Written Commentary
MONTHLY FUTURES MARKET OVERVIEW
Read the complete September 2023 Edition HERE
Grains
In September the USDA lowered the U.S. 2022/23 corn carryout 5 mil bu. to 1.452 bil. bu. as a 30 mil. bu. cut in usage for ethanol production and 5 mil. bu. increase in imports was more than offset by a 40 mil. bu. increase in exports. 2023 corn production increased 24 mil. bu. to 15.134 bil., 140 mil. above expectations and just above the range of estimates. Currently this year’s crop is forecast as the second highest ever, just shy of the 2016 record at 15.148 bil. Driving the higher production was an 800k jump in harvested acres, while the average yield slipped to 173.8 bpa from 175.1 bpa in August.
Live Cattle
The cattle market during August 2023 was typical in some ways and atypical in others. Beef prices a week after July 4 through the first week of August drifted lower as summer heat kept ovens turned off. Consumers bought beef that could be quickly cooked inside or on the grill. On July 3 choice boxed beef was $328.73/cwt and as the heat intensified through July and into August, consumers also spent money on summer vacations and high energy bills for air conditioning. Beef prices fell. By August 1 choice beef dropped to $306.10/cwt.
Lean Hogs
August 1, 2023 was a significant day for lean hog futures because the rally starting on May 30, 2023 topped. On August 1, 2023 the August 2023 lean hogs rallied $31.47/cwt off the lows in May. Traders began to focus on the larger hog inventory and pork prices well off the highs. By week-end Friday, August 4, 2023, U.S. federal hog slaughter was up 1.3% over the same period in 2022 by approximately 951,000 hogs. On September 1, 2023 U.S. federal hog slaughter was up 1.4% over the same period in 2022, which is approximately 1,132,000 more hogs. The increasing hog inventory put a lid on pork prices moving higher.
Stock Index Futures
Stock index futures made a near term bottom on August 18, as Federal Reserve rhetoric has become more hawkish recently. For example, Boston Federal Reserve President Susan Collins said she needs more evidence to convince her that inflation has been tamed, and more increases in interest rates could be needed depending on upcoming data.
US Dollar Index
The U.S. dollar index advanced to the highest level since early March due to increasingly more hawkish commentary from Federal Reserve officials. In addition, the greenback has been supported by its safe-haven status because of ongoing worries over the health of the U.S. banking sector. Also supporting the U.S. dollar is a growing belief that the Federal Reserve is willing to keep its elevated fed funds rate higher for longer.
Euro Currency
The euro currency was pressured by further evidence of an economic slowdown in the euro zone. The euro area gross domestic product expanded only 0.1% on quarter in the three months to June, which was revised lower from an initial estimate of a 0.3% gain. Industrial production in Germany shrank 0.8% month-over-month in July 2023, which is worse than the market consensus of a 0.5% decline and following a downwardly revised 1.4% fall in June. Also, retail sales in the euro area decreased 0.2% month-over-month in July, following an upwardly revised 0.2% increase in June, compared with market expectations of a 0.1% drop.
Crude Oil
Crude futures traded over $90 per barrel, which is the highest since November last year, driven by expectations of reduced global supplies. The International Energy Agency reported ongoing supply cuts by major producers are pointing to a significant market deficit in the fourth quarter. OPEC also predicted a substantial 3.3 million barrel per day deficit, while the U.S. Energy Information Administration offered a more conservative estimate of a 230,000 barrel deficit. There was only limited price pressures when U.S. crude inventories unexpectedly increased by 4 million barrels last week, defying expectations of a 1.9 million barrel decline.
Gold
Gold futures are under pressure this month due to a stronger U.S. dollar, which advanced to its highest level since early March. In addition, the ongoing hawkishness from Federal Reserve officials added to the negative sentiment towards the gold market.
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