Wednesday was a day with a more risk on feeling than some expected. Traders were able to look past the death of statesmanship with the first Presidential debate and onto the end of the quarter. Economic data was strong on Wednesday and that really helped to bring the bulls back, but there was still some safe haven buying in the precious metals.
The pending home sales index is a leading indicator of housing activity, looking at signed contracts that have not yet closed. It typically takes four to six weeks to close a contracted sale. The August index surged 8.8% month-on-month to a record high 132.8, up from 122.1 in July and well-above the average analyst estimate of 3.1% growth. Contract signings are up a robust 24.2% year-on-year as the housing industry remains red hot. An index of 100 is equal to the base year of 2001.
Tuesday’s Redbook retails sales showed that same-store retail sales were up 2.2% year-on-year in the week ending September 26, after being up 1.5% the previous week. This is a good sign for third quarter retail sales. Robust sales slowed as coronavirus numbers rose in July, but then rose again in August as numbers declined.
Manufacturing is also starting to pick back up in the country with the Dallas Fed manufacturing survey index jumping to 13.6 for September, up from 8.0 in July and up from the average analyst estimate of 8.5. The region’s production index rose to 22.3 for September, up from 13.1 in July. The Dallas Fed’s report indicates that factory activity within Texas expanded for the fourth consecutive month following a record contraction earlier in the year due to the Covid-19 pandemic.
The Federal Reserve is saying it believes the US GDP will shrink 3% in 2020, but grow 3.5% in 2021. The Fed also announced on Tuesday that M1 money supply (the most readily available cash in the economy like checking accounts and physical cash) was at an all time high of $5.6 trillion. Mike Zuzolo, Global Commodity Analytics, pointed out in his midday market commentary that M1 could be looking for a home with commodities as Gold was on weekly highs.
The grain market went full risk on mode following the USDA quarterly stocks report. USDA dropped below analyst estimates for all three major grains. USDA reduced corn stocks to 1.995 billion bushels down from 2.221 billion bushels in 2019. Soybean stocks were reduced to 523 million bushels. Down from 909 million bushels in 2019. Wheat 3rd quarter stocks were dropped to 2.159 billion bushels from 2.346 billion in 2019. USDA also changed the final number on the 2019 corn crop slightly higher to 13.620 billion, but the stocks number supports stronger feed usage in both the past and current marketing years. John Payne, Daniels Ag Marketing mentioned in his afternoon commentary that the October WASDE may not quite support today’s data and that continued dry conditions would be needed in South America to help support the current rally.
Exports continue to be ahead of year ago levels. Monday’s USDA export inspections showed wheat inspected for export at 563,000 MT up 60,000 MT from last week. Year to date wheat exports are about 700,000 MT ahead of 2019. Dry weather conditions also look to persist across the hard red winter wheat belt in the US. As for soybeans after several weeks of a strong run up the sellers continue in the market. Likely the selling is a combination of managed money lightening their long position which has neared record numbers. China is also going into their Golden Week Holiday starting Thursday and will likely be out of the market for the next week to two weeks.
USDA export sales started strong this week with unknown purchasing 207,140 MT of corn and 218,300 MT of soybeans. Japan purchased 110,800 MT of corn on Monday. Tuesday USDA announced a flash sale of 100,000 MT of soybeans to Mexico. On Wednesday USDA announced a flash sale of 215,000 MT of soybeans to unknown destinations.
In the livestock complex on Wednesday roles were reversed from Tuesday. Lean hogs closed higher with support from the soybean complex and Germany finding 2 more cases of African Swine fever. Thursday’s export sales numbers are expected to be strong with China possibly front loading their demand going into Golden week.
Cattle on the other hand saw spreads with grains start to unwind. Feeder were the leader to the down side with the most technical pressure. Cash for feeders still seems to be fairly strong with sale barns across the Midwest reporting steady to slightly lower prices.
In the country there has been quiet through mid week. Asking prices continue to firm in the South at $109. Northern asking prices are still not fully established, but packers are bidding $167 dressed in Iowa and Nebraska.
The Fed Cattle Exchange Auction today listed a total of 901 head, of which 358 actually sold, but 543 head were listed as PO (Passed Offer). The state by state breakdown looks like this: KS 142 total head (1 lot), with 142 head listed as PO ($104.00); NE 214 total head (1 lot), with 214 head sold at $106.00; TX 545 total head (3 lots), with 144 head sold at $106.00, and 401 head listed as PO ($104.00). The delivery date/weighted averages breakdown is as listed: 1-9 day delivery: 543 head total, all passed, and 1-17 day delivery 358 head total all sold at $106.00.
For the week ending September 19, 2020, Imported Beef Passed for Entry in the U.S. totaled 43,255, 118.87% of the previous week and 101.14% of the 4-week average.
Expected Slaughter numbers Thursday
120,000 hd today 120,000 hd wk ago 117,205 hd yr ago
484,000 hd today 485,000 hd yr ago 486,680 hd yr ago
Midday Carcass Value Thursday
Choice up 0.84 218.58
Select up 0.89 208.43
C/S Spread 10.15
Carcass up 8.69 100.06
Bellies up 25.17 170.11
- Corn up 1 3/4 -3 3/4
- Soybeans dn 3 up 1/4
- Chicago Wht dn 5 – 7 3/4
- Kansas City Wht dn 2 3/4 – 3 1/4
- Live Cattle dn 0.52 up 0.22
- Feeder Cattle dn 0.80 up 0.35
- Lean Hogs dn 0.25 up 1.35
- Class III Milk up 0.02 – 0.53
Pre-Opening Market Broker Commentary
Mark Gold, Top Third Ag Marketing, discusses overnight grains and what the trade may see today. Gold is bullish starting October.
Jerry Stowell, Country Futures, looks at what may impact the livestock futures today. Feeders couldn’t hold until Friday. Cash started Wednesday $2-$3 higher.
Mike Zuzolo, Global Commodity Analytics, takes a look at the midday trade. The grain market has split and the macro market could be signaling to bring in more sellers.
John Payne, Daniel’s Ag Marketing, takes a closer look at today’s grain close. Grains have been on a higher track, but with uncertainty hitting the market, it might be time to manage risk.
Jack Fenske, York Commodities, looks at the closing market numbers. Grains got a friendly USDA report and gained several new points of support.