MARKET SUMMARY 12-27-2022
The soybean oil market benefited from strong money flow to start the week as soybean oil futures jumped over 3% higher during the course of the trading session. The buy strength in soybean oil came on short covering triggered by a strong move in Palm oil prices in overseas trade overnight. Front end palm oil prices jumped over 6% higher as demand prospects improved with the ending of the China’s COVID Zero policy. In addition, market rumors talked of a possible Indonesia export ban on Palm oil and impact to the Malaysian crop both tied to wet weather in the region. Despite some profit taking at the end of the session, March soybean oil prices challenged resistance trying close above the 100 and 200-day moving averages, which could bring additional short covering and buying support. This may be a market to watch going forward because the demand and competition for edible oils can support the soybean market overall.
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CORN HIGHLIGHTS: Corn futures finished with a bang, closing near the high of the day with March gaining 8-1/2 to close at 6.74-1/2 and December adding 5-1/4, ending the session at 6.07. Support came from four sectors which include higher energy and soybean prices, less than ideal conditions in Argentina where weekend rains were noted but considered widespread enough to not necessarily alleviate stressed crops, and technical buying when futures crossed above the 50-day moving average and upper Bollinger band. Light volume with holiday type trade may have heightened today’s trading range.
Export inspections at 33.7 mb were a positive yet the year-to-date at 348 mb trails last year by 28%. Bulls will argue just in time buying has been good for end users as both the dollar and corn futures have dropped in recent weeks. Now that prices have stabilized and weather more of a factor for South America expectations of stronger buying could be correct, especially if Argentina continues to experience a short fall in moisture. This will be noted in export sales in the weeks ahead. China has been restricting covid requirements. While this is likely a negative as the covid will spread, perhaps it will send a message to the world they are interested in igniting their economy and will be a more aggressive buyer. The biggest focus however will be South America and crop expectations. Depending on crop prospects this will either be the catalyst to aggressive end user buying or a continuation of just in time buying where end users only buy as they need assuming this is nothing more than a price correction. Forecasters are suggesting a waning La Nina pattern, generally good for growing conditions in South America which may limit upside potential. If March futures can move above the 200-day moving average (6.77-1/2) then a move to 7.00 is the next stopping point.
SOYBEAN HIGHLIGHTS: Soybean futures closed only slightly higher after rocketing above 15 dollars on the open. Optimism about China dropping some of their Covid restrictions as well as demand concerns regarding palm oil were supportive of soybeans and bean oil. Jan soybeans gained 3-1/4 cents to end the session at 14.82-1/4, and Mar gained 4-1/2 cents at 14.89.
Soybeans shot higher on the open gapping up to a peak of 15.22 with a 38-cent gain before drifting back below 15 dollars. The rally seemed to be due to China’s announcement that they will be dropping their zero-Covid policy and lifting quarantine requirements for travelers on January 8. This news has gotten traders bulled up, but Covid cases have been rising rapidly in China, so it is possible that restrictions get reinstated and that demand is impacted. The biggest percentage gainer on the day and perhaps the other big reason for the rally was soybean oil which gained over 2.5%. This move comes after Indonesia’s president announced an export ban which could include aluminum ore, palm oil, or both. 90% of the world’s palm oil is produced by Indonesia and Malaysia, and Malaysia may have some production issues as well. If palm oil supplies begin to run dry, soybean oil could really take off and bring soybeans along with it, though the market is very reluctant to see beans close over 15 dollars. Today, the USDA reported that 64.4 mb of beans were inspected for export last week, nearly 5 mb more than last week’s total. Last week non-commercials were net buyers of soybeans and added 3,989 contracts to their net long positions increasing it to 123,569 contracts. The trend for March beans is higher, but it remains to be seen if the rally today is enough to break prices consistently through 15 dollars.
WHEAT HIGHLIGHTS: Wheat futures gave up most of their gains by the end of the session to a mixed close. Chi had small losses, while KC had small gains (likely still on concerns about winterkill last week). Mar Chi lost 1-1/2 cents, closing at 7.74-1/2 and Jul down 2 at 7.84-1/4. Mar KC gained 4-1/2 cents, closing at 8.79-1/4 and Jul up 2 at 8.64.
