MARKET SUMMARY 3-8-2022
Class III Milk futures have surged to new highs this week, and the strong product demand has been the driver of the prices gains. A large focus in the dairy product pricing is cheese prices, but recent moves in cash spot butter prices have stolen the show. Spot butter was 4.25 cents higher to $2.7650/pound on Tuesday, but this price puts spot butter to its highest levels since 2015. Butter supplies are tight, as the last Cold Storage report saw butter supplies down 33% from last year. The industry has seen strong demand and has been dealing with logistics and labor issues which have slowed production. In addition, the world is looking for edible oils and fats, and butter is an indirect substitute product. The tight supply picture will likely continue into the second half of 2022 and should be supportive on milk prices, as butter prices target all-time highs of $2.900/pound.
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CORN HIGHLIGHTS: Corn futures had another day of high volatility, giving both bulls and bears plenty of trading opportunity. By day’s end, however, futures finished mixed. May closed at 7.53, up 2-1/4 cents in a day that saw a high of 7.60-3/4 and low of 7.28-3/4. December ended the session at 6.43-3/4, up 1 cent with a range of 6.54-3/4 high and low of 6.33. The ongoing uncertainty with Ukraine and firmer energy prices continue to provide support. The US dollar is acting like an anchor to prices as it reaches another new high this week since last peaking in June of 2020. Keeping prices in check were losses in the wheat pit, which at times had contracts the limit of 1.30 lower.
Tomorrow at 11:00 central the USDA will release the next WASDE report. Expectations in general are for slightly tighter carryout and small declines to both Argentina and Brazil corn crops. We doubt there will be changes to Ukraine output and exports on this report, but we don’t know that with certainty. To put Ukraine into relevance, they export about 80% of their crop. If taking the average output of the last two seasons (near 37 mmt) and calculating 80%, this is roughly 1 billion bushels of potential exports that are currently in jeopardy. At present, it is challenging to imagine normal planting/farming conditions when the country is being evacuated. The Biden administration’s decision to halt Russian imports ignited a rally in crude oil, and if nothing else, perceptively suggests increased use of biofuels, including ethanol. Argentina’s corn crop is expected to be 52 mmt, verses 54 last month. The pre-report estimate for Brazil is 112.9 mmt, down from 114. US ending stocks are forecasted at 1.476 bb down from February’s 1.540.
SOYBEAN HIGHLIGHTS: Soybean futures finished with solid gains, adding 16 to 30-1/4 cents. May closed at 16.89-3/4 up 30-1/4 and November added 20-1/4, ending the session at 14.73-1/4. Higher energy prices and expectations that biofuels could be in stronger demand were noted today, as the Biden Administration announces a ban on Russian oil. It was another volatile day with May futures experiencing a range of 57 cents from low to high. Another day of announced export sales was noted to China and unknown destinations for both the current and next marketing year.
The USDA WASDE report is due for release at 11:00 central tomorrow. Pre-report expectations are for Brazil soybean production to come in at 128.3 mmt. Most private estimates are under 125 mmt. US projected carryout is expected to come in at 270 mb, below the February estimate of 325 mb, reflecting stronger exports due to declines in South American production. World projected carryout is expected to decline 3 mmt to 88.9 mmt. Both soybean oil and meal finished the day with solid gains, confirming the market is interested in buying dips. Soy oil prices reflect not only shortages of world vegetable oils but also the need to potentially aid in shortfalls of energy products.
WHEAT HIGHLIGHTS: Wheat futures had a wild ride today. After trading the expanded limit of 1.30 lower, they came back roughly a dollar by the close. Though settling lower, it appears that some traders were willing to buy the dip. May Chi lost 7-1/2 cents, closing at 12.86-1/2 and July down 57-1/4 at 11.95-1/4. May KC lost 52 cents, closing at 11.99-1/2 and July down 55-1/2 at 11.78-1/4.
