Category: Agriculture

12 Sep 2024

AG MARKET UPDATE: AUGUST 26 – SEPTEMBER 12

Corn has gotten back above $4.00 in a struggling market that needs good news to propel it back to the mid $4s. The USDA raised US corn yield to 183.6 bu/ac up from 183.1 bu/ac in last month’s report. In the USDA’s eyes the crop is getting bigger as struggling areas will be more than made up for by the best areas across the corn belt. Despite the higher US yield numbers, the corn trade following the report was welcome to see as it did not move much lower on larger numbers. If corn can bounce off or hold this $4 level then we can probably expect it to hang around here as planting gets rolling until we know what is actually in the field and if the numbers are closer to 180 or 183.6.

Via Barchart

Soybeans have seen a nice 50+ cent rally off recent lows with dryness in areas causing a little concern with pod fill and some pickup in demand. The USDA kept yield the same at 53.2 bu/ac as they agree with Pro Farmer tour that a massive crop is out there. Like corn, this recent bounce off lows is encouraging but may setup a range bound trade until harvest gets rolling and we have a better idea on the true yield. The USDA did slightly lower US ending stocks in both 23/24 and 24/25. Continued exports and any issues to South American planting are needed to drive beans higher in the current market.

Via Barchart

Equity Markets

The equity markets have been on a bit of a roller coaster lately with the tech/semiconductor trade having quite a bit of volatility while some rotation occurs with the Fed rate cuts expected to begin this month.

Via Barchart

Other News

  • The market is expecting a 25 basis point cut to the Fed Funds rate this month

Wheat

  • Wheat has been the one positive market lately, hitting new 2-month highs. The war in Ukraine and Russia continues to escalate and the market has responded accordingly. The USDA did not make any major changes in the report.

Drought Monitor

Via Barchart.com

Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].

 

09 Sep 2024

LEONARD LUMBER REPORT: Last week’s trade showed just how much the headwinds are weighing on the market

Recap:

Last week’s trade showed just how much the headwinds are weighing on the market. Rates coming off are a given, but employment direction and costs aren’t. That leaves two reasons for the futures to rally. The first is the fill-in buy, which occurs every few months. The other is the “spook.” That is when another announcement comes out and spooks good shorts out. Lumber, unlike most other industries, has a quick reaction to news. We saw that early in the week with a mill announcement set off the short covering. Once that was finished, the algo/fund stepped back in to sell it off. There was an abundance of emotion in the market last week. It seems like the anxiety level is starting to rise.

The housing market is priced too high. Case/Shiller last week showed another gain in values—that’s 17 straight months. We are seeing inventories grow out there. The existing home inventories have been held low because of the rate spike. There is a growing pent-up sell lurking out there in the existing space. The inventory number could see a sharp bounce once the Fed cuts. That will push prices lower and cause a pickup in demand. This is important because a fluid housing market starts and ends in the existing home market.

The futures are behind the proverbial eight ball. The November contract is generally near value. The issue is the front-month expiring month. The spread trading is a good indication of the liquidation mode. The spread goes from -20 to -10 and then out to wherever. It is already at -29. The lack of industry participation in the big discount hurts the search for value. Commodity markets are efficient when value is recognized.

Technical:

The failure to create momentum last week was troublesome. This indicates a “more of the same” trade. We know rates are coming off. That is a major tailwind for us and should bring in support. September expires on Friday. It’s back to wait and see. In general, this market finds support faster than resistance.

Daily Bulletin:

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

The Commitment of Traders:

https://www.cftc.gov/dea/futures/other_lf.htm

About the Leonard Report:

The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.

 

Brian Leonard

[email protected]

312-761-2636

26 Aug 2024

AG MARKET UPDATE: AUGUST 12 – 26

Corn’s continued weakness following the August USDA report. Pro Farmer completed their crop tour last week and see the US yield being 181.1 bu/ac and a total 14.979-billion-bushel production. With another record crop expected this year, the market is continuing lower as plenty of 2023 corn remains in storage needing to be moved before this year’s harvest gets underway. The end of month heat is not expected to do much damage to the corn crop, but this crop is not done yet and still needs some more rain to get to the finish line. While demand is improving in the commodity space with a weaker USD, the large supply is still driving prices lower for the time being. There is not any major news to keep an eye on coming up except export and weather news.

