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CommStock Reports

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  • 02/14/2024 Two Key Drivers behind Overnight Weakness in Grains
    On the Grains Grains are lower in overnight trade with wheat down double-digits. Two factors are at work, the first is the "aftershock" of yesterday's disappointing small decline in the CPI compared to trade expectations. It's hard to explain how coming in down just slightly to 3.1% compared to December at 3.4% can be seen so harshly negative compared to expectations for 2.8%. But just 3/10ths of 1% difference caused the stock market to tank more than 500 points and reignited the uptrend in the U.S. Dollar Index. The message it sent to the market is that the Fed was on solid ground poo-pooing last month's market chatter of up to six rate cuts possible through year end. Yesterday's data told the world "it is what it is" and that interest rates will likely stay higher for longer than most were hoping. The second driver for overnight weakness is likely trade bracing for bearish balance sheets for the 2024-25 marketing year in tomorrow morning's first batch from USDA's annual Outlook Forum. Though nearly 40% of the country is still suffering some degree of drought, that figure has been shrinking as well as the "intensity" of drought within the footprint. That raises the odds USDA will plug in trend line yields and acreage guesstimates that pump up ending stocks and more fodder for funds already so heavily short to stay with their positions. The best face we can put on this ugly scene is the hope that whatever tomorrow's numbers show, they may not ...
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  • 02/13/24 LRP Market Impacts
    There has been a lot of chatter recently about Livestock Risk Protection and how many have been abusing the subsidized program to "harvest subsidies". Reports of this have garnered enough attention that some grassroots organizations like the Iowa Cattlemen's Association are even adopting policies to attempt to change the program so that some of these maneuvers are more difficult. The argument to this point has been that people are "subsidy harvesting" by purchasing LRP on a specific set of cattle and then selling an equal value put option to effectively pocket the 35-55% subsidy and remain net neutral the market.   Example:    Purchase LRP on feeder cattle steers with a floor of $268/cwt.                       and an end date of 09/02/24 for $10/cwt.   Sell $268 put option for $13/cwt. with an expiration date of 09/02/24, pocketing the $3/cwt. government subsidy.   In this example, if the price continues to move higher the cattle are gaining value, the short put premium will be realized profit while the LRP won't pay an indemnity and premiums will be due within 30 days of the policy end date. Win, win, lose. If the bottom were to fall out of the market, the cattle lose value while the short put requires constant margin money and the LRP would replace the lost cattle value. Lose, lose, win. Even in this common scenario, there is still risk associated in a downward moving market. Point being, there is no foolproof way of harvesting the government subsidy ...
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  • 02/13/2024 Why “Quiet, Mixed” Trade in Low Volume Holiday Trade is Noteworthy
    On the Grains Grains are mixed but leaning lower in overnight trade as of 6 a.m. Favorable weather for Brazil and Argentina continue to pressure prices despite wide disagreement over how much irreversible damage was done to crops early in the growing season. Yesterday's weekly export inspections were pretty decent for a change with corn and soybeans falling near the upper end of expected ranges and wheat midpoint in that range. Market volume is very low due to South America celebrating "Carnival" and China off for "Lunar New Year." Actually, for markets to be steady-to-mixed despite low volume trade is encouraging because it suggests little new selling by funds, who are enormously short. That alone offers a hint they may soon grow impatient and begin to lighten up. If they do, that could trigger commercial buyers into taking advantage of these awfully low prices. Alas, even that is a slim hope for now as traders await this week's first 2024-25 balance sheets from Thursday and Friday's USDA Outlook Forum. Today we could see that inflation during January was under 3% for the first time since March of '21 and a solid drop from December at 3.4%. If so, it could resurrect talk of a possible rate cut by the Fed as early as May. On the Hogs: After Friday's modest recovery, hog futures returned to their losing ways yesterday. It could signal the downside correction isn't over yet, especially since cash trade has suddenly turned mixed. The range of prices paid across the country dropped at ...
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  • 02/12/24 USDA Missed The Mark
    The February WASDE report gave us another bearish report that will likely give bears further incentive to maintain their foot on the neck of any potential rally.  We had not expected much by way of changes in the domestic stocks reports.  Most of the focus was on potential production changes in South America.  CONAB gave us a glimpse of hope when their report was released earlier in the day.  CONAB cut Brazil's production estimates on the low end of the range, giving us our first government report below 150 MMT this year at 149.4 MMT.  This was a big cut from their previous report of nearly 5.9 MMT.  I have always held a bias towards believing CONAB more when it came to Brazilian production simply because they have more of a presence.  The same way I don't rely much on the USDA to tell me what the South American crop size is, I would not rely on CONAB to tell me what the US crop size is.   And yet the trade still listens more to the USDA related to South America.  We did not expect the USDA to catch up to CONAB, but we did expect them to make more cuts than what they did.  The USDA did not come on the CommStock crop tour to Brazil and it showed.   They trimmed only 1 MMT to Brazil's crop, taking it from 157 MMT to 156 MMT.  The crop size is not fully known and likely won't be until May, but enough ...
