MARKET SUMMARY 02-01-2022
The soybean market has accelerated its gains over the past couple weeks and prices have pushed to new contract highs. Over the past three weeks, March soybean futures have gained 44 cents, 55 cents, and so far this week 58 additional cents, as prices have zipped through the $14.00 and $15.00 levels. Ongoing concerns regarding South American weather stay as the support of the market, as difficult growing conditions in Brazil and Argentina have brought cuts in production estimates. Private analyst have lowered the Brazilian crop to a sub-130 mmt level, a large drop from the 144-145 mmt forecast a couple months ago. The U.S. is anticipating a pick up in export demand and the announcement of daily sales has supported this idea. The market is also dealing wit talk of Brazilian processor looking to secure freshly harvested soybean, competing with exporters in that country, and elevating the cash market. Regardless, at this time, the soybean market is trending higher quickly, as competition for the tighter global soybean supplies are making end users very anxious going into the weeks ahead.
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CORN HIGHLIGHTS: Corn futures posted decent gains today, likely following wheat and soybeans higher. Downgrades to the South American crops and strong ethanol demand are helping futures prices. March gained 8-3/4 cents, closing at 6.34-3/4 and December gained 4-1/4 cents, closing at 5.77-3/4.
South American weather remains a major factor in the direction of corn prices. Downgrades to the crop there have supported the market, with one analyst, StoneX, pegging Brazil’s corn crop at 116.1 mmt. Some spotty rains are expected in Argentina and southern Brazil over the next few days but the pattern is then expected to turn drier once again. According to Conab, 11% of Brazil’s first corn crop is harvested. The other major factor affecting corn is the Russia / Ukraine conflict. The UN met to discuss a diplomatic solution, but there doesn’t seem to have been any agreement. Talks between the US and Russia are expected to continue, however. In general, US corn demand will likely increase due to higher ethanol use and higher exports – this could bring the carryout down from the USDA’s 1,540 mb. On that note it was reported that 110,000 mt of corn was sold to Mexico for 21/22.
SOYBEAN HIGHLIGHTS: Soybean futures rocketed higher yet again. High meal and oil are supportive, as are the declining South American production estimates. March gained 38 cents, closing at 15.28-1/2 and November was up 15 at 13.82.
Ag Rural out of Brazil projects their soybean crop at just 128.5 mmt – this is about 11 mmt below the January WASDE report. Another analyst, StoneX, pegged the crop even lower at 126.5 mmt. Estimates for all of South America range from 500 to perhaps 900 mb of soybeans lost. On top of all this, private estimates suggest that the USDA may be underestimating soybean demand – carryout could be closer to 300 mb than 350 mb. There is also the fact that China, despite being on their Golden Week holiday, is purchasing US beans – another sale of 132,000 mt was announced today. Generally they wind down purchases during this holiday period but that does not seem to be the case this year, and it could be a result of the lower South American crops. In the southern hemisphere, there is a chance for limited rain in Argentina and southern Brazil over the next several days, but the following week is expected to turn drier. Those dry conditions may return as the prevalent pattern. Additionally, Paraguay is hot and continues to miss rains.
WHEAT HIGHLIGHTS: Wheat futures stopped yesterday’s bleeding, so to speak, with help from a surging soybean market. March Chi gained 7-3/4 cents, closing at 7.69 and July up 7 at 7.67-1/2. March KC gained 5 cents, closing at 7.86-1/4 and July up 4-1/2 at 7.88-1/2.
Though the US Dollar has set back some, it is still at a relatively high level (over 96) and may have impeded wheat from rallying further today. Soybeans were the star of the grain complex and some of that buying interest likely spilled over into wheat. Paris milling wheat futures, though not able to fully recover from the reversal yesterday, did manage to close in the green as well. There is a lack of new information on the Black Sea conflict – negotiations continue but no agreements have yet been reached. Russian troops remain on the border and it is reportedly the largest military buildup since the 2014 Crimea annexation. Looking at US weather, a snowstorm is set to move across the US southern plains the next few days. However the chance for precipitation in the HRW areas may be as little as 3/10 of an inch. While any moisture is welcomed there, the month of February is still expected to be drier than normal in that region.
