MARKET SUMMARY 01-09-2023
The ratio of Nov soybean futures divided by Dec corn futures is 2.36. Typically, if the ratio is 2.45 it might be expected that farmers might switch to more soybean acres. While the ratio isn’t the only thing farmers use to decide, it may play a role. At this point, it would suggest farmers may be inclined to plant more corn acres. Different from a year ago is the language we are hearing. A year ago, we heard many suggest their co-ops might not be able to get fertilizer. That does not appear to be the case this year. Cost is still a challenge but supply probably is not.
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CORN HIGHLIGHTS: Corn futures traded both sides of steady, eventually finishing with small losses. Mar gave up 1-1/4 cents to close at 6.52-3.4 and Dec lost 0-3/4 to end the day at 5.90-1/4. Another slow export inspections number at 15.7 mb and lack of new bullish news kept prices in check. Support today came from a generally warm and dry outlook for Argentina, a weaker dollar, and firmer crude oil prices.
On Thursday, the USDA WASDE report will make its last estimate of the 2022 yield. Most are expecting little change as small downgrades to yield occurred in September and October with a small upgrade in November which may be interpreted as minor adjustments already tweaking the crop size. Yet, one never knows for sure. There will likely be another small downgrade to export expectations. The ease at which prices dropped last week is concerning. Managed money was likely exiting after building long positions the week prior. We are concerned the market may have missed an opportunity to rally both as harvest was wrapping up and just prior to the new year. If storing a significant amount of crop, recognize the marketplace is lacking export sales or other supportive news. Historically, prices are high and a drop in value would not be out of the ordinary. Weather forecasts in Argentina and Brazil will likely be the biggest mover of a price trend in the weeks ahead.
SOYBEAN HIGHLIGHTS: Soybean futures closed lower today after bouncing around both sides of unchanged. Argentina’s dry weather has been offering support to the soy complex, while Brazil’s looming harvest and demand concerns weigh prices down. Jan soybeans gained 2 cents to end the session at 15.03-1/2, and Mar lost 4 cents at 14.88-1/2.
Soybeans futures have been slowly declining since the beginning of the year ahead of this Thursday’s WASDE report, which may potentially be bearish. The bigger threat for lower prices is Brazil’s nearly perfect growing season weather-wise and likely record crop that will be eagerly bought up by China. There was some tension in Brazil over the weekend with supporters of former president Bolsonaro storming government buildings in protest of the new administration and many have been arrested. In the U.S., the sales pace of beans has been gradually slowing with last week’s export sales showing only 26.5 mb of old crop beans sold, and earlier today the USDA reported that 52.8 mb of beans were inspected last week for export. Covid infections in China have been accelerating but once again, it does not seem to have impacted demand and Mar beans on the Dalian exchange are trading at the equivalent of $19.54 a bushel. The supportive factor has been good domestic demand thanks to strong crush margins which have incentivized processors to buy, keeping basis firm. Mar beans closed right at their 21-day moving average, but Thursday’s report should provide more significant direction.
WHEAT HIGHLIGHTS: Wheat futures closed in the red, with MPLS futures as the exception. While they gained about a penny or two, Chi and KC did not fare as well as the lower trend from last week continued today. Mar Chi lost 2 cents, closing at 7.41-1/2 and Jul down 1 at 7.55-1/4. Mar KC lost 3-1/2 cents, closing at 8.28-1/2 and Jul down 1-1/4 at 8.22-1/2.
Wheat, along with corn and soybeans, sank into today’s close. The earlier strength faded despite another plunge in the U.S. Dollar Index which is now around the 103 mark. Ultimately, in 2022 there was much concern about supply; not just of wheat, but many commodities. In 2023, those concerns may shift to that of demand. U.S. wheat exports have been very poor, especially as Black Sea offers are much cheaper. Today the USDA said 7.4 mb of wheat were inspected last week, bringing the 22/23 total to 444 mb. For 22/23, Ukraine has shipped 23.6 mmt of grain with 8.6 mmt (or about 316 mb) of that being wheat. And on the topic of the Black Sea, some media outlets are reporting that Russia broke their truce by attacking eastern Ukraine over the weekend (they had called a ceasefire for the Orthodox Christmas holiday). Additionally, some news reports suggest that insurers raised premiums on Black Sea vessels by 20%. Aside from this, there has not been much bullish news for the market to grab hold of. And this week’s WASDE report is not expected to show much change in the wheat department either. It is possible that the USDA could adjust the crops in Argentina and Australia though, with a decrease in the former and an increase in the latter.
CATTLE HIGHLIGHTS: Both live and feeder cattle contracts closed higher today with live cattle getting some support from slightly higher cash last week and feeders getting support from lower grain prices today. Feb cattle were 0.975 higher to 157.750, and Apr cattle gained 0.850 to 161.525. In feeders, Jan feeders gained 0.925 to 183.625.
Both fats and feeders gained today thanks to a combination of slightly higher cash, an increase in boxed beef, and slipping grain prices. Choice cuts moved higher by 3.15 this afternoon to 286.14 while select cuts rose by 0.26 to 259.60. The recent gains in boxed beef have been supportive to prices and an indicator of solid beef demand. Cash was slightly better last week as well with deals in the North mostly done at 252 which was 50 cents better and deals in the South steady at 157. Last week’s negotiated cash cattle traded totaled 73,664 head and of that, 77% were committed to nearby delivery while the rest were deferred. Higher boxed beef prices should incentivize packers to run faster kill schedules which will keep the market current and hopefully cause them to bid up higher for cash. Feeders have been tied relatively closely to the movements in corn, and right now those movements are sideways to potentially lower. Feb live cattle remain in an uptrend with resistance at the top of their Bollinger Band near 159.
LEAN HOG HIGHLIGHTS: Lean hog futures showed some signs of recovery today with higher closes across the board. After such a strong recent decline, traders may be buying into the market on the break. Feb hogs gained 0.525 to 80.800 and Apr was up 1.150 at 90.800.
Hogs began to recover today alongside a higher cattle market. Lower grains likely played their part as well. The hog market in particular may have found some support after such a big decline last week. From a technical standpoint, front month hog futures are at or near oversold levels and due for a correction. But looking at both stochastics and the RSI, neither are showing an indication of a turnaround in momentum yet. As with many markets right now, there is concern about demand and where it will come from. Even if supplies tighten this year, will lower demand offset that? While traders have their own concerns, consumers make the choice at the grocery store, and rising cost of food may weigh on not only hogs, but most commodities. Switching gears, cutout values have been on the decline which does not help the situation. Futures also remain at a significant premium to the index which is currently at 77.49. As for this week, barring any major news headlines, Thursday’s WASDE report has the potential to be the biggest market mover.
DAIRY HIGHLIGHTS: Cheese buyers were extremely aggressive on Monday morning and set a bullish tone in dairy futures as a result. During the spot trade, buyers bid blocks up a whopping 14.25c to $2.1975/lb on 2 loads traded and took barrels up 10c to $1.8250/lb on 7 loads traded. This buying surge took cheese back over the $2.00/lb level up to $2.01125/lb. Additionally, buyers jumped into the butter market and bid the spot price up 3.75c to $2.42/lb on one load traded. It was a strong turnaround day for the futures trade as the second month Class III futures added over 50c and closed back above $19.00/cwt. The dairy trade has been weakening for a number of weeks now, so perhaps a return of buyers to the spot trade can boost the market once again. For news and reports this week, all eyes will be on the feed markets on Thursday as the USDA will release its monthly Supply and Demand report and quarterly Grain Stocks report. Final yield estimates from the 2022 crop year are expected.
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Author
Amanda Brill