Default concerns of Chinese real estate group prompts massive selling.

The financial and commodity world went risk-off overnight, with stock indexes sharply lower, with Dow Jones down almost 700 points, energies, softs, and grains were lower, with livestock probably included today, as concerns over the default of Evergrande Group, the largest property developer in China, will miss a debt payment putting the developer in default. As a result, its price shares went into sharp decline along with a host of other leveraged Asian property developers. The selling related to Evergrande pushed the Hang Seng index to its lowest point since the start of the 2020 pandemic at just over 24,000 HKD, a daily loss of just over 3.3%. The Asian losses spilled over to European and US markets. Concerns over systemic contagions across other markets has created a “sell first asked questions later” mentality.

Evergrande Group has long been the face of Chinese real estate, surfing a decades-long property boom to expand into more than 280 Chinese cities as it peddled home-ownership dreams. But it is now smothered by a $300 billion liabilities burden that has crushed its credit rating, share prices and reputation among a once-adoring public. With Chinese markets closed today for the Autumn Festival, many are waiting to see if China will stopgap Evergrande to hold off potential contagion (as the US did in 2008 with AIG). The last thing on Chinese officials minds is to slow food imports, but the market is not concerning itself with that in the current environment. China has a managed economy, and it is expected that the government will backstop its real estate market following the holiday.

Lost in all the noise of the contagion stock and commodity selling is the reality that US farmers are reporting Eastern Midwest yields are not the records that NASS had forecast. Disease pressures are widespread, with corn stalk quality pegged as very poor. Crop sizes are not matching USDA prognostication. The reality is yields may be declining more than any fear of lost exports.

State US Ag commissioners will be meeting this week in Louisville. The annual meeting will include EPA administer Regan, USTR Trade Head Katherine Tai, and USDA Ag Secretary Vilsack. Each will make a presentation to an event called “Redefining US Agriculture”. Green fuels will be a feature as they are a steppingstone to a reduced carbon world.

Tropical storm systems are lacking in the Gulf, with 2 Atlantic systems turning northward and not expected to make a US landfall. The restoration of power for the Gulf should make fast progress in the next few weeks amid dry weather. Yet, the Plains winter wheat seeding will be slowed by dry soils while the W Midwest harvest surges ahead. A warm and mostly dry weather pattern will hold across the Plains and the W Midwest, with rainfall increasing for the E Midwest. The 10 day forecast shows increasing rainfall chances or the E Midwest. The rains target IN/OH and KY with rainfall totals of .5-2.50”. The remainder of the Central US is dry with high temps holding in the 70’s to the lower 90’s across the C Plains. The warmth/dryness is likely to persist for the Plains into October.

After the dust settled last week, cattle futures were moderately lower from Friday to Friday. Today's opening outlook looks to be lower with the widespread commodity selling that persists from the overnight session. Last week's cash cattle market held firm despite another sharply lower week of the beef trade. Cattle in Kansas moved at $123-124, and sales in the Texas Panhandle were at $124 or steady for the week. Nebraska showlists sold at $125, also steady, while the Iowa/Minnesota trade was $1-2 lower at $123-124. While the cattle trade was steady, the beef market continued to correct. The choice cutout fell $12.75 to a 5-week low, and the select value broke $13.62 to a 6-week low. Estimated slaughter margins dipped to a 5-week low, but at $782/head, estimated margins are $453 (138%) higher than last year and record large. In addition, the by-product value is now adding $166/head to margins, and the incentive to keep plants at capacity is tremendous.