CATTLE HIGHLIGHTS: Cattle futures saw follow through buying strength in response to a supportive Cattle Inventory report and technical buying across the livestock complex. Feb cattle gained .725 to 140.300, and April Cattle gained .850 to 145.375. Feeders saw buying strength as well with March adding .675 to 163.700.
The Cattle inventory report confirms the market expectation of a tighter cattle supply. Total Cattle and Calves were down 2% from last year at 91.9 million head. Total Beef cows were also down 2% at 30.1 million head, and the 2021 calf crop was down 1%. The keeps the expectation of a still tightening cattle supply going forward. This overall picture helped keep the buying strength in the market as multiple contracts of live and feeder cattle pushed to or are challenging new contract highs. The trade through those barriers also added technical buying into the cattle market. In daily fundamentals, Retail values were weaker. Boxed beef values were lower at midday (Choice: -3.99, and Select: -1.76). Load count was light at 67 loads. Retail values are still trending well above historical averages, reflecting the good demand tone. Weekly cash trade was quiet today as the market was undeveloped, as bids were undefined, but asking prices were trending higher. The majority of trade to be done later in the week. The feeder market strong higher fueled by buying strength in the cattle markets. The market is focusing on the tighter calf crop helping to boost competition for cattle. The cattle market overall looks friendly and is still trading in an up-trend. We like the near-term view of the market, as prices may be starting to target a winter/early spring high.
LEAN HOG HIGHLIGHTS: Hog futures saw mixed price action, but deferred contract saw strong buying strength to break out to new high. The cash market and retail values stay supportive helping push money into the hog market. Feb hogs lost .325 to 88.150, but April added 1.975 to 97.675.
April futures broke out of its consolidation pattern to the upside as prices surged to new contract highs. This was seen throughout the hog as summer months pushed to new contract highs as well on Tuesday. The anticipation of a tighter hog supply fuel the deferred market. A friendly demand tone stays supportive, but the premium of the futures market to the cash market limit near-term rallies. Fundamentally, The direct cash market was supportive today, adding .31 to 67.00 for the weight average price. The lean hog index had good strength, reflecting a more active cash market. On Tuesday, the index gained 1.54 to 82.15. Pork retail values were softer on Tuesday, losing .79 to 93.72, with a load count of 168 midday loads. The weakness kept the pressure on the Feb contract on Tuesday. The buyers returned to the hog market on Tuesday, pushing summer contacts to new highs and taking out any negative technical signals from last week. The momentum look upward currently, but the hog futures will be watching the fundamentals for reason to maintain today’s strength.
DAIRY HIGHLIGHTS: The class III milk market changed directions and worked lower again on Tuesday after the market had posted a nice three-day recovery. There was bidding in cheese again for the fourth session in a row, but a drop in both the spot class IV products kept pressure on the market. Spot butter was down 5.75c on two loads traded, while powder fell 2c on 3 loads traded. The close in butter of $2.4825/lb is significant, since it closed below the January low. This now opens up the possibility of further selling pressure in the butter trade from a technical standpoint. This may have kept some market participants cautious today. Additionally, the recovery provided a chance to get caught up on sales, so there may have been some farmer selling today as well.
The fact that the spot cheese trade was bid higher for the fourth day in a row was the main positive of the session on Tuesday. Cheese blocks have recovered 12.75c over that time while cheese barrels have added 13.25c. The class IV products are extremely overbought though, and have been sitting near multi-year highs for weeks now. Should the selling in the class IV trade continue, it could give the dairy markets a setback overall. We’re monitoring the trend daily and will be prepared to add recommendations on a break of support. For now, milk futures still hold in an uptrend and above important support levels.
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Author
Brandon Doherty