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  • 02/12/2024 Funds Relentless Sellers, but Corn and Bean Charts Severely Oversold
    On the Grains Corn and beans are firm in overnight trade while wheat is weaker. Weekend weather was generally favorable for both Brazil and Argentina and the dollar is firm again, so the firmness in corn and beans flies in the face of what would normally be pressuring prices even more. The big gap between USDA and its Brazilian counterpart CONAB on the soybean crop was only reinforced when two more private firms down there lowered their own estimates even lower than CONAB. Friday's Commitments of Traders report confirmed that trading funds were relentless sellers of both soybeans and corn through last Tuesday with their net short position in corn now near 300,000 contracts and approaching the all-time record short at 322,215. As you'll see in this week's basis update below, spot basis weakened for both corn and beans a second straight week last week. I'm regularly asked what could trigger a rebound in such a bearish climate and the only thing that comes to mind is "evidence the market is running out of willing sellers" that triggers fund short-covering. There's no evidence of that yet but plenty of evidence that corn is severely oversold, even on the weekly chart. The same is true for soybeans. On the weekly chart, the Stochastics oscillator is as oversold as it can get and prices are at the lower Bollinger Band as well. On Thursday and Friday of this week, USDA will hold its annual Outlook Forum. Typically, they issue initial acreage estimates Thursday morning and then full ...
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  • 02/11/2024 Sunday Market Preview
    Grains are likely to be little changed on a quiet open while most traders are busy watching the Super Bowl. Food spending for the Super Bowl is expected to rise by about 23 percent this year as at least 110 million people will plan to watch the game. Total food costs are up about 3 percent from a year ago with items such as hamburger and eggs higher while Super Bowl staples like chicken wings, potato chips, and beer are flat or lower compared to last year. In the Headlines Tensions in the Black Sea were raised over the weekend with what Russia alleged was a failed attack by Ukraine against a commercial vessel. It was put into question whether the Russian claim would be a pretense for Russia to retaliate against Ukrainian assets in the southwestern areas of the Black Sea that are key for the passage of ag and energy exports. Friday morning produced another sub-150 million metric ton estimate for Brazil's soybean crop, with the Brazilian consultancy Safras & Mercado coming in at 149 mmt. That same firm has last year's soybean crop at 157.8 mmt. Last week's crop report saw the USDA only lower the 2024 crop estimate to 156 mmt while the 2023 crop was inexplicably raised to 162 mmt. The latest weekly export sales report included net cancellations of corn previously committed to China. Unshipped corn sales to China are now negligible, so buyers there may be ready to begin purchases again after the recent price slide. Activity ...
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  • 02/09/24 The Moment You Have Been Waiting For
    In the past I have been asked "Why don't you criticize Biden more?" Here is what you have been waiting for. I have not been pleased with a number of things in the performance of the Biden administration and I am in the super-majority of 70% of Americans who think that forcing us to choose between Trump and Biden is abusive. I will pick out three things that I think that Biden really mucked up on…the first was the incompetent exit from Afghanistan, number two would be the failure to address immigration/border security and the third would be the fiasco now unfolding with EV mandates. I am sure that subscribers could send me a much longer list.   The exit in the middle of the night from Bagram air base, leaving the keys on the desk for stunned Afghans, as part of a wholesale withdrawal of US forces from Afghanistan, was one of the most embarrassing exercises in disloyalty ever conducted by the US. We left our key allies in the country fully exposed and unsupported to a ruthless enemy while we hightailed it for the exits. The unwillingness to support the existing government forces with which we had worked and fought alongside for years broke pledges and promises that were noted by other allies with the US everywhere else in the world. Now the MAGA people want to do the same thing to Ukraine. Why anyone would trust our promises again would be incredible. Our enemies noted our mismanaged retreat too. ...
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  • 02/09/2024 Trade Still Reeling from Whipsaw Forecasts on Brazilian Crop Size
    On the Grains Grains are weak again in overnight trade, still reeling from the whipsaw action we saw yesterday from conflicting Brazilian crop estimates between USDA and its Brazilian counterpart CONAB. The day started out with lousy weekly export sales in beans, coming in below the low end of trade expectations. Then CONAB came out with its Brazilian crop estimate down sharply to 149.4 million tonnes vs. trade expectations for USDA at 152.5 against 157 in January. So prices rose accordingly.   Then USDA comes out and KO's the beans with US ending stocks up 35 million bu. at 315 million bu., which beat the high end of trade expectations. Worse yet, they came down only a million tonnes for the Brazilian crop at 156 and nearly mocking CONAB's number. Prices tanked. However, by end of day, beans managed to close on the plus side, suggesting that on balance, traders were giving CONAB the nod as the more credible.