Wheat bounced back and forth today as there was little news to drive the market. Earlier strength seemed to spill over from a sharply higher soybean market. But when those soybean gains slumped, so too did wheat prices. Overall, it was a quiet day for wheat and market news. The HRW wheat was able to hold onto gains as last week’s frigid temperatures likely brought some damage to that crop in the southern plains. In general, the 15-year low supply levels should supply some support to the wheat market, but headlines could sway prices as well. Right now, there are rumors that Putin is looking to initiate peace talks with Ukraine but that does not seem very likely as the missile and drone strikes continue. And while it does not have a direct impact on wheat, there are also reports that Russia will ban the exports of oil to those countries that impose a price cap. It remains to be seen how this will impact energy markets and what it could mean for commodities in general. Many countries have been purchasing their wheat from Russia as it remains the world’s cheapest offer and the slow pace of US exports remains a concern. Today the USDA reported wheat inspections at 10.3 mb, bringing total 22/23 wheat inspections to 431 mb.
CATTLE HIGHLIGHTS: Cattle futures finished mixed for live cattle and pressured in the feeder market as the cattle market reacted to strong grain prices and processed the Cattle on Feed report from last Friday. Dec cattle slipped 0.075 to 156.825, and Feb cattle added 0.125 to 157.875. In feeders, January feeder dropped 0.900 to 183.100.
Friday’s Cattle on Feed report showed what the market was expecting – tight cattle numbers with the animals on feed down 3% from last year. The recent strength in prices may have reflected this market view, and the cattle market saw minimal upside reaction. The placement numbers were at the higher end of expectations, down 2% from last year, but the overall trend in cattle numbers is still lower into 2023. With the report behind, the market focused back to the fundamentals. Cash trade was undeveloped to start the week as buds and asking prices are still being defined. Expectations are for cash prices to stay support into the end of the year. Retail values were strong at midday with choice carcasses adding 7.15 to 279.10 and Select gaining 3.82 to 249.29. The load count was light at 35 middays loads. The strong move in retail prices will only help support cash markets as the higher carcass values improves the packer’s margins. Feeder cattle saw profit taking with the slightly higher than expected placement totals and the buying strength in the corn market to start the week. The Feeder Cash Index still trading at a discount to the front-end futures prices, and that can still be a limiting factor. The price action in feeder markets was concerning on Tuesday and could see additional selling pressure from the technical side, especially if grain prices remain strong in the short term. Cattle on feed numbers were basically as expected, and the trend in cattle numbers continue to contract. With that, the cattle market is overbought and could be due for some correction. Regardless, the trend is still higher, and cattle numbers remain tight going into 2023.
LEAN HOG HIGHLIGHTS: Lean hog futures finished with gains as the quarterly Hogs and Pigs report showed a tight front end hog supply. This triggered bull spreading in the front of the market, anchored by a strong move in retail values at midday. Feb traded 3.650 higher to 91.475 and Apr hogs gained 1.075to 96.450.
Feb hogs closed sharply higher as the Hogs and Pigs report revealed that front end hog supplies are running 2% under last year’s levels. With the Cold Storage report last week showing a decline in pork supplies month over month and retail demand supported, the hog market looked to tighten the spread between the front months and the summer months. Summer hogs still showed gains, but with December -February farrowing intentions estimated to be up 1% over last year, the projected supply will likely slow the gains in those summer and deferred contracts. A strong move in retail pork values at midday added to the buying strength on the session. At midday, pork carcasses gained 6.68 to 98.74, with prices back challenging the $100 level. Product movement was light at 137 loads. The afternoon close will be key to see if the strength can maintain the day into the close. If so, that should help prices on the open on Wednesday. Midday direct cash trade was unreported due the lack of report on Friday, but the weight average price was 78.43, and the 5-day rolling average was firmer at 78.89, trending lower. The Lean Hog Cash Index traded 0.93 lower to 78.74. The cash index is at a large discount to the futures, which could be a limiting factor. The hog market got some of the news it was expecting on the Hogs and pigs report, and front-end reflected those numbers. The weak cash market compared to futures is still a concerned that hogs may be getting overvalued.
DAIRY HIGHLIGHTS: January Class III futures closed with gains of 31 cents at $19.80 today, representing a $1.07 move higher since last Wednesday’s close. Despite a short-lived move under $19.00, that mark held as support on the running second month chart on a weekly basis. Interestingly, the January Class IV contract closed down 24 cents today at $19.75, pushing the second month Class III chart over its Class IV counterpart in what has become a rare occurrence this year. These moves correlate with the underlying spot trade as cheese has garnered some buying over the last week, while spot butter continues its waterfall-like break. This week is devoid of any fundamental updates and volume could be even lighter than normal between the two holidays.
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Author
Amanda Brill