Perspective: Mid-Day Commentary for September 24

By: Arlan Suderman, Chief Commodities Economist

Fri, 24 Sep 2021, 16:15

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

September 24 - Wall Street quietly traded inside Thursday's trading range for the major indices as it takes a cautious approach to the weekend, while keeping an eye on China's Evergrande developments. Other weakness comes from reports that government agencies have been told to prepare for a possible shutdown at the end of next week due to a lack of Congressional funding. The VIX traded near 18 this morning, reflecting the easing tensions. The dollar index traded softer near 93.3, even though yields on 10-year Treasuries surged to fresh 12-week highs near 1.46%. Crude oil prices firmed modestly higher to fresh seven-week highs as supplies tighten amid rising demand. The Ags were largely mixed in relatively quiet trade today.

Corn and soybean futures came under modest pressure today as traders prepared for an active weekend of harvest. A dry weather pattern is dominant across much of the Midwest, which should allow crops to dry and combines to roll. Yet, the market continues to find buyers beneath it for now, with end users taking advantage of the past month's weakness to extend coverage, while speculators aren't ready to give up on these markets until they get a better handle on the final crop size in a year when the margin for error is tight. Wheat prices erased early losses to drift higher amid tightening global supplies of milling wheat, amid fears that USDA might further tighten the spring wheat supply when it posts its Small Grains Summary Report on Thursday.

Live cattle futures posted modest losses today following another week of steady/soft cash cattle trade at mostly $123 to $124 per cwt. with traders looking ahead to this afternoon's 2 p.m. CDT USDA cattle-on-feed report. That report is expected to show September 1 on-feed numbers at 98.1% of year-ago levels, with August placements at 99.5% of 2020 levels. August marketings are expected to be at 99.8% of last year's level. Lean hog futures struggled to probe the 200-day moving average in the December contract from the lower side today, but traders remained cautious ahead of this afternoon's 2 p.m. CDT USDA quarterly hogs and pigs report that is expected to show all hogs and pigs down 1.7% from a year ago, with the breeding herd down 1.1% and market hogs down 1.7%.

At least 20 crushing facilities have been shuttered in China to preserve power, according to Reuters, leading to a rise in soymeal prices as livestock producers scurry to book supplies. End users worry there won't be enough soymeal to get them through the week-long National Day holiday that starts October 1st. This is the time when crushers typically step up production to build inventories ahead of the holiday break. The stated reason for the power curbs that shut down the crushers is stepped up enforcement of emission curbs to clean up the air over China, leading to strict limits on power loads. That's created a shortage of electricity for many areas of China across a broad swath of industrial users, although authorities are currently prioritizing fertilizer production. Yet, it also creates unintended problems. Rising soymeal prices push hog feeding margins deeper into the red at a time when authorities are trying to encourage pork production. Unfortunately, the Chinese government will not comment on the expected duration of the power cuts.

USDA is scheduled to release its quarterly stocks and small grains summary reports next Thursday, September 30. The quarterly stocks report is known for its market-moving surprises. The natural spot to expect surprises would be in corn. One major component of demand - feed usage - can't be measured. It's only calculated after taking a snapshot of supplies on September 1st. That leaves the door open for major surprises that move the markets. Soybean usage is largely known, but the September 30 report is still known for surprises in the oilseed's stocks. The graphics below show a history of market reactions on the day of the stocks report for both corn and soybeans.

Grains & Oilseeds

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