The phrase taper tantrum originally applied to the 2013/14 period, when the Fed needed to begin tightening the money supply by curtailing the quantitative easing or QE program use to help the economy recover from the housing crisis. It signaled the intent to taper or cut back that stimulus, and the bond and stock markets reacted violently to the mere idea of taking away the punch bowl from the party. Some saw the hidden hand of the market telling the Fed “You shouldn’t do that” or acting like a small child throwing a tantrum. The corn and soybean markets seemed to be having a bit of a taper tantrum on Friday, dropping sharply on reports that EPA was recommending the White House approve a reduction in 2021 mandated blend levels for biofuels. Soybean oil, the main feed stock for biodiesel, was particularly hard hit since nearly all of the consumption growth for that commodity in recent years has been for industrial use.
Corn futures slumped 5.2% this week, a 29 ½ cent per bushel loss that totally reversed the gains from the August 12 crop report. USDA confirmed that the early planted corn crop is 73% at dough stage or later, vs. 68% average. Denting matched the average pace of 22% on August 16. Crop condition ratings dropped 5 points on the Brugler500 index vs. the previous week. The Pro Farmer crop tour fed the market yield reports all week, with PFA putting their US average yield at 177 bpa on Friday. The Brugler Virtual Corn Tour yield estimate released on Thursday was 176.7 bpa. USDA had projected US average yield @ 174.6 bpa on August 12. Reports that EPA was recommending a cut in required biofuel blending to the White House for 2021 sent corn prices tumbling on Friday and also pressured RIN values. EPA is already delinquent in setting that blend level for 2021 but there was speculation that they might potentially raise them for 2022 and announce both at the same time to try to neutralize the political fallout. Friday’s CFTC report indicated spec funds added another 24,867 contracts to their net long in corn futures and options during the week ending August 17. That took them to a net long 278,911 contracts ahead of the big decline on Thursday and Friday.
Wheat futures were lower in all three markets. CBT SRW was up 6% a week earlier, but fell 6.3% this week. KC HRW was down 5.4%. Minneapolis spring wheat continued to be well supported due to limited new crop supplies, down 2.7% for the week. They were still up 3 cents over a two week lookback. US wheat export sales commitments through August 12 were 38% of the full year estimate, trailing the 42% average for that date. The weekly Commitment of Traders report showed managed money spec funds in CBT wheat expanding their net long by 5,058 contracts for the week, taking it to 24,185 contracts by August 17. For KC HRW, they increased the net long another 1,785 contracts for the week, to 46,548 contracts.
Soybean futures plunged 5.8% this week, or 79 ¼ cents per bushel. Soy oil played a big role in that, dropping 9.8% in a single wheat amidst pressure from palm oil and EPA biofuel rumors. Soy Meal was down 1.2%, benefitting from spread unwinding. NASS Crop Progress data showed 94% of the US soybean crop was blooming, with 81% setting pods (79% average pace). Condition ratings as of August 16 dropped 5 points, with the Brugler500 index at 351. The Pro Farmer tour group found several states with lower average pod counts than usual, but projected final yield would be 51.2 bpa. That’s above the NASS August figure of 50.0 bpa. Weekly Commitment of Traders data indicated managed money spec funds increased their soybean net long positions this week. They added 5,531 contracts to their net long, bumping it back up to 97,179 contracts as of August 17.
Live cattle futures rose 1.2% this week on position squaring ahead of the COF report on Friday afternoon. Cash cattle trade was again divided this week with the North trading $125-127 ($200 dressed) and the South at $122. Feeders couldn’t keep up with the live cattle despite cheaper corn. Nearby August was up 0.6% for the week. The CME feeder cattle index is $155.79, down $.04 from the previous week. Wholesale beef prices were sharply higher again this week. Choice boxes shot up $20.23 (+6.2%), with Select up $20.51/cwt (+6.9%). The value of a Choice 600-900 pound carcass has increased for 23 consecutive business days. Weekly beef production was up 4.7% from last week, and 0.2% larger than last year. YTD beef production is now 4.1% above year ago on 4.2% more slaughter. Friday’s Commitment of Traders report showed managed money spec funds increasing their net long by 1,961 contracts during the week to make it 70,773 futures and options contracts as of Tuesday night. The USDA Cattle on Feed report was released after the close, showing August 1 On Feed down 1.86% from year ago. Placements were lighter than expected (-8.14%) but marketings were also lighter (-4.52%) to limit the overall decline in feedlot population.
Lean hog futures rose 2.4% in the nearby October contract. October is clearly anticipating a season decline for cash hog prices, trading at a $19.56/cwt discount to the Index. The CME Lean Hog index was down $2.01 for the week @$108.18. The pork carcass cutout value dropped $6.42 for the week, a 5.1% drop. The hams remain volatile, down 17.6% this week after being up 16.7% the previous week. Weekly pork production was up 1.9% from the previous week, but down 7.2% from the same but COVID distorted week in 2020. Pork production is now 1.3% smaller YTD vs. last year, with 1.4% fewer hogs slaughtered. In the weekly Commitment of Traders report, CFTC showed managed money adding another 166 contracts to their net long during the week ending 8/17. They were still net long 77,020 contracts on that date.
Cotton futures rallied into new life of contract highs this week but lost 1.3% net for the week. USDA trimmed projected cotton yields to 800 pounds per acre in the August 12 report, but cotton crop conditions to this point have been suggesting much higher yields. Texas ratings are 88 points higher on the Brugler500 Index than they were a year ago. Tropical Storm Fred did a little damage to eastern cotton yields, but Hurricane Henri is also staying to sea until a possible landfall in New York or New England. Weekly Commitment of Traders data indicated the large managed money spec funds were net long 81,940 contracts on August 17, adding 8,658 contracts in the run up to new life of contract highs.
Cattle traders will begin the week reacting to Friday night’s COF report. Grain traders will be trying to suss out the White House’s actual intentions for RFS blend requirements. Monday will feature the USDA Export Inspections report in the morning. In the afternoon, NASS will release their weekly Crop Progress data. The monthly USDA Cold Storage report is also expected. On Wednesday, EIA will give us an update on the weekly ethanol production and stocks. Thursday is the day for exports, as FAS will release Export Sales data in the morning.
Tech Talk: November Beans
We have a two for one special this week, first a long term view of soybean price action, and then our usual November daily chart look.
The chart above shows November soybeans but compresses the prices into weekly high-low data for a better long term perspective. November soybeans rallied $6.535 per bushel from the COVID low to the June high at $14.80, a 79% price hike! Is this a great business or what? There are a couple other take home points. The 38.2% retracement is usually needed to get the winners out. That is $12.30 ¼, and larger scale support. ADX is very low, suggesting action since June has been detrending of the previous advance and not yet a full fledged top. MACD suggests we topped in July with that $1 sell off after the holiday weekend. Price action this week closed below the 1/3 speedline support, and just barely avoided closing below the uptrend line from the March 31 bottom. The latter is at $12.88. Breaking that next week would point toward the 40-week average at $12.51 ¾ or the retracement. Downtrend resistance off the high is ~$13.56.
The daily continuation chart shows those key uptrend and downtrend lines a little more clearly. I would also point out the VZO and PZO plots in the lower panels. Both had reached overbought readings on Monday (typically between 45 and 60). They are back to -10, and also match each other. That means our VP indicator is neutral heading into the weekend.
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There is a risk of loss in futures and options trading. Similar risks exist for cash commodity producers. Past performance is not necessarily indicative of future results.
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