.jpg)
- US stock indexes moved to their highest levels in 15 months as investor money continues to pour in on an endless stream of bullish economic numbers.
- At the same time, the cattle market turned a bit “bizarre” as boxed beef drops and futures markets continue to rally.
- USDA tipped the government's real belief in trade relationships between the US and China as it made a dramatic cut to new-crop soybean export expectations.
This was quite a week. For all the numbers lovers out there, this was your week as financial markets saw the release of June’s Consumer and Producer Price Index numbers to go along with the Import Price Index and preliminary July consumer sentiment. In the grain and oilseed sector, those in love with what has been describe by folks in the know as “educated guesses” saw the monthly round of USDA supply and demand estimates released Wednesday. And in the livestock sector, we all received mixed readings on the US economy. With this as a backdrop, there are three main market conversations we can have over the weekend. So grab your favorite Friday afternoon beverage and/or cocktail, and let’s get started.
Conversation Number 1: The chorus of talking heads yammering about how terrible the US economy is got a lot quieter this week. Those of you familiar with my analysis and commentary know I am not a bandwagon rider, and in fact at times in my career have gone out of my way to purposely not jump on as the wagon passes by. Therefore, I will admit I am growing more concerned about the US economy and stock markets (no, despite what some government officials have told you, these are not the same thing). Too many people have finally come around to what I’ve been talking about since last November: US stock indexes are in long-term uptrends (I’ll get to the economy in a minute). Friday saw the S&P 500 index ($INX) extend its trend to a high of 4,527.75, moving toward the high of 4,637.30 from March 2022. Headlines started pouring in about inflation cooling and the labor market staying strong, painting the picture the US economy was one of the strongest on the planet. Meanwhile, the Fed fund futures (ZQQ23) forward curve continues to indicate two rate hikes between July and November 2023. But is the economy still percolating along as strong as it seems?
Conversation Number 2: Believe it or not, I don’t pay much attention to most of the economic indicators talked about on financial television. I put more faith in the boxed beef markets, and here we see some weakness has developed. As of Friday afternoon, choice was down $10.96 for the week while select was off $9.02. For the month, which is only two weeks old, choice has dropped $21.78 and select $17.02. Is this telling us the red-hot labor market has cooled during July? Or is the explanation much less meaningful? The argument could be made that this month’s breakdown in boxed beef is seasonal, with much of the buying for the US summer grilling season behind us not that the July 4 holiday has come and gone. While this has been going on, the cash market to buy cattle out of the yard has become a bit of a mystery, with little business being done by Friday afternoon. Yet futures are on a tear, with August live cattle (LEQ23) closing $3.275 higher for the day and up $3.175 for the week. Some of the buying in cattle futures can be tied to the rally in US stock indexes, there is a loose tie between the two, but the August-October futures spread has indicated commercial traders are also buying. A friend in the industry told me to not be surprised if cash cattle trades higher than boxed beef before this is all over. As a cattle research company put it, “This has been a bizarre week with cattle”.
Conversation Number 3: Shortly after USDA released its latest grain and oilseed supply and demand guesses, I posted my thoughts that included the main takeaway, “We know just as much about supply and demand as we did when the day started”. At the end of the piece I added, “It is obvious the powers that be see no end to the trade war between the United States and China…”. After giving it a couple days of thought, enhanced by an Old Fashioned or two, I’m of the opinion the most important piece of data we saw in the grain and oilseed sector this week was USDA cutting its new-crop soybean (ZSX23) export guess by 125 mb. In July. A month and a half before the end of the old-crop marketing year. That is an usual move this early in the game, and to me it speaks volumes about the reality of the trade relationship between the US and China. We all know when the trade war between the world’s two largest economies began (January 2018), with the fallout including Russia’s ongoing invasion of Ukraine, so we don’t need to rehash the particulars. This is what makes the hue and cry on social media that China needs to step in and “save” US agriculture that much more confusing. Those making the argument must not be familiar with the classic writing “The Art of War” by Sun Tzu or have read my column on my website from December 2018, “Lessons from Chosin”. The US is a secondary supplier to China, it’s that simple. With increases in demand based solely on South American weather.
On the date of publication, Darin Newsom did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
