Market Watch with Austin Schroeder
April 5, 2024
Beware of the Black Swan
I’m sure many of you have heard the term Black Swan. In ancient history, all swans were thought to be white. That is until the Dutch explored Australia and found that to not be true. However, in the swan world they are still more of a rarity. In the markets, we use the term to describe events that are a surprise, that no one expected. Often times the market has a certain set of events that are more repetitive or what we like to call seasonal, so when something pops up that is unexpected, the market tends to react with some large volatile moves. Think back to recent ones, such as COVID-19, or the Russian Invasion of Ukraine. Some events can be bullish the market, while others are perceived as bearish. The cattle market had a black swan of its own appear over the last couple weeks, with the HPAI (Highly Pathogenic Avian Influenza) infecting dairy herds across the country and ultimately a dairy worker. As the market doesn’t like uncertainty some longs that were in the market were streaming to the exits. Unfortunately for the cattle market, it seems the black swans are rarely positive, think of BSE, the Holcomb Plant fire, COVID, and now this HPAI outbreak.
Corn ended the streak of higher weekly closes, as May was down 7 ¾ cents (1.75%) since last Friday. New crop December was back down 5 ¼ cents on the week. Crop Progress data showed 2% of the national corn crop planted as of 3/31 and ahead of the 1% average. The weekly EIA report indicated a seasonally large 1.073 million barrels per day produced during the week of 3/29, a 19,000 bpd increase on the week. Ethanol stocks were building again this week, up another 324,000 barrels to 26.416 million barrels. During February, USDA’s Grains Crushing report pegged corn grind at 441.54 mbu, a record for the month and slightly above January. February corn exports came in a 5.37 MMT (211.4 mbu), a large 64% increase from the same month last year. Thursday’s Export Sales report tallied corn bookings at a 6-week low of 947,995 MT for the week that ended on March 28. Shipped and unshipped export commitments for corn are now 82% of the USDA forecast, compared to the average pace of 90% for this time of year. Commitment of Traders data from Friday had managed money increasing their net short in corn futures and options by another 7,826 contracts in the week that ended on April 2. They held a net short of 259,556 contracts by Tuesday.
The wheat market was mixed again this week. Chicago followed last week and again led the bull charge, with May up 7 cents (1.25%). Kansas City was pulled to the downside, with a loss of 3 cents on the week. MPLS spring wheat futures were back up 3 cents. The first Crop Progress report of the year was released on Monday, showing 4% of the US wheat crop headed, vs. the 2% average. Condition ratings were at 56% gd/ex, or a 348 rating on the Bruger500 index, the best start since 2020. Export Sales data from Thursday morning tallied wheat at the second lowest bookings total for the marketing year of 16,093 MT for the week of 3/28. New crop sales were seen at the second largest this MY at 262,000 MT. US wheat export commitments are now 97% of the USDA full year export projection, 4% below the 5-year average pace and 3% larger than the same point last year. Actual shipments are running a little slower, with 75% of the USDA forecast fulfilled compared to the 80% average. February wheat exports were tallied at 1.85 MMT (67.9 mbu), a slight decline from the same month last year, but the largest single month this marketing year. Total wheat and product exports this MY have totaled 505 mbu, through the first 3 quarters. CFTC data showed spec funds in CBT wheat trimming 158 contracts from their net short position as of 4/2 at 91,944 contracts. In KC wheat, they cut 2,164 contracts from that position to 40,474 contracts.
Soybeans again were caught in the middle of a tug-o-war with the product values this week, with the weakness prevailing, down 6 ½ cents since last Friday. New crop November was a penny and a half lower. Meal was down another $4.60/ton, with bean oil the bull again up 94 points. USDA’s Fats & Oils report indicated a total of 193.9 mbu of soybeans were crushed during February. That was a slight drop from January, unlike the previously released NOPA data, with the yr/yr change at +9.63%. Census data was also released this week, tallying Feb bean export shipments at 5.26 MMT (193.4 mbu), the fourth largest Feb total on record but 2.05% below last year. The weekly Export Sales data from FAS showed beans dropping to the 4th lowest total this MY at 194,220 MT for the week of March 28. Export commitments for soybeans are now 87% of USDA’s forecast total, 7% below the 5-year average pace. Accumulated shipments are 79% of that total, matching the average pace. The large managed money spec funds in soybean futures and options added another 3,476 contracts to the net short position according to the Friday afternoon CFTC Commitment of Traders report. It showed a net short position of 138,256 contracts as of April 2.