Via Barchart

Pro Farmer found a massive crop in their tour last week estimating the 2024 US bean crop at 54.9 bu/ac(!!) and 4.74-billion-bushel total production. This soybean yield would easily be a record and would justify the collapse in bean prices seen this year. The current heat will likely stress the crop a bit, making that big a yield unlikely, however we should still expect to see a record crop, like corn. Soybeans need some good news in the form of demand whether that be from exports or the sustainable fuel market to get this thing turned around without production concerns in South America.

Via Barchart

Equity Markets

The equity markets have rallied back to recent highs after a small correction with the Yen carry unwind and some market broadening out of tech. With earnings season coming to an end markets will trade on economic data and any election surprises after Nvidia this week.

Via Barchart

Other News

  • Fed chairman Powell spoke in Jackson Hole last week and set up for the Fed to begin cutting rates next month.
  • The Canadian rail strike started and seemingly ended quickly with the government stepping in and saying that arbitration will decide negotiations.
  • Wheat’s summer trend lower from the $7.59 high looks to continue as it is not getting any help from other commodities to pull it up.

Drought Monitor

  

Via Barchart.com

Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].

 

26 Aug 2024

LEONARD LUMBER REPORT: As much as we all want to discuss the rail issue, we should take a step back and look at the market

Recap:
As much as we all want to discuss the rail issue, we should take a step back and look at the market. The cash market is up $75 from reported lows in a few weeks. That strength has pulled futures higher and also narrowed the premium. Two weeks ago, there was an uptick in cash interest. This past week saw digestion. That is very efficient. Last week’s futures trade was anything but efficient. There were wide swings from rail news and algo selling. The roll held it up while the computer sold. The futures are signaling an ending cash buy round. That remains to be seen.

It looks like the Teamsters were blindsided by the Minister’s next-day order to return to work, so they decided to serve 72 hours’ notice and sue the Minister. Welcome to Chicago. This back and forth has drained some of the momentum/panic out of the situation. This could lead to another week of digestion on the cash side and more $20 moves back and forth in futures.

I’m not a fan of shorting a commodity priced below the cost of production. While the cash market has robustly rallied, most mills are still underwater. While waiting for the reduced supply equation to hit the market finally, we may have to suffer the testing of lows a few times. Lumber 101, prepare for the worst, and hope for the best.

Technical:

The momentum couldn’t carry futures to new highs last week. The market hit an artificial wall in the high 530’s. It’s considered artificial because of the aggressive selling shown by the industry over 540. That doesn’t top the market but shows the growing inventory lists. It’s interesting how moving averages on the chart and inventories tend to match up over time. A slow Monday will allow the algo to shove Sept under $500. They’ll take one more shot at forcing the spec longs out before the labor news heats up again. This week, it may be more prudent to play the news cycles than the technical points…

 

Daily Bulletin:

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

The Commitment of Traders:

https://www.cftc.gov/dea/futures/other_lf.htm

About the Leonard Report:

The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.

 

Brian Leonard

[email protected]

312-761-2636

19 Aug 2024

LEONARD LUMBER REPORT: This has turned into a strong upcycle in the cash and futures markets

Recap:

This has turned into a strong upcycle in the cash and futures markets. I thought the market would correct after 23 days up and a very weak starts report, but it didn’t. The long lag between buys left many short cash. Yes, those holes are filled, but the wood is also going out the door. The buy-side hasn’t formed its rhythm yet. The rail issue isn’t helping the equation, as everyone knows it won’t be a factor until it is. The market has spent a few years in this area. The reluctance to participate at value is confusing.

Let’s take a look at the 2023 and 2024 cycles. In 23, the market traded flat, but with a good takeaway. It started near its lows and drifted marginally higher by year-end. In 2024 it was
“load the boat” coming into the year only to see the pace of outtake slowing. Today, we are seeing that pace pick up, similar to 2023. If the pace stays steady, there is a chance for a continued drag higher.

