MARKET SUMMARY 08-03-2021
With the strong demand tone, a large focus has been placed on weekly pork production and the ability of the market to provide enough products to reach the demand goals. Last week, pork production reached 487.3 million pounds, which was 8.6% lower than the skewed numbers from 2020 due to COVID impacts on the slaughter industry, a better comparison is looking at 2019. Production last week was basically in line with the 2019 levels. That production level may be starting to hit the bottom of the seasonal decline, as production typically ramps up going into the fall and winter months, which could build meat stocks higher, but this year may have some different tone. The aggressive demand pace through the spring has tightened stockpiles, which has supported prices overall. The shortfall of freezer inventories and the maintained demand base will likely keep the prices for wholesale cuts elevated, giving the packer more need to support cash prices into the 3rd and 4th quarters.
CORN HIGHLIGHTS: Corn futures started firmer on the heels of another decline to weekly crop ratings as well as a generally dry and warm forecast for the northwestern regions of the Midwest. Yet a sharp drop in soybean prices and a lack of follow-through buying after trading 5 cents higher in the morning session quickly had prices on the retreat experiencing double-digit losses. By day’s end, Sep futures lost 8-1/2 cents closing at 5.50-1/2 and Dec down 7-1/2 at 5.51-3/4. Crop ratings dropped 2% in the good and excellent category, now at 64%. This compares to 72% a year ago. In general, the debate or question is if excellent corn in the central Midwestern states is enough to make up for losses in the Northwest. At this time of year, there’s not much of a chance for poor corn to improve substantially. However, 27% of the crop is rated as fair. Timely rains could push much of this into the good category, or a lack of moisture might suggest an increase to the poor and very poor categories. The bottom line is that we are still in a weather market. It does not appear there is an impending disaster for the crop yet at the same time it appears challenging to argue for the current trendline yield estimate of 179 bushels. Other variables that could affect price could be changes in demand, yet big changes seem unlikely. With poor crop conditions for the second crop corn in Brazil and the Chinese hog herd back to pre-African swine fever levels, we foresee solid world demand and the need for big crops both domestically and elsewhere in the year ahead.
SOYBEAN HIGHLIGHTS: Soybean futures finished with sharp losses as prices slipped through an uptrend channel line, as well as the 100-day moving average. This likely created either long liquidation, new selling, or both. An unexpected improvement to crop ratings which now has the crop at 60% good to excellent versus the pre-report estimate of 57% may have been enough to push prices weaker. Yet, we were surprised at today’s downturn considering strength in Malaysian palm oil failed to add support with both meal and oil finishing with sharp losses today as well. In addition, the most recent 6 to 10-day forecast continues to call for below-normal precipitation and above-normal temperatures for the northwest regions of the Midwest. Nonetheless, expectations for high yield in the central and eastern Midwest and the lack of new demand continue to keep bullish momentum in check. Supplies remain historically tight yet, as indicated yesterday, it almost feels like the market sees light at the end of the tunnel with end users remaining conspicuously absent from the market. From a big picture perspective, we absolutely believe the world will, in the year ahead, try to produce more soybeans by increasing acreage. Yet, availability of future supplies from South America and elsewhere is a long way off. Therefore, traders who are selling this market are making a big bet that yield will be better than the current USDA estimate.
WHEAT HIGHLIGHTS: Sep Chi down 5 cents at 7.24-1/2 & Dec down 4-1/2 cent at 7.34-3/4. Sep KC wheat up 4 cents at 7.07-1/2 & Dec up 4 cents closing at 7.18-3/4. Chi wheat & MNPLS took a small breather today as soybeans pressured grains as a whole – however, KC wheat fought to remain in the green by the close. Although a minor down day in the market, prices are still exceptionally high in comparison to an average year. Today grains traded the notion of potential rains on the horizon, however, it is hard to imagine any rains will do the northern Plains much good at this point. Today just goes to show it only takes a crumb of bullish or bearish news to get a big reaction out of the market. Minor, scattered rains for parts of the Dakotas and parts of Minnesota is enough to sway the market – for the day at least. Yesterday, the USDA said harvest was 91% complete for winter wheat and 17% complete for spring wheat. Spring wheat was rated 64% poor to very poor – which is improved by a whole 2% points from last week’s 66% rating. Globally, things are still viewed with a bullish eye for this week. Rains in Europe & hot and dry conditions, along with lower than expected yields from harvest, in Russia are lending a helping hand to wheat.