After limit-up moves for six sessions in a row, wheat took a breather today. On any normal day you could say it took a beating, but in this environment, it only looks like a minor setback. War continues to drive volatility each day as new headlines are made. According to the UN refugee agency, two million people have fled Ukraine. This leads one to wonder how any winter wheat will be harvested and how any crops will be planted. Tomorrow’s USDA report may help provide direction in terms of price, but it remains to be seen how they will handle changes in Black Sea exports and any demand shifted to the United States. Wheat is not the only market being affected by the war. Today President Biden announced a ban on Russian oil, which will likely mean an increase in fuel prices. On the other side of the coin, Russia is restricting the trade of goods and raw materials. As a major fertilizer exporter, this could be problematic. In other news, winter wheat crop ratings had Kansas down 1% to 24% good to excellent. Oklahoma actually improved 5% but only to a dismal 16% good to excellent.
CATTLE HIGHLIGHTS: Cattle markets saw follow through buying strength on Tuesday, as grain prices were choppy in two-sided trade. The cattle market experienced some short covering as the technical picture improved. April cattle gained 1.150 to 139.050, and June cattle added 1.525 to 135.450. April feeders gained 0.650 to 160.325.
The technical picture improved as April cattle posted a higher high and have now rallied $5.00 off Friday’s low. The 200-day moving average is overhead and will act as a resistance barrier. April prices will need to push through the 140 level to add more buying strength. The cash market was quiet but started to see some trade develop on Tuesday with Southern deals at $138, down $2 from last week. This is disappointing and could be a limiting factor for live cattle prices, with April trading a premium to cash. Demand concerns are still a focus of the market. Boxed beef was lower again overall last week. At midday on Tuesday, boxed beef prices were softer after a more positive tone on Monday, (choice: -1.51 to 253.20, select: -3.23 to 246.99) with demand light at 87 midday loads. The cattle market will be watching the Choice/Select spread, trading at 6.21 at midday. The spread hit a seasonal low last month and is poised to widen, which could support the front end of the market. The grain market traded mixed, but strong selling pressure was in the wheat market. With strong live cattle prices, this helped support the feeder cattle market. The Feeder Cattle Cash Index was 1.26 lower to 154.11 and trading at a small premium to the futures market, which pressure March feeder today with expiration of the March contract at the end of the month. The direction of the grain markets throughout the week will likely dictate the direction in the feeder cattle market. The cattle market is trying to build a bottom, and the turn higher in prices has improved the technical picture. Prices are still looking to confirm a short-term low.
LEAN HOG HIGHLIGHTS: Hog futures posted strong triple-digit gains, fueled by strong midday retail values and firmer cash market, triggering some market short-covering. Apr hogs were 2.650 higher to 102.925, and Jun hogs were pushed 3.675 higher to 114.675.
The April hogs held the 40-day moving average and are trying to post some recovery. There is a price gap on the April chart at 104.250, which is also the location of the 10 and 20-day moving averages, which could be a likely upside target. In market fundamentals, pork cutout values were firmer. At midday, pork carcasses gained 4.59 to 111.24. Load count was moderate at 165 loads. The key for additional price strength will be the afternoon close on the retail values. Cash has been supportive with the National Direct morning trade trending higher, there was no comparison to Monday trade, but the 5-day rolling average was at 93.30, up 1.22 from yesterday on cash strength. The Cash Lean Hog Index was 0.29 lower to 99.28. The April futures jumped in value over the index with the price move today, pushing its premium to 3.645, which could limit near-term upside. The hog market is making a recovery but will have a lot of work to do to push through. The fundamentals stay supportive overall, but the technical trade will likely drive the market.
DAIRY HIGHLIGHTS: Class III futures continued their advance today with the second month pushing to a new high of $24.55, officially breaching the 2020 highs and leaving only the all-time high from 2014 at $25.30 on the topside. On top of all the overall commodity strength, spot cheese continues to be a driving force with gains of 5.1250 cents today and a close at $2.14625/lb. The 2019 high of $2.26875/lb would be the next upside objective. January exports were released today, but the USDA was having technical difficulties getting that published, so we should have that data in tomorrow’s report. Class III milk has bridged the gap with Class IV milk after Class IV traded to around a $4.00 premium at the peak for the second month charts, closing today with April Class IV just 63 cents above April Class III.
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Author
Bryan Doherty