Technical:

The elephant in the room is the obvious. September futures are up $82 from their lows four weeks ago and $119 from July’s settlement. The fundamental question is whether Sept has returned to normal or is $40 too expensive. The technical question is whether Sept is overbought. On the fundamental side, the creep higher in the cash market keeps the higher futures levels in check. A good correction in futures could put them at a discount?? The technical picture is somewhat confusing up here. It lacks the momentum to go higher but will not enter into the overbought condition. There is more room for the upside. The issue with a pullback is this lack of momentum could stall the market out. Scale-up hedging is still the strategy. This type of market stops on a dime giving you little chance to hedge. If you wait till 560 or 580 you may miss it.

Daily Bulletin:

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

The Commitment of Traders:

https://www.cftc.gov/dea/futures/other_lf.htm

About the Leonard Report:

The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.

 

Brian Leonard

[email protected]

312-761-2636

12 Aug 2024

AG MARKET UPDATE: JULY 22 – AUGUST 12

Corn moved lower in the last couple weeks to trade around $4 heading into the August 12th USDA report. While the market saw small gains after the report, the numbers will continue to put pressure on corn as a record crop is headed our way. The August report has the US crop with a 183.1 bpa, 15.147-billion-bushel production, with good weather in the forecast there is not much to push this market higher currently. While these numbers are more bearish than expected, the market response to finish higher is a welcome sight after another move lower.

Via Barchart

Beans have very little positive news behind them as you can see from the chart. The US yield was bumped to a would be record of 53.2 bpa while harvested acres were 1.2 million acres higher than the trade was expecting, neither are good for prices. Brazil planting will get rolling in about a month with acreage expansion expected again. With prices this low, the acreage expansion will not be as straight forward as in the past but with no weather issues here or in South America there is not much supporting beans. Corn and beans would both greatly benefit from funds getting out of some short positions.

Via Barchart

Equity Markets

The equity markets have been volatile over the last couple weeks with last Monday seeing some huge swings in global equity markets. With rate cuts expected in September and a big week of economic news we should get a better idea of what to expect heading into the election.

Via Barchart

Other News

  • Election years add another wrinkle in the markets as Kamala Harris’ campaign has been off to a fast start naming Minnesota Governor Tim Walz as VP running mate ahead of the DNC in Chicago next week.
  • Escalation in war in Israel/Gaza and Ukraine/Russia will be worth keeping an eye on as it could lead to issues in global energy supply.
  • Wheat numbers were slightly bullish in the report with production and stocks below estimates

Drought Monitor

Via Barchart.com

Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].

 

12 Aug 2024

LEONARD LUMBER REPORT: FUTURES ARE BACK

Recap:

Futures are back. We have to say they are back when they can break $20 and then rally $25 in a matter of hours. This market is also so fragile that anything spooks it. Friday’s turnaround confirmed most opinions of the futures side of the market. The tailwinds caught up. The next read is how a perceived undersupplied market trade. Supply-driven markets are very volatile. We saw that on Wednesday and Thursday as futures retreated near $500. This week, I’m going to dig down into the fundamentals, the futures makeup, and the general psyche that’s pushing the market.

We know the trade came into 2024 bullish. Even by April, it was still a 50/50 mix. By June 1st. the buy-side of the industry had become fully entrenched. They were going to run inventories at a highly tight JIT model regardless of their business. This lack of exposure in the marketplace when the dynamics are moving quickly to a supply-driven market puts a floor in. In this industry, trading decisions are made over weeks and months while the market turns are in minutes. If a supply issue is built, this makeup will cause volatility. Another change was around June 1st.  The reappearance of traders in the futures market, which had been gone for years, was very telling. a few never even traded the new contract. They tend to buy futures instead of cash when prices are very low. They don’t look at the premium. They are buying the market to protect against upside risk. This isn’t forward sales. It is hedging.

I want to make a quick point about the Fed. When Powell announced the possibility of the Fed having to increase rates, it had an immediate effect on us. All he had to do was announce the possibility of it occurring to shift the builder’s plans. Last week’s announcement of the possible half-point cut in September could motivate some builders. The reason why he is cutting could be disastrous to this sector. If the possibility of high unemployment is the reason, then this will be short-lived, but for now, there is excitement.

