The second week of 2020 brought a lot of data to the market and fueled big moneys hunger for economic stimulus. At the end of the week equities have overlooked negative data and continued towards all time highs, grains continue to be inflationary and treasury bonds started to see their premium rise.
Wall Street overlooked Thursday’s first time jobless claims of 965,000. That was up from 784,000 the previous week and well-above analyst expectations of 790,000 claims. Wall Street rather focused on President Elect Biden’s goal to create a 2 trillion dollar stimulus plan as soon as his administration is sworn into office. Arlan Suderman has kenned economic stimulus to illicit stimulants for Wall Street. The hope of another 2 trillion and the ensuing rally seems to prove that point. Here’s the issue with the 2 trillion dollars in new stimulus. The US Government doesn’t have the money and will have to barrow the money to complete the goal. The Federal Government can do that through treasury bonds. However bonds don’t look like a great investment at the moment with the inflation in the grain complex and every rising equity market. So bond premium or interest has to rise to attract investors. Currently the US has roughly 28 trillion in debt and if interest rates on that debt rise just 1% would increase the obligation on the fiscal discretionary budget of nearly $300 billion. That’s equal to half the non-military discretionary budget for the current year. While this doesn’t mean immediate panic it has long ranging concerns if the US economy isn’t opened up and debt curved. Along with inflation kept in check.
Currently though inflation isn’t all that hot in the US economy. The consumer price index out on Wednesday rose 0.4% month-on-month in December, up from 0.2% in November, but matching analyst expectations. That put the CPI up 1.4% year-on-year in December, up from 1.2% in November and beating analyst expectations of 1.3%. But the core CPI that excludes the more volatile food and energy sectors rose just 0.1% month-on-month, down from 0.2% in November and matching analyst expectations.
The December lockdowns soured optimism held in the small business community. The small business optimism index out on Tuesday fell to 95.9 as lockdowns and restrictions increased in December, down from 101.4 in November and down from analyst expectations that it would rise to 102.0. This drops the index below its average value of 98 over its history going back to 1973. Surveyed small businesses expressed concerns about the increased spread of Covid-19, that is leading to renewed mandated closures of businesses across the country. They also expressed fears about potential new economic policies from the new Biden Administration. The survey conducted by the National Federation of Independent Businesses measures 10 components. The December survey saw declines in nine of the 10 components.
Grains continued to attract buyers this week and even started to make headlines with national media sources given their recent run up. Tuesday’s WASDE report was expected to be friendly and came in even friendlier than expected for corn. USDA dropped ending US corn yield from 175.8 bpa to 172 bpa. That drop in production helped to trim carryover stocks of corn in the US to 1.55 billion bushels. USDA also lowered their feed, residual, energy and export demand for corn. The market quickly ran to the daily limit of $0.25. Arlan Suderman though wrote in his daily commentary that the report did not ration corn demand. Arlan wrote, ” It makes fund managers reluctant to be short corn, similar to soybeans the past several months. It means that corn must fight harder to maintain its acreage in 2021. But it also means that the market will lack the fundamental numbers it needs to settle the rationing debate for several more months. By that time, we should also have a better handle on expectations for the Midwest summer weather pattern.”
US did change the ending production numbers of US soybeans, but it fell within analyst expectations. US carry over stocks of soybeans also came in at one of the tightest of all times 140 million bushels. Unknown destinations help to whittle on that stock the next morning as USDA announced a flash sale of 17.1 million bushels.
Russia announced on Thursday that it is keeping the wheat export tax for an indefinite amount of time. This signals that Russia is wanting to ensure it can meet domestic demand and is wanting to curb exports leaving the country. The global market has taken notice with Egypt cancelling it’s wheat tender at the beginning of the week due to high prices. With hopes though that business will shift to the US all wheat prices continue to rally.
So there is fundamental micro stories in the grains and macro money flow that continue to feed the bull.
Other important data for grains out this week included ethanol data. EIA released the latest US ethanol production numbers for the week ending January 8, ethanol production increased 0.6%, or 6,000 barrels per day (b/d), to 941,000 b/d. US ethanol production continues to be14.1% below the same week last year. US ethanol stocks expanded 1.8% to 23.7 million barrels, which was 3.0% above a year-ago and a 35-week high. A majority of the stocks build took place in the East Coast (PADD 1), where inventories grew by 9.1%.
