Cattle vs. Corn: Assessing Crop Conditions and Production

Unraveling the Complexities of Supply and Demand: A Focus on Cotton, Coffee, Hogs and Corn

Let’s talk about the commodities.

Grains are currently experiencing a significant lag, a common occurrence in the commodities market. While I have a strong affinity for commodities, it's essential to remember that these assets are primarily trading vehicles, not investment vehicles. With that in mind, here's my perspective.

The Bears have been asserting dominance in the grains sector, while the Bulls have been charging full-throttle in numerous SOFT Ag markets, leaving livestock markets locked in a fierce struggle for supremacy. However, as we approach the close of 2024, both of these prevailing trends could be poised for significant reversals.

Furthermore, looming on the horizon is the conclusion of the current Chinese New Year festivities, slated to end on February 18th, after a two-week shutdown of the entire nation. The aftermath of this holiday period presents a compelling spectacle, as observers keenly anticipate the monetary policies, fiscal strategies, and commodity procurement behaviors that China will exhibit post-celebrations. Historically, this interval has served as a time of introspection for the Chinese Communist Party, often crystallizing their agendas for the remainder of the year. Will we witness a flurry of flash sales from China targeting US/Brazilian agricultural products later in February, marking a decisive shift in global market dynamics?

As we navigate the intricate web of global dynamics, it becomes evident that these imminent developments hold significant implications for market participants worldwide. With the potential for unexpected turns in inflation, rates and the anticipated repercussions of China's post-holiday actions, investors and analysts alike are bracing for a period of heightened volatility and strategic recalibration. Against this backdrop, the convergence of factors underscores the critical importance of remaining vigilant and adaptable in the ever-evolving landscape of international finance.

Before we can buy we need to see this correlation come back in to balance.

Corn prices are often influenced by factors such as weather conditions, government policies, and global demand for feed and biofuel production. Conversely, cattle prices are influenced by factors such as herd sizes, consumer demand for meat products, and feed costs.

As the bears are declaring victory on the commodities markets, we are seeing the opposite in the softs.

Coffee is the only one that is down YTD. It also had a nice run in the end of 23.

Recent crop tours in Brazil have been confirming the heat damage incurred last Fall, which impacted the bud-to-cherry conversion process. The initial estimate, made several months ago, projected a crop size ranging between 67-68 million bags, and this figure appears to hold solid ground given the validation provided by these physical tours. While this amount of coffee production is adequate to meet current demand levels, it does little to bolster meaningful ending stocks. The issue lies in the significant hindrance to vegetative growth experienced during the fourth quarter, exacerbated by subsequent excellent rainfall since January, which unfortunately cannot compensate for the lost growth later in the season.