The futures trade is the primary driver of this market. I know it is supply and demand, but futures can push cash $100 higher or lower with little to no reason. There is a lot of confusion about who exactly the drivers are, so I will break it down. In 2024, the industry has been carrying a very long future position in an environment that isn’t conducive to forward pricing. I like to call these traders the “Texas Hedgers.” They are long cash and futures. That speculative position and upward bias added to the six-month selloff. The industry shorts tend to only position against a cash position. In most cases, they do not speculate. We have also seen in 2024 a very large holding of shorts by the funds. There is no question that the funds drive the futures market. They drive all markets. The problem with the funds is that they aren’t a barometer for the trend or price of the lumber cash market. They have numerous reasons to be in markets, from the US dollar to managing a long position in one market with a short position in another. What is a benefit to us is that it creates movement to where the futures price works for your overall risk management plan. A good example is today. No one will hedge at $500, leaving a large swatch of exposure. The industry hopes that the funds will run the market higher to bring hedging back into play. The final category is all others, where most of us fall. A group of these trades is very astute to the market. While having been very quiet over the past few years, these traders recognize a possible tipping point in futures and try to push the market through it. They set off panic. I wouldn’t be surprised if they have been trying to get some upside panic on this recent move. I left the algorithm trade out because they do not carry a position. Their design is to be flat at the end of the day. They are great for intraday turmoil. They also search for tipping points.

To sum up, this industry’s market cap has shrunk. The available profit dollars are limited, so a $10 swing can shift you from a profit to a loss. This makes the outside dynamics more critical now than ever. We are a “data desert.” The indicators for direction out of the futures are needed to determine the makeup and cash buying cycles. Both need to be front and center in any planning.

Technical:

It was pretty ugly, but the futures finally broke through the resistance area of $518.00. This has created some upside momentum. Fridays $528 high will likely force more shorts to cover based on the technicals. As I said before, the market is set up to liquidate naturally with higher trading levels above $520. It has no relationship to the cash market at this point. It is all numbers driven down here. The high in futures only a few months ago was $563. That price isn’t high, given the pile of shutdowns since then. That price is high in relationship to July’s expiration.
Upside resistance has a threefold dynamic. The $100 rally from July’s low could bring the funds back to look at November. It also creates better hedging scenarios. Finally, given the state of the buy-side psyche, the 80/20 rule applies here. That is, 80% of the industry will not be paying the higher prices.

Daily Bulletin:

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

The Commitment of Traders:

https://www.cftc.gov/dea/futures/other_lf.htm

About the Leonard Report:

The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.

 

Brian Leonard

[email protected]

312-761-2636

05 Aug 2024

LEONARD LUMBER REPORT: The main takeaway is that the dynamics of the last six months have changed

Recap:

The main takeaway is that the dynamics of the last six months have changed. The first change is that the commodity funds are no longer sellers and are liquidating. If that stays true, the futures market will have no sellers. The next is that both cash and futures have moved higher despite what looks to be a stock market meltdown and other economic woes. Our market tends to ignore news as the trend changes. This market is forward-thinking. The plans coming into the year were to build as rates were lowered and traffic picked up. Going into the 3rd. quarter, some of that business is now on the books, as is the yearend homebuilders surge. This is not a bunch, but it changes the current pipeline structure. That brings us to the third change. Production has been cut. The amount is minimal with zero demand, but it will mean something if things pick up. Just because inventories are kept so low is enough to force prices higher. Add to that the mill’s song and dance, and you can’t find a stick. That’s what I love about this business. Two weeks ago, your mill guy was begging for an offer, and soon, they will be telling you to go scratch.

The market has less production going into the fall. We also see better demand as the year’s first half has pulled some building forward. Without funds, prices will be pushed higher.

What has changed? When things get tighter, the lack of funds for selling changes the market dynamics. What hasn’t changed is the fact that housing will stagnate in the near future. You have this major economic headwind versus a much-needed buy. The technical read calls for higher levels, and the buy round should get us there. While we may look good for a while, the fundamentals will creep back in. I don’t think we need to go back to $308 cash anymore.

Technical:

I have talked about the noise above the market for months now. Last week’s action tells me the market can grind through those areas. The market is nearing a pivotal area around 518. Whatever the reason, a push that high indicates there is more momentum behind this. I like to say if the market goes to $520, it will go to $540. Points become meaningless if momentum takes over.
 
