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a few comments since taping this

  • The GFS & Euro Model have turned against one another in terms of where the heaviest precipitation is forecast to go over the weekend and early next week. Unfortunately for the “weather bull” it is the EURO that takes 1-3″ of rainfall into the heart of IA, across nearly all of IL, and then into most of IN & OH (as well as northern KY and parts of TN). Essentially, the EURO is suggesting this afternoon that we are unlikely to be talking much about a weather market once we shoot-off our fireworks and eat our pork carnitas this weekend. And I say “unfortunately” because it has been the Euro Model which has had a better track so far this summer in my view. At any rate, the map below that I mocked-up shows the “How” of the rains coming into the central corn-belt. What’s important about this map is that we should have a fairly good idea as the Acreage & Stocks Reports are released about which model is more likely to be accurate–because by that time, we should be seeing the Gulf moisture come in and push the big ridge of high pressure East all the way into the Atlantic Ocean.
  • Another key point about the wheat market which Jesse and I discussed in relation to cash corn, is that we are getting big yields in SRW country where we expected it; and with this, the cash basis is crashing with the decline in futures. I do not expect this to continue much longer…as we are getting through harvest very quickly (which suggests that key areas are not yielding 80-90 bu/acre wheat like central IN and central IL are reportedly getting. So, be ready to buy-back off the combine wheat sales rather quickly after the holiday–I want to give the corn & soybeans a chance to pull wheat down in case it rains + I want to get to the 70% harvested level in U.S. winter wheat progress on the USDA report before I recommend buying back into the market.
  • Looking at the newswires after I got done with Jesse, a key element about the July Delivery which we discussed caught my attention: the trade reportedly isn’t expecting big deliveries due to high cash prices. This is key, because we have to remember in the delivery process for grains, it is the SELLER who initiates the delivery–it is the seller’s choice as to whether he wants to convert the sold futures into a short cash sell to the buyer. And a seller isn’t likely to be inclined to start the delivery process unless he/she feels as though the Chicago July Futures price is carrying a premium to the cash market. It is through this process that we see Chicago Futures essentially become the cash price…by either dropping to meet cash or rising to meet cash. That is why if deliveries are light, I assume that the futures price is too low…and that is typically a good sign for the market overall. When heavy deliveries are seen, on the other hand, it is telling me that sellers see the Chicago price at a premium and that it’s too high vs. the cash market.
  • We saw the Quarterly Hogs & Pigs Report released today after Jesse and I had already taped our program; below I have a table and some charts from USDA to show you what the report showed. In it, we see a very slow move by producers back toward higher production–something that surprised me given the improved prices/margins for hogs recently. Is it a lack of labor? Is it high feed costs? Is it regulations tightening? One would think that the higher demand for manure would also encourage some expansion. But I have to believe that this is over-run by the three factors I mentioned: as I believe all three factors must be weighing on the production side and share in the lack of expansion at this point. The other, 4th big factor I believe that is likely keeping producers from expanding is the fact the YTD US Pork Exports to China are down 70% on a volume-poundage basis, per USDA’s last Livestock, Dairy, and Poultry Report. Until we can find more export demand, I think that producers are wary of domestic demand being too unstable. ** With all this in mind, I don’t see the hogs as a big competitor to the cattle rancher from this point-on, heading into 2023.
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