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  • 02/08/24 USDA Stays Stubbornly High on Crop Estimates for Brazil
    Without the U.S. grain supply estimates up for revision this month, most of the focus for today's crop report was on the outlook for demand and expectations for production in South America. The government analysts made small changes to the usage estimates that did not seem all that necessary but for the purpose of cushioning ending stocks a little further. The food demand estimates were cut for corn and wheat while exports were trimmed for soybeans. Domestic carryout estimates for all three crops came in above the average trade guesses. The USDA production estimates for Brazil remained frustratingly out of touch with everyone else's view of reality.   Before the USDA report was released today, Brazil's CONAB agency issued fresh estimates of its own. CONAB dropped Brazil's soybean estimate down almost 6 million metric tons (mmt) to 149.4 mmt – USDA would later cut its estimate for the crop by only 1 mmt to 156 mmt. USDA also widened the gap over CONAB's estimate for last year's soybean crop, which the USDA raised to 162 mmt versus CONAB at 154.6 mmt.  The USDA's new forecast for Brazil's corn crop was lowered to 124 mmt, but it was still a touch higher than the average trade guess and it was lot higher than CONAB's revised estimate of 113.7 mmt.   The USDA did not raise its estimate for corn production in Argentina like many had anticipated, so that helped global corn ending stocks come in a bit lighter than expected. The conservative reduction to Brazil's ...
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  • 02/08/2024 New Net Farm Income forecasts from USDA Only Add to Market Gloom
    On the Grains Grains are mixed in overnight trade, but leaning weaker. Beans and SBO sport the only plus signs as of 6 a.m. and wheat weaker than corn. It's said "it's always darkest before the dawn", but it sure didn't help the bearish market psychology when USDA released latest estimates for '24 net farm income. At $116 billion, it will be down 25% from last year and down 41% from 2022's record of $189 billion.   Today's bevy of reports from USDA, STATS Canada and Brazil's CONAB will be the story of the day as they are released, with WASDE the "big kahuna" out at 11 AM. Normally the February WASDE is a yawner, particularly for U.S. balance sheets. They usually show little change from January with the "supply" side fixed. But this year, there are unusually wide ranges in pre-release estimates for ending stocks due to wide variation in what traders think USDA might do in usage:
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  • 02/07/24 NRA Fails to Survive its Legacy
    Gun Rights have been one of the topics that I have covered in this report. I have a substantial investment in firearms as well as a Winchester Hardware Store Museum of collectibles. View at thewinchesterstore.com.   I pretty much stopped referencing the NRA relative to gun control issues several years ago after letting my membership lapse when I decided that they had become so unreasonable as to their policy as to pose a threat to my gun rights in the backlash they create in public opinion. The relentless onslaught of gun atrocities in this country is eventually going to break down public sentiment favoring protection of our gun rights. The right approach to policy was to support things that would positively impact a reduction of gun deaths and instead the NRA took a stance of never giving an inch even when there was common sense reason and a moral judgment to do so. Their unrelenting opposition to many things that NRA members polled had accepted, such as universal background checks and issued carry permits was interpreted by me as a disconnect of the organization from its membership. Other gun rights protection groups were not sad to see a demise of the organization as the NRA was a black mark on them all.   It was also my observation that the evidence strongly suggested that their executive board headed by Wayne LaPierre had become corrupt, which was the knife that finally cut the cord. There is strong evidence, including taped conversations of NRA officials and ...
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  • 02/07/2024 Traders seem to be “Dialing In” a Bearish Set of Reports Tomorrow
    On the Grains Grains are lower in overnight trade with soybeans down double digits as of 6 am. A sense of gloom pervades the market ahead of tomorrow's flurry of reports, as if it's already "dialing in" bearish numbers. Ironically, that tilts the odds against further losses even if pessimism is confirmed. When the trade "sells the rumor" and finds few left willing to sell, short-covering can ensue. It seems like grasping at straws, but that's where we're at right now.   Rains have resumed over much of Brazil and Argentina, relieving the recent stress that was reducing crop ratings. Now the outlook looks favorable again. The big debate is over how much yield hit was irreversibly done earlier in the growing season and we're in the camp that it was considerably worse reflected in current official estimates by CONAB and USDA. (It's spelled out in detail in this morning's weekly Brazilian Operations Update below.)  
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