Next week what to watch:
How quickly will the futures market get to 518.00? Or does it fail?
How does the fund roll go when the actual market is better?

Daily Bulletin:

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

The Commitment of Traders:

https://www.cftc.gov/dea/futures/other_lf.htm

About the Leonard Report:

The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.

 

Brian Leonard

[email protected]

312-761-2636

22 Jul 2024

AG MARKET UPDATE: JULY 8 – 22

Corn has consolidated in the $4 to $4.20 range since July 8 even with the USDA report. The USDA did not release any major updates to production as they let expected US yield at 181 bu/ac but it did have lower ending stocks for the next 2 years with increased old crop exports and increased feed demand. This bullish news was not enough to put a fire behind corn as the US crop this year remains on record breaking pace with the great weather start to the year. The forecasts to start the week were adjusted for a warmer drier US starting this week than initially thought, lifting markets.

Via Barchart

Beans seemed to find a near term bottom last week trading into the low $10.30 range. The sharp rally to start the week was a welcome sign with the largest up day for the Nov contract in at least the last 6 months. The USDA made minimal changes to soybeans in their update while adding demand to offset potentially record yields in the US. As we head into the back half of summer the bean market will trade on export demand from China and US weather.

Via Barchart

Equity Markets

The equity markets have shown volatility in July as several mega cap stocks that had been driving the market fell last week while small cap stocks saw their best week in years. The market is expecting rate cuts in September and the moves of last week appear to be repositioning within the market as funds space out their funds more away from the biggest stocks.

Via Barchart

Other News

  • President Joe Biden announced he would not seek reelection in November and put his support behind Kamala Harris to be the Democrats nominee. The DNC is in Chicago next week where unless a challenger pops up, she will become the nominee.
  • An assassination attempt on former president and current GOP nominee Donald Trump occurred at a rally last week after a gunmen fired on him at the event hitting his ear and killing someone in attendance.
  • The Ag markets will pay attention to the election as tariffs and trade wars (potentially from both candidates) are on the table.
  • Cotton continues its weakness drifting lower as the US is trending towards a large crop at this point in the year with weak demand from the global market.

Drought Monitor

   

Via Barchart.com

Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].

 

22 Jul 2024

LEONARD LUMBER REPORT: To keep it simple the sharp selloff on Monday rattled some cages and woke up a marketplace

Recap:

To keep it simple the sharp selloff on Monday rattled some cages and woke up a marketplace. All of a sudden, the trade looked up and saw low inventories with a cash market very close to $300. The round of cash was enough to bring in short covering in futures. To sum it up we finally are getting a cash buy. The question now is it one of the new 2024 tepid buys or a good old fashion fill in?

Early in the year, we expected shutdowns, fires, or rail to hold prices up. Most of those factors are still here. As a matter of fact, we are in the thick of the shutdowns, so that can become a feature. Nothing has changed with demand. We had run inventories to very low levels with fall coming soon. The market bottomed out in cash, and if it is going to go much higher, the futures have to become the driver.

Some could buy early in the week and sell most of it by Friday. The next buy will be higher, so they have to decide on building inventory. With the futures at such a premium, there is a way to protect it, but for now, buyers want to book a few profitable cars, noting that it’s been a few months. Market psychology always has the last word.

A higher futures trade will bring in more cash buying. The focus from here will be on the ability to manage the risk of the next cash buy. I bet everyone is putting the futures app back on their phones this weekend.

Technical:

The futures offer two major focal points. The first is a bottoming of the market with real upside potential. I’ll add to that in a moment. The other fact is that July futures expired at 418.50. With all the headwinds facing the economy and this industry, you can’t call it a low. But today, we are.

I have talked about the noise above the market for months now. Last week’s action tells me that the market can grind through those areas. The problem with the grind is that you have to deal with more fund selling each day. The data shows that it would take a trade over $518 to slow or stop that. A close over it gains momentum to the $528 area. The next level is $550. I’m not calling for anything like that, but if you are short and sitting on your hands, pay attention.

The gap left Tuesday adds a little “generative” confidence to futures. This rally was needed. It’s healthy and should stay intact until the funds say that’s enough.