Hot CPI turns dollar higher and reverses overnight equity and commodity strength.
Grain futures pushed higher in the night session following the post-USDA crop report bullish reaction. Still, they gave up gains in the early morning hours when the CPI was released at 7:30, showing that inflation increased and did not decrease as estimates were revealing, creating a violent reversal back to the upside for the US dollar.
The CPI was expected to be lower than last month at 8% year-over-year, and in fact, it came in higher at 8.3%, reversing the commodity complexes from a higher trade to lower trade as the US dollar rallied back to near 109.00 after four days of declines. This has analysts not only expecting a ¾% interest rate hike on September 22, but now there’s a 20% chance it could be a full 1%. It is also anticipated that rates will rise to over 4% for the Fed funds rate in the new year.
New crop cash corn/soybean bids are near the highest levels of the year, which is prompting cleanup sales of old crops and advanced sales of early drying crops. Brazilian farmers are set to seed a record soybean crop while Chinese interest in buying soybeans is waning. There is a strong tendency for grain prices to be lower the day after the USDA-friendly crop report, but if macro trends from the data, which implies another lower yield in October, return to the upside later this week, we advise further new crop sales in beans near our 15.25 target along with corn near $7.25.
A progressive weather pattern indicates above-normal temperatures and rain chances for the Plains and upper Midwest. No Midwest frost/freeze chances occur into September 26. Gulf hurricanes also remain absent, but activity stays elevated in the Atlantic.
Live cattle closed firm yesterday while feeder cattle lost ground to the higher grain complex. The negotiated fed cattle market remains at a standstill, on limited demand, with Packer buying trying to secure show lists lower this week on weaker seasonal demand trends. Feedlots have their offers higher by $1-3.
The September WASDE report had minor changes to the beef supply and demand data and outlooks. Fourth-quarter average dear price was projected at $147 compared to the CME cash equivalent of $150. The first quarter price was $151 versus the February/April contract average of $ 157.