Commodities Overview July 2023 Edition

MONTHLY FUTURES MARKET OVERVIEW

Read the complete July 2023 Edition HERE

Grains

In July, the USDA dropped the U.S. 2022/23 corn carryout 50 mil bu and increased the soybean carryout 25 mil bu. For the 2023/24 U.S. and world supply and demand estimates, the USDA estimated the U.S. carryout at 2,262 versus 2,252 last month. The USDA left the world 2023/24 corn carryout near 314.0 mmt. The Brazil crop was estimated to be 129.0 versus 133.0 this year and Argentina was 54.0 versus 34.0. China’s corn imports were left at 23.0 versus 18.0. The world corn trade is estimated to be 198.2 mmt versus 176.5 this year. The U.S. was estimated to be 53.3.

Live Cattle

Cattle prices have been trending higher from April 2020 when packers slowed due to the COVID pandemic. But when packers began to increase slaughter, producers were hit with severe droughts in the western and southwestern U.S. and cow/calf producers for two years liquidated cows causing a downturn in fed cattle inventories.  By the first week of June 2023, U.S. federal slaughter year-to-date slaughter was down 3.4% and cattle and beef prices were continuing the two-year rally as packers needed beef to meet contracts.  On June 1, 2023 June 2023 live cattle futures opened at $169.35/cwt and rallied to historic record highs to $182.87/cwt. Traders took profits with June 2023 live cattle dropping to $177.25/ cwt, although there was a recovery in the last week of June with the contract settling at $181.50. From June 30, 2022, June 2023 live cattle moved from $148.15/cwt to $181.50/cwt.

Lean Hogs

Lean hog futures from the high made on December 27, 2022 at $109.77/cwt went into a free fall through May 26, 2023 to $75.45/cwt.  June 2023 lean hogs fell $34.32/cwt.  U.S. hog slaughter was up year-to-date, and hedgers from higher 2022 prices maintained shorts, which helped to pressure hog prices. At the same time, speculative funds primarily using spreads, such as buying live cattle and selling lean hogs, were active traders.  On January 3, 2023 June 2023 live cattle futures were $48.67/cwt over June 2023 lean hogs. By May 26 the spread widened to the historical record of $91.27/cwt.

Stock Index Futures

S&P 500 and NASDAQ futures advanced to new highs for the year. Much of the strength was linked to ideas that the Federal Open Market Committee will hike its fed funds rate at its July 26 policy meeting, which will be the last one in this current tightening cycle. This belief is contrary to recent hawkish comments from Federal Reserve officials. Fed Chair Powell reiterated at the European Central Bank Forum on Central Banking that at least two interest rate increases are likely necessary this year to bring the rate of inflation down to the U.S. central bank’s 2.0% target and that acting at consecutive policy meetings is not “off the table.” In addition, Fed Governor Waller advocated for another increase in borrowing costs after the July meeting.

US Dollar Index

The U.S. dollar index peaked in late May and trended lower in June and July. The reversal in prices was due to softer inflation numbers in the U.S., which traders believed could lead to a less hawkish Federal Reserve. On July 14 the U.S. dollar index fell to its lowest level since April 2022 after signs of cooling inflation enhanced the belief that the Federal Reserve will soon stop hiking interest rates. The greenback has underperformed the news since July 7 when the U.S. dollar index futures fell below a three-week uptrend line.

Euro Currency

The euro currency recently advanced to its highest level since February 2022. The currency of the euro zone was supported by expectations of higher interest rates from the European Central Bank and other major European central banks due to ongoing concerns about elevated levels of inflation in the region.

Crude Oil

Crude oil futures trended higher in July as we continue to see the effects of OPEC production cuts. September crude oil futures filled the gap on the daily chart at 75.03-76.42 that was made on April 3, 2023. Crude oil inventories were down by 0.708 million barrels in the week to July 14, which was below market expectations for a 2.44 million barrel draw. Also, gasoline stocks decreased by 1.066 thousand barrels, compared with the anticipated  1.577 million barrel draw.

Gold

After an extended decline gold futures bottomed on June 29. This bottom took place when analysts started to roll back their predictions of two additional fed funds rate hikes from the Federal Open Committee. In addition, a sharp decline in the U.S. dollar index increased support for the yellow metal.

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