- US exports of soybean products will not make up the projected difference in lower US soybean exports.
- February live cattle are also in a contra-seasonal selloff, also despite continued commercial buying indicated by futures spreads.
- Markets are indicating the US economy is heading into the holiday season in good shape, despite everyone saying things to the contrary.
As we head into the US Thanksgiving Day holiday there are a few market leftovers I want to clean up before folks are hit by Tryptophan Thursday and US Football Friday. A look at my page on Barchart shows I’ve spent a good deal of time talking about US soybean exports, the bloodbath in live cattle, and the recent selloff in crude oil. There have also been several other hot topics, most notably the continued relay race in the softs sector where markets take turns carrying the baton to new historic highs. We’ve also seen a resurgence in gold, while US stock markets are in position to extend 2023 rallies before we close the book on November.
After posting parts 1 and 2 of “Who’s Buying US Soybeans?”, I was asked if increased exports in soybean products would make up the difference of another slow export year for US soybeans (ZSPAUS.CM). The question is both complex and simple, and me being me, I’ll stick with the simplest answer: No. Though I have little to no use for USDA’s monthly supply and demand guesses, most people view them with a great deal of reverence. So, let’s use those. In its November round of nonsense USDA’s US supply and demand table looked like this:
The first thing to take note of is US soybean crush is projected to increase, marketing year-to-marketing year, by 88 mb. Not bad. However, USDA is guessing total exports to fall year-to-year by 217 mb, leaving a difference of 129 mb. That’s really all we need to know. We could go into the pace of US bean meal and oil exports, but we can see there is not an expectation of US crush demand, where those exportable supplies would theoretically come from, will offset the slowdown in exports. For the record, USDA also projected US bean meal exports to increase 636,000 short tons while bean oil exports fall by 28 million pounds.
The next leftover to address is that of the contra-seasonal selloff in live cattle. In my piece from last Friday I talked about the seasonal patterns for the December contract, and how the sharp selloff goes against what we tend to see in the market. I also noted this wasn’t being driven by the commercial side, but rather noncommercial selling. But what about the February issue (LEG24)? Similar to Dec live cattle, the Feb contract tends to post a low weekly close the last week of August before rallying through the last weekly close of December. The 2024 contract has been freefalling since the second weekly close of September, losing roughly $20.65 (10.5%) during that time frame. But also like December, the Feb-April futures spread has shown commercial traders are buying, the spread weakening by $2.00 through last week’s close and sitting closer to its previous 5-year high weekly closes (bullish) than its average weekly closes (neutral).
Finally, let’s address the economic elephant in the room: Things don’t seem to be as bad as everyone wants to believe. I’m going to leave the politics alone for the time being and focus on markets, knowing full well that markets do not equal the economy (I also know some US Presidents have struggled with this reality). Here’s where things stand as we head toward the last week of November:
- The S&P 500 ($INX), along with the Dow Jones Industrial Average ($DOWI) and Nasdaq ($NASX), is in position to post a new 2023 high. The previous mark is 4,607.07 with the 2022 all-time high at 4,832.17. Early Wednesday finds the S&P priced at 4,560, less than 6% off its all-time high.
- US 30-day Fed Funds futures show a rate hike in December is unlikely, with rate cuts possible in March. While few at the Fed are talking about rate cuts at this time, that’s what the market is showing us.
- WTI crude oil (CLF24) fell nearly $4.00 early Wednesday morning, dropping below $74 for the first time since mid-July. Not only that, but the spot futures spread is getting more comfortable in a contango (carry) meaning the US supply and demand situation has loosened considerably over the past year.
The bottom line is US stock indexes continue to strengthen while inflation has been weakening, opening the door for the Federal Open Market Committee to possibly bring an end to this round of cyclical rate hikes. At the same time the US labor market remains strong, airlines are booked solid, and consumers continue to spend on just about everything (raising the question of units versus price).
Speaking of the latter, we’ve also seen the big Black Friday event now stretched out to weeks if not months. Still, economists will be watching spending closely so they can analyze what it all means.
Tis the season.
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.
