NTG Morning Comments www.nesvick.com - Wednesday, February 23, 2022 - Nesvick Trading Group
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Wednesday, February 23, 2022
NTG Morning Comments
www.nesvick.com
Weather
No big changes for the South American forecast. Still
looking at relatively limited precipitation in northern
Brazil with most areas seeing only near to below
normal rainfall over the next two weeks. Southern
Brazil will be dry today and early tomorrow, but
rainfall will return later tomorrow and after that we
should see an active pattern in place through at least
the end of the two week period. Eventually we should
see some above normal totals add up in RGDS and
surrounding areas. Today will be dry but tomorrow
morning we should wake up to find significant
showers and thunderstorms in Argentina. That
activity will kick off an active two week period with
the best rainfall amounts and coverage likely favoring northeastern portions of the country. 10-day
precipitation outlook at the right.
No changes to the US forecast either. Some snow in the ECB and into the Northeast while the Southeast has a
lot of precipitation on deck the next few days. The big story in the next 24 hours might be temps. Map below
shows low temps expected tomorrow morning, and note sub-zero lows dipping potentially into KS and maybe
even the OK Panhandle. Suffice to say there is no snow cover on the ground right now. I’m not one to get
worried about cold temps in the depths of winter, but the market might want to…
Crops
On Friday last week I broke down a few scenarios that pointed towards extremely big old crop soybean exports
based on the shortfall in production in South America this season. The “low” example pointed towards an
export total near 2,250 mil bu, which would be a full 200 mil bu larger than the current WASDE projection. I
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Wednesday, February 23, 2022
NTG Morning Comments
www.nesvick.com
noted that I didn’t expect this year to be quite so strong, due mainly to smaller MAM exports relative to the
17/18 example cited on Friday. However, for the sake of argument let’s “pretend” that exports will wind up
being 100 mil bu larger than the current WASDE projection. What might that imply for calendar spreads?
The math is pretty simple…adding 100 mil bu to exports and keeping all else unchanged would give us a 225 mil
bu carryout equating to a 5% stocks/use ratio. The chart below plots the N/X spread vs. the June WASDE
stocks/use figure. The highlighted 2022 print takes the most recent Feb WASDE stocks/use. The chart is hardly
conclusive…at a 5% stocks/use we’ve seen several years with lower spread values and several years with higher
spread values. My bias would be to favor the higher side, however. For starters, I think there is a strong
argument that the final crush figure might be higher than the WASDE projection as well, further tightening
stocks/use. Even if the crush isn’t higher, however, we know crushers have good margins and can fight the river
for beans. We are likely to get to a point where the cheapest place for exporters to get beans will be through
the CBOT delivery mechanism…which leads me to believe that spreads will be supported from here. At a
minimum, I see very limited downside in N/X and believe a move close to 250 could be in the cards. Thoughts
appreciated.
End-June SN-SX Spread vs. June WASDE Stocks/Use
350 2013
300
2009
2014
250 2004
200
2022
SN-SX Spread
150
2012
100
2021 2010
50 2008 2016
2015
2011 2020
2017
2005
2018 2019
0 2006
2007
-50
-100 R² = 0.4962
-150
0% 5% 10% 15% 20% 25% 30%
June WASDE Stocks/Use
Livestock
A quick glance at the Cold Storage report numbers today…though there isn’t much new to report. I’ve got charts
showing total beef and total pork in cold storage below. Beef stocks are starting the year off at a very high level.
The last time beef stocks were this large at the end of January was 2017. That said, this is the typical timeframe
to see inventories contract, so again it does make some sense to expect seasonal beef strength to kick in at
some point in the coming weeks. No change in the trend on pork stocks. January inventories are up from
December, but as you can see below that is nothing unusual and we remain well under the norms of the past
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Wednesday, February 23, 2022
NTG Morning Comments
www.nesvick.com
several years. Considering what appears to be a relatively weak export market, I think the interesting thing to
keep an eye on in the months ahead is to see if domestic disappearance is strong enough to prevent inventories
from building or if the soft export demand will finally allow us to see these inventories move back towards more
normal levels.
Beef in Cold Storage (Mil Lbs)
540
520
500
480
460
440
420
400
31-Jan 28-Feb 31-Mar 30-Apr 31-May 30-Jun 31-Jul 31-Aug 30-Sep 31-Oct 30-Nov 31-Dec
2017 2018 2019 2020 2021 2022
Pork in Cold Storage (Mil Lbs)
625
575
525
475
425
375
31-Jan 28-Feb 31-Mar 30-Apr 31-May 30-Jun 31-Jul 31-Aug 30-Sep 31-Oct 30-Nov 31-Dec
2017 2018 2019 2020 2021 2022
3Wednesday, February 23, 2022
NTG Morning Comments
www.nesvick.com
Financials
The Consumer Confidence report was out
yesterday and, as I’ve done in the past, I
thought we’d quickly look at some of the
internal numbers of the report focusing on
the labor market. The first chart at the top
right shows the jobs plentiful vs the jobs
hard to get indices in the top panel. The
bottom panel shows the spread between the
two. As you can see, while the jobs plentiful
index has backed off a bit from its highs, it
remains historically elevated. I’ve shown
before that the spread between the two
(bottom panel) is a good indicator of the
unemployment rate, and for now it
continues to point towards a relatively tight
labor market. The second chart shows a
breakdown of consumer expectations over
the next 6 months. In the top panel, the
white line shows responses indicating they
expect more jobs available in 6 months and
the orange line shows the respondents
expecting fewer jobs within 6 months. The
second panel again shows the spread
between the two. Interesting that this
spread is near its lowest level since even
before the pandemic. Looks like consumers
are starting to indicate expectations for
slowing growth?
Energy
Continuing a look at the consumer confidence numbers, I always find it interesting to look at the vacation
intentions portion of the report. As shown below, overall vacation expectations (over the next 6 months)
dipped last month but there is a seasonal component to that and I don’t think there is much more to it than
that. What still stands out to me is the ongoing below-average vacation by air travel intentions. We’ve
bottomed from the depths of the pandemic but are still below anything seen from 2011-2019. I will say that all
my recent airline experiences have been pretty full and airports have been bustling, so I do wonder if this is
really capturing sentiment. TSA checkpoint numbers are back to 2019 pre-pandemic levels…so obviously
someone is flying. I wonder what is the disconnect here…
4Wednesday, February 23, 2022
NTG Morning Comments
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Today’s Calendar (all times Central)
• Not much….
Thanks for reading.
David Zelinski
dzelinski@nesvick.com
901-766-4684
Trillian IM: dzelinski@nesvick.com
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This communication is a solicitation for entering into derivatives transactions. It is for clients, affiliates, and
associates of Nesvick Trading Group, LLC only. The information contained herein has been taken from trade and
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and are subject to change without notice. These materials represent the opinions and viewpoints of the
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5Wednesday, February 23, 2022
NTG Morning Comments
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