybean futures slipped another 3.68% this week as more tariffs were announced. Soybean meal was down 3.43% since last Friday, with soy oil up 1.12%. Trade talks earlier in the week in Shanghai were “constructive” according to some sources, with more talks scheduled for September. They weren’t as constructive as President Trump would have liked, as on Thursday he proposed adding a 10% tariff to $300 billion of Chinese goods on Sep 1. Thursday’s Fats & Oils report indicated that 157.62 mbu of soybeans were crushed in June, down 7.04% yr/yr. On Friday, Census trade data showed 3.193 MMT (117.34 mbu) of exports during June. That was a record for June, with exports to China totaling a record 1.727 MMT (63.46 mbu). Friday’s Commitment of Traders report showed the managed money spec funds adding 15,083 contracts to their net short position at -53,572 contracts in the week ending July 30. Brazil’s July soybean exports totaled 7.821 MMT, down 23.3% from last year on lower Chinese demand from ASF issues, and prioritization of corn shipments.
Cotton futures dropped 7.93% on the week, as we are wrapped up the last few days of the old crop marketing year. One of the bearish factors was a series of Tweets from President Trump threatening another 10% tariff on $300 billion of Chinese goods by Sep 1. This came following the 2-day meeting in Shanghai. Monday’s USDA Crop Progress report showed cotton condition ratings improving 1% to 51% gd/ex, with a number of improvements in the 5 categories as the Brugler500 was up 6 points to 364. June cotton export data was reported by Census on Friday, with a total of 1.687 million bales shipped to all destinations, the largest for that month since 2007. CFTC indicated the large managed money spec funds backing off their record net short position by 1,439 contracts in the week that ended on July 30. They took that net short position to 43,791 contracts on that date.
Live cattle futures saw a modest 0.81% drop this week. Feeder cattle futures were down 2.63%. The CME feeder cattle index was $141.74, up $2.16 this week. Wholesale beef prices were higher, with the Chc/Sel spread at $24.10. Choice boxes were up 1.2% for the week, with Select also up 1.2%. Weekly beef production was down 4% from the previous week. It was also 1.3% below the same week in 2018. Year to date beef production is 0.3% larger than year ago on 1.3% higher slaughter. Cash cattle trade was mostly $111 in the South on Friday, with $114-114.50 and $183-185 seen in the carcass based north. The Commitment of Traders report shows the spec funds adding longs. They added 3,585 contracts to their net long in the week ending July 30, taking it to 30,403 contracts.
Lean hog futures had the proverbial rug pulled out from beneath them this week, with Aug down 11.46%. October futures were down 18.54% in that same time frame. USDA Export sales data showed just 8,844 MT of pork sold in the week of July 25, with net cancellations of 12,222 MT for 2019 and 2,521 MT for 2020 by China. Export shipments were at 26,904 MT, as 8,786 MT was headed to China. The CME Lean Hog index was $84.11, up $6.88 from the previous week. The pork carcass cutout value was up $2.26 higher this week (+2.7%). Weekly pork production was down 0.7% from the previous week, but 1.9% larger than the same week in 2018. YTD pork production is now 4.1% above year ago on 3.4% more hogs. The managed money spec funds added 6,265 contracts to their CFTC net long in the week ending July 30, taking it to 39,964 contracts.
We start off next week with a normal weekly schedule of Export Inspections on Monday morning and Crop Progress that afternoon. Cattle traders will be reacting to any surprise futures positions inherited at Friday’s August options expiration. Monday is also First Notice day for August Live Cattle futures deliveries. EIA’s ethanol production and stocks data will be released on Wednesday morning. Per the weekly schedule, Export Sales will be released on Thursday morning at 7:30 a.m. CDT. The first full week of August will have a fairy normal schedule right ahead of the following Monday’s monthly WASDE and Crop Production reports.
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