The cattle market fell apart this week, as June live cattle were down a net $8.20/cwt (4.55%). The major story, obviously, was the HPAI outbreak among dairy cows across several states now, expanding to a worker on a dairy. While it should have very little impact on consumption, consumer perception and risk uncertainty had longs heading for the exit. Cash trade slipped back this week with Southern trade in the $183-184 area, down $2-3, with the North exchanging hands at $186-187. Feeders joined in on the selling parade, with losses of $9.425 in April (-3.81%). The CME Feeder Cattle Index was down another $2.26 this week to $248.97. Wholesale boxed beef quotes backed off again this week. Choice boxes were down $9.55 (3.1%) at $297.17, while Select was $8.73 cents lower to $294.70. That narrowed the Chc/Sel spread to $2.47. Weekly beef production was 4.2% larger than last week and 3.9% above last year at 513.7 million lbs. That took the YTD production to down 3.7% from the same time a year ago, with cattle slaughter down 5.4%. Monthly trade data from Census was released on Thursday, showing 244.1 million lbs of beef exports during February, a 5% increase from January but 2.6% below last year. Imports were tallied at 351.1 million lbs, a Feb record. The weekly Commitment of Traders report pegged spec funds in live cattle futures and options trimming 5,883 contracts from their net long position as of April 2 to 53,281 contracts.
Hogs jumped on the bull train this week adding another $2.70 (3.12%). Several months set new life of contract highs. The CME Lean Hog Index was another $1.63 higher this week at $85.88. USDA’s Pork Carcass Cutout was up $4.09 this week (4.4%) to $97.75. The rib (-5.4%) and loin (-0.1%) the only primals lower this week, with the ham the driver to the upside, 13.4% higher. Weekly pork production was up 0.7% from last week at 521.2 million lbs, as well as 1.3% largest vs. last year. YTD hog slaughter has run just 0.6% above last year, with production just 0.2% higher, implying lighter carcass weights. USDA’s converted trade data from Census showed 593.4 million lbs of pork shipped during February, the second largest for the month on record. That was also a 1% increase from January. Managed money was shown as building their net long in lean hog futures and options during the week of April 2 by another 11,977 contracts. They held a net position of 76,928 contracts on Tuesday.
Cotton dropped to the lowest level since January for the May contract this week, down 513 points (5.61%). New crop December took things a little better, down 134 points. The initial Crop Progress report from NASS this year pegged the US cotton crop at 3% planted, slightly behind the 4% average for March 31. The weekly Export Sales report showed old crop upland cotton export bookings at 84,910 RB, with new crop at just 22,869 RB. Old crop commitments are still running at a solid pace for 23/24 at 10.890 million RB, which is 94% of USDA’s current cotton export forecast. That is 8% back of the 102% average pace for this point in the MY. Shipments were the third largest we’ve seen this MY at 367,551 RB. That took the MY total to 61% of the USDA forecast, 3% ahead of the average pace. The FSA cut the Adjusted World Price for cotton by 1.40 cents on Thursday, to 69.48 cents/lb. Friday afternoon’s Commitment of Traders report indicated spec traders were trimming their net long position in cotton futures and options by another 3,800 contracts to 80,588 contracts as of last Tuesday.
Market Watch
We start off next week with the Monday morning Export Inspections report, followed by the now weekly Crop Progress report in the afternoon. Monday is also first notice day for April live cattle. Skip ahead to Wednesday, and EIA will release the weekly ethanol stocks and production report. Export Sales data will be out on Thursday morning. Later that morning, USDA will publish their April Crops Production and WASDE reports. Friday is the expiration of April lean hog futures and options, as well as May cotton options.
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