Evening Report

Posted on Fri, 05/22/2020 - 14:47

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Happy Memorial Day!... We are forever indebted to all those who died serving our country and the families they left behind. Thank you. Markets and government offices will be closed Monday, May 25 in observance of Memorial Day. We will be back May 26 with full market commentary and analysis.

 

Pro Farmer newsletter now available… USDA finally unveiled its CFAP farm aid program, sparking a wave of questions about the complicated program that still falls well short of what’s needed. Meanwhile, U.S./China tensions are again mounting. Soybean planting is advancing rapidly, which could prop up yields. We have it all covered in this week’s letter, which you can access here.

 

Monthly inflation for grocery store items was the biggest in 30 years… USDA’s Consumer Price Index (CPI) fell 0.7 points from March to April, with the gauge of economy-wide inflation now up 0.3% from year-ago levels, according to USDA’s Economic Research Service (ERS). The CPI for all food climbed 1.5 points from March to April, with food prices now up 3.5% from year-ago levels.

ERS details that the CPI for restaurant purchases rose 0.1 points during April to stand 2.8% above year-ago levels. The CPI for grocery store items rose 2.7 points from March to April to stand 4.1% above year-ago levels. The month-to-month increase in food-at-home prices was bigger than any month since 1990.

“For the past several years, inflation for food-at-home prices had been slower than for food-away-from-home prices; however, the effects of the Covid-19 pandemic have ended that trend,” ERS explains.

Four months into 2020, food-at-home prices have climbed 1.8% and restaurant prices have increased 1.9%, ERS reports. Of the food items it tracks, eggs have seen the biggest relative price increase (7.4%) while fresh fruits have seen the biggest price decrease (1.7%).

Covid-19 disruptions prompted ERS to raise its forecast for food-at-home prices, with the agency now calling for a 2.0% to 3.0% increase in 2020. In April, ERS was still calling for food-at-home prices to climb 0.5% to 1.5% This would be a big jump from the 0.9% rise registered in 2019, and it would be more in line with the 20-year historical average increase of 2%.

ERS maintained its forecast for food-away-from-home prices to climb between 1.5% and 2.5% this year. The historical average is for a 2.8% increase.

 

Deere Q2 earnings top expectations… The equipment maker reported fiscal second-quarter earnings of $2.11 per share, compared to the consensus estimate of $1.62 a share. Revenue beat estimates as well. Deere said it expects global equipment sales to fall 30% to 40% this year as the Covid-19 pandemic weighs on demand. The company said it expected government aid programs to have a leveling effect for farmers. It expressed uncertainty about the Phase 1 trade agreement with China.

 

What’s ahead for ag aid… What is not in CFAP and what ag-sector items will be debated in the next aid package sometime in June. Likely topics include the following:

  • Funding beyond the current $16 billion in direct payments will be part of the aid package coming in June.
  • USDA’s CCC will see additional funding and perhaps a big boost in its current $30 billion borrowing cap. USDA can tap $14 billion after June for additional payments. Congress should honor USDA's $50 billion increase in CCC borrowing authority request.
  • An effort to do away with payment caps for CFAP and future ag aid payouts.
  • Indemnity payments for livestock producers who had had to euthanize animals will also be part of the coming aid plan.
  • Some lawmakers want to expand liability protections for meat plants. A bill by Rep. Vicky Hartzler (R-Mo.) immunizes meat processing companies. Exceptions are lawsuits proving criminal misconduct or gross negligence.
  • Biofuel sector will also get some aid utilizing USDA’s CCC. Sens. Chuck Grassley (R-Iowa) and Amy Klobuchar (D-Minn.) introduced legislation to support biofuel producers hit by the pandemic. It would require USDA to reimburse biofuel producers for feedstock purchases from Jan. 1, 2020 through March 31, 2020 via the CCC.
  • The cotton merchandising supply chain has incurred major carrying charges, logistical costs, and market disruptions with delayed and cancelled sales and shipments and increased stocks. A push is on to help aid this sector.

 

Cattle on Feed Report: About as expected… USDA’s Cattle on Feed Report showed major declines in both the number of cattle placed into feedlots and those marketed last month due to the Covid-19 situation. But the numbers were basically in line with pre-report estimates.

On May 1, USDA estimates there were 11.2 million head of cattle in large feedlots (1,000-plus head), down 5.1% from last year. That was the fewest number on feed for this date since 2017 and 43,000 head less than the five-year average.

April placements plunged 22.3% from year-ago, while marketings plummeted 24.3%. Placements were the second lowest for April since USDA’s data series began in 1996, and Marketings were the lowest for the month during that span.

Cattle on Feed Report

USDA

(% of year-ago)

Avg. Trade Estimate

(% of year-ago)

On Feed on May 1

94.9

95.1

Placements in April

77.7

77.4

Marketings in April

75.7

75.1

 

Not surprisingly, placements were down sharply in every weight category. April placements plunged 16.9% for lightweights (under 600 lbs.), 28.0% for 6-weights, 29.5% for 7-weights, 20.8% for 8-weights, 14.3% for 9-weights and 17.6% for heavyweights (1,000-plus lbs.) from year-ago levels. Placements in Texas, Nebraska, Kansas and Colorado dropped a combined 345,000 head from year-ago, which was 84.1% of the total U.S. decline.

With the data basically in line with expectations, there should be little if any market impact on Monday. Focus is on the recovering cash market as slaughter capacity rebounds from the Covid-19 slowdowns and closures. But traders will continue to keep futures well below the cash market.

 

Market Watch: Cash corn, soybean prices inch higher… Our Market Watch table features monthly and quarterly price outlooks along with weekly prices for a variety of ag markets. Check it out.