In South America Argentina continues to try and curb inflation for their currency and food prices. Last week Argentina announced they were stopping corn exports to ensure domestic demand was met. This caused a farmer strike who wanted to see exports resume. The strike was settled early Monday with Argentina announcing a 30,000 MT (1.18 million bushel) daily sales cap. The impact is more psychological than real for the markets, with traders focused primarily on fears of short crops this year in Argentina and/or Brazil – especially for soybeans. Scattered showers of 0.50” to 2.0”, locally 4”, fell in Argentina over the weekend, providing coverage of 60% of the corn and 55% of the soybeans. More chances for scattered thunderstorms are seen this week, before the remainder of the 15-day outlook turns dry again. Those who receive the showers buy some time, while those who miss out see added stress.
Livestock struggled to move higher with a strong grain complex. Wednesday brought some reprieve as short covering occurred with profit taking in the grains. It quickly reversed though on Thursday. Live cattle experienced bear spreading throughout the week. Differed contracts continue to be sought after by bullish traders. The October 2021 contract was able to break over the $120 which has been a long time point of resistance for the April contract. The WASDE on Tuesday helped to confirm what many analyst expect of a 3%-4% decline in red meat production in the 3rd and 4th quarters of 2021.
Feeder cattle did test and hold the $132 critical level of support this week. $132 has been a long trend support line and was able to hold of corn continuing higher throughout the week. However that trend line will weaken as corn comes closer to $6.
Lean hogs again seemed tied to the soybean market for most of the week. With correction in the soybean complex on Wednesday lean hogs started to decline. Unfortunately when soybeans went back higher on Thursday lean hogs did join the rally. Export sales did offer some reprieve as they were actual sales instead of reductions due to cancellations. The carcass and belly prices were also able to recover after a slump on Wednesday.
Cash trade in the country continued to develop on Wednesday following the Fed Cattle Exchange. The South saw trade at $110 to $111, the $111 was early but has been backed down to $110, $1 to $2 lower than last week’s weighted averages. So far, the North remains fairly quiet with just a few deals reported in parts of Nebraska at $172, $1 to $2 lower than yesterday’s decline, and $4 lower than last week’s weighted average. Some asking prices remain firm around $113 to $114 in the South, and $175 plus in the North.
The Fed Cattle Exchange Auction today listed a total of 1,532 head, of which 580 actually sold, 952 head were listed as unsold as they did not meet the reserve prices that ranged from $109 to $111. Opening prices started at $109, high bids ranged from $109.50 to $111. The state by state breakdown looks like this: KS 120 total head, all of which went unsold; NE 110 total head, all went unsold; TX 1,302 total head, with 722 head sold at $110.50 to $111, 580 head went unsold.
For the week ending December 26, 2020, Imported Beef Passed for Entry in the U.S. totaled 24,827, 68.02% of the previous week and 68.76% of the 4-week average, and for the week ending January 02, 2021, Imported Beef Passed for Entry in the U.S. totaled 25,599, 103.11% of the previous week and 72.48% of the 4-week average.
Expected Slaughter numbers Friday
116,000 hd today 118,000 hd wk ago 115,451 hd yr ago
61,000 hd Sat 63,000 hd wk ago 24,657 hd yr ago
495,000 hd today 495,000 hd wk ago 437,722 hd yr ago
257,000 hd Sat 387,000 hd wk ago 68,920 hd yr ago
Midday Carcass Value Friday
Choice up 0.25 213.62
Select up 2.08 203.15
C/S Spread 10.47
Carcass up 2.24 82.79
Bellies dn 9.83 118.25
- Corn up 4 1/4 -10 3/4
- Soybeans up 20 1/2 -25 1/2
- Chicago Wht up 7 1/2 – 9 3/4
- Kansas City Wht up 10 1/4 -10 3/4
- Livestock Settlements
- Live Cattle dn 0.25 up 0.62
- Feeder Cattle dn 0.47 – 0.97
- Lean Hogs dn 0.55 -0.95
- Class III Milk up 0.06 -0.75
Pre-Opening Market Broker Commentary
Ed Dugan, Top Third Ag Marketing, highlights the big overnight news of Russia continuing to curb wheat exports.
Jerry Stowell, Country Futures, looks at what may impact the livestock futures today. Cattle will try to hold levels of technical support on Friday.
Mike Zuzolo, Global Commodity Analytics, takes a look at the midday trade. Grains are pulling back after the Tuesday rally. Zuzolo highlights that the long term trend though is bullish.
John Payne, Daniel’s Ag Marketing, takes a closer look at today’s grain close. The commodity rally is attracting a lot of attention and Russia is holding tight to it’s wheat supply.
Jack Fenske, York Commodities, looks at the closing market numbers. Fenske reveals a long play trade he has been working on in the cattle complex.