Commodities Overview Aug 2023 Edition

MONTHLY FUTURES MARKET OVERVIEW

Read the complete August 2023 Edition HERE

Grains

In August, the USDA raised the U.S. 2022/23 corn carryout 55 mil bu. to 1.457 bil. bu. as a result of lower exports, FSI usage and a modest 10 mil. bu. increase in imports. 2023 production was cut 209 mil. bu. to 15.111 bil. as the average national yield was cut by 2.4 bpa to 175.1. New crop usage was cut 95 mil. bu. with exports down 50 mil., feed down 25 mil., while FSI was cut 20 mil. Ending stocks at just over 2.2 bil. were slightly above expectations. World stocks for 2022/23 were 1.6 mmt to 297.9 mmt. Brazil’s production was increased another 2 mmt to 135 mmt. Global 2023/24 ending stocks declined 3 mmt to 311.1 mmt, vs. expectations of holding steady. 2023 production in Ukraine was increased 2.5 mmt to 27.5 mmt, which was offset by a 3.7 mmt reduction in the EU and a 3 mmt reduction in China.

Live Cattle

Record breaking elevated temperatures in the Southwest, the Central Plains and Western states continued through July 2023, drastically slowing weight gains for cattle in feedlots and cattle on pastures. Feedlots in the Midwest fared much better with very few days where  high temperatures stressed cattle. Elevated temperatures along with inflation concerns also changed the beef products they bought. There was good demand for all beef from steaks to hamburgers for the July 4 holiday, but demand quickly fell for top primal sections, rib primals and loin primals, steaks and roasts, as consumers shifted to beef that took less time to cook and heat up kitchens or time spent outside at the grill.

Lean Hogs

Food inflation has been a major concern of consumers. Consumers wanting to pay less at the grocery store began adding more pork to their grocery basket. When hogs bottomed on May 26 the 5-day pork carcass was $82.51/cwt. Loins were $84.91/cwt. Hams were $76.74 and pork bellies were $77.14/cwt. Pork prices and lean hog prices moved higher through June and on June 30 the 5-day pork carcass average was up to $100.83/cwt with loins at $96.29/cwt, hams at $87.12 and pork bellies moving to $109.75/cwt.

Stock Index Futures

Stock index futures came under pressure in August due to a variety of reasons. Federal Reserve rhetoric has become more hawkish recently. For example, Federal Reserve Governor Michelle Bowman said more interest rate hikes will likely be needed. In addition, Fitch Ratings downgraded the U.S.’s credit rating to AA+ from AAA. This surprise move from Fitch prompted a risk-off mood in the markets. Also, stock index futures were pressured when Moody’s cut credit ratings for 10 small and midsize lenders and said it may downgrade some of largest banks.

US Dollar Index

The U.S. dollar index bottomed in mid-July and has been trending higher into August. The greenback recently advanced to the highest level since June 7. In recent weeks flight to quality buying has been a supportive factor as well as the recently more hawkish comments from Federal Reserve officials.  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. Industrial production in Germany declined 1.5% month-over-month in June 2023, which is worse than the market consensus of a 0.5% fall and following a downwardly revised 0.1% drop in May.  Weaker inflation numbers also undermined the euro. Consumer prices in the euro zone  increased less than expected and producer prices fell more than anticipated.

Crude Oil

U.S. crude oil futures fell under $80. On August 23, EIA released its Weekly Petroleum Status Report, which appeared to be mixed. It showed a bullish, 6.1-million-barrel decline in the headline number on U.S. crude oil inventories, which is much larger than forecasts for a 2.8 million barrel drop. At current levels, U.S. crude oil inventories are approximately 2.0% below the five-year average for this time of the year.

Gold

Gold futures trended lower since July 20 but made a bottom on August 21. Much of the weakness was linked to a strong U.S. dollar and continued hawkish comments from Federal Reserve officials. In addition, there appears to be a movement within the Federal Open Market Committee to be in favor of keeping high interest rates higher for longer.

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