Grains – Jeff Kaprelian
I’m afraid I don’t have any good news to share with you this afternoon. So to soften the blow I’ll start off by reminding everyone of the saying, “it’s always darkest before the dawn.” And just so you have no doubt I’m associated with Dan Hueber, I’ll add that the line originally came from a poem by English preacher and scholar Thomas Fuller written in 1650.
Thomas Fuller 1608-1661
To start the day off on the right foot China said they’d impose additional tariffs on U.S. goods, including crude oil, airplanes, and ag products. Specific to us here in ag they will have an additional 5% tariff on soybeans starting September 1st. They’ll also impose 10% duties on wheat, corn, and sorghum starting December 15th. Further, there will be additional 10% tariffs on beef and pork on September 1st.
President Trump didn’t take too kindly to that and said this on Twitter:
….better off without them. The vast amounts of money made and stolen by China from the United States, year after year, for decades, will and must STOP. Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing..
— Donald J. Trump (@realDonaldTrump) August 23, 2019
….all deliveries of Fentanyl from China (or anywhere else!). Fentanyl kills 100,000 Americans a year. President Xi said this would stop – it didn’t. Our Economy, because of our gains in the last 2 1/2 years, is MUCH larger than that of China. We will keep it that way!
— Donald J. Trump (@realDonaldTrump) August 23, 2019
So far, fingers crossed, no response. Needless to say, I don’t think the trade war is going as planned for anyone.
Moving on, The Pro Farmer tour wrapped up yesterday and they released their final estimates when the market closed this afternoon. They see the average corn yield at 163.3 bushels per acre with a range of 164.9 to 161.7 and total production at 13.358 billion bushels. For soybeans they estimate the crop at 3.497 billion bushels on a 46.1 bushel per acre average and a range of 45.2 to 47.0. It was noted that both ear and pod counts were low as a result of the wet spring, and that the crop is well behind the average development pace.
Cattle – Patrick McRae
Given the close in cattle you would have thought cash traded lower or that we had a bearish cattle on feed report, or maybe another plant fire. Instead all of the opposites were the case. President Trump’s comments overall lead to price reactions lower on all meat commodities. While China is not a major buyer of our beef, given the tariffs situation, it does show additional lack of interest in doing business. The hog market sell off was able to drag down the cattle significantly as well but overall we did have trade in the south at 106, up a dollar from last week, and the Cattle on Feed report shows 107 marketings, on feed 100, and placements at 98. This is overall bullish given the information but the risk off mentality going into the weekend makes sense given the administrations comments in response to China.
Right now cattle margins on the board are not positive and the market is not showing anything more than potential value buys for those who are looking to purchase replacement cattle. I assume that the net open interest on the cattle markets will continue to wane and that we are in the process of making a major bottom in this market. In years when the speculative money did go net short cattle, it did define a multiyear low in prices. I think the best course of action for the cattle feeding community now is to look at sourcing cash corn over these next few months and fill up the bins. From there I think that call options are the only necessary market instrument to protect from dramatically higher corn prices. As for sourcing feeder cattle, there is not much margin being shown on the board, but if your local cash market is showing a premium on basis for feeder weights I would encourage only using put options to cover those purchases. I still think that this market will eventually rally itself out of this situation.