Morning Commentary

Dec corn down 3 ¾ at $3.54

Nov beans down 2 ½ at $9.51

The DOW is up

USD is weaker

Crude oil up $.42 at $43.03

Good morning,

Corn bulls are pointing to another round of big buying by the Chinese and further deterioration in the U.S. crop. In fact, , this is the eighth consecutive week of downgrades for the Iowa crop. Bears point to the market not being able to hold the highs above the 200-Day and the funds mostly covering their previously large short position. Traders are digesting another -2% deterioration in the “Good-to-Excellent” rating which now stands at 62% GD/EX vs. 58% last year at this time. Iowa was down another -5% to 45% rated GD/EX vs. 62% last year. The trend for Dec corn is bullish. A close over 363 will support a drive to 380+/‐. Closing under 350.5 alerts for a correction.

Soybean bulls are pointing to increasing crop deterioration in states like Iowa, Nebraska, and Kansas along with continued buying form the Chinese and a U.S. dollar that just posted two-year lows. Similar to corn, soybean traders are trying to figure out total U.S. production as the market is digesting another -3% deterioration in the “Good-to-Excellent” rating which now stands at 66% GD/EX vs. 55% last year at this time. Poor-to-Very Poor was raised to 10%. Iowa is down another -6% to 50% rated GD/EX vs. 60% last year. The trend for Nov beans is bullish. A close over Monday’s high (966.75) or punch above channel resistance at 975.25 is needed to prompt the next leg higher.  Closing below 942.75 alerts for a correction.

Cattle future’s markets at this time seem like the recent uptrend is at risk of breaking down. For the first time since early May, the futures have moved below the 50 DMA and is possibly signaling a pivot. The negative sentiment stemmed first from questions about near term cash trajectory and then exacerbated by a less than friendly Cattle on Feed Report. Today’s action was on moderate volume and noncommittal trade. For the next ten business days or so we will see the effect of long roll out of Oct. This is expected and could pressure the spreads creating opportunity for spreaders and potentially setting up a better commercial short roll.  Today was last trade for AUG20 LC and was essentially a quiet expiration. Cash trade for last week was a slight disappointment with slightly over 100 thousand head trading at approximately 105.00/CWT versus 106.00-107.00/CWT last week. We are seeing a sizeable increase in the amount of cattle being traded in the Texas negotiated market. I am not sure that this really means anything longer term but rather just and interesting observation from an area that has minimal negotiated trade. The numbers of cattle on the show lists for this week is lower across the country with the largest decreases in the south. Beef markets are beginning to soften in the spot market, but the comprehensive report was released today and printed a +8.23/CWT increase last week on modest volume. Spot choice beef is 227.95/CWT as of this writing and dressed cattle are trading 166.00-167.00/CWT. The strong packing margins should be a supportive factor as we work our way into the fall. There is concern regarding how holiday beef markets may trade considering our current situation and the potential reduced holiday gathering. From a hedging standpoint there are many opportunities even now after breaking off recent highs. Covering some risk for less consistent hedgers is potentially necessary and being more highly hedged for structured players makes sense given our current fundamental and technical setup. The trading community appeared to add length in recent weeks. Friday’s COT report showed a net increase of 22 thousand cars in the non-commercial category with the hedger taking most of that on. As a commercial hedger, this is a challenging time. Futures markets are generally lower than many cattle feeders need them to be in order to capture significant profitability not considering how basis may trade. It is in these times that I remind myself of the wisdom in taking base hits, preserving equity and living to fight another day. I sometimes liken hedging to Capt. Woodrow Call’s comment in Lonesome Dove…”Better to have it and not need it than to need it and not have it.” Trey Warnock –  Amarillo Brokerage Company  

In a year hit by an economic recession, which triggered a cap in global fuel consumption, Brazil is moving toward domestic market protection, withdrawing its ethanol import quota market expiring Aug. 31. Market participants say the absence of official announcement on the expiry day was a sign the federal government was not willing to renew it. In August 2017, a strong lobby from North-Northeast region, where the majority of the imports enter the country, pushed the Brazilian government to limit the import volume free of tax. In that year, the Brazilian NNE imported 1.68 billion liters from September 2016 to August 2017, the record historical volume for the period. During the first 24 months of free import quotas, from Aug. 31, 2017, to Aug. 31, 2019, the quarterly quota of 150 million liters was split between quotas A and B. Companies placed in quota A had access to 50% of the total quota, but could also place orders to access the additional volume available in quota B. Quota A companies could request 7,500 million liters, while companies listed in quota B could request 3,750 million liters. From Aug. 31, 2019, to July 30, 2020, just 500 million liters of ethanol were imported through the NNE ports, half of the 1.07 billion liters imported in the prior 12 months. (Platts)


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