MARKET SUMMARY 04-12-2022
Wheat prices may be poised to break out to the upside. Chi wheat futures have posted an impressive rally, gaining over $1.00/bushel since the recent lows of April 4. The combination of adding war premium back into the markets, and the impact of poor crop ratings have brought money flow back into the wheat market. Monday afternoon, the U.S. winter wheat crop ratings are staying disappointing but did improve slightly to 32% good/excellent, more importantly, though, 36% poor/very poor, reflecting the impact of dry conditions in the southern plains. With little overall relief in sight, the wheat market is growing more concerned about a below-average U.S. winter wheat crop. Tensions in Ukraine have seemed to escalate, causing the market to add premium back to wheat prices, as supplies in Ukraine will likely be very limited to the export market. This morning, Egypt, one of the world’s largest wheat importers, announced that the government plans to soon allow buying wheat outside of tenders, as this importer of the grain is looking for more ways to secure supplies due to the disruption from the war in Ukraine. Wheat prices will be looking to test resistance at the 11.40 price level in the Jul contract, which if broken, opens the topside for wheat prices.
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CORN HIGHLIGHTS: Corn futures finished with double-digit gains as rumors of more Chinese purchases circulated. In addition, signals from the administration wanting to waive the ethanol blend cap from 10% to 15% gave the market additional positive news. A weather system suggests further wet and cold for much of the Midwest delaying fieldwork. High winds and lack of moisture in the Southern Plains have farmers concerned. Jul corn gained 13-3/4 to finish at 7.72-1/2, a new contract high close. Dec gained 13 to end the session at 7.31, also another new contract high close.
The trend remains higher as continued concerns that Ukraine will be lucky to grow half a crop, dry weather in parts of Brazil may limit production, and strong technical buying coupled with foreign buyers filling needs. Short covering was a noted feature today. While it is early in the season, it is interesting and perhaps concerning to have a conversation with producers who are struggling with extreme-dry conditions and high winds, and then in the next conversation visit with producers who are concerned about heavy snowfall and cold temperatures delaying fieldwork at least one if not two weeks. The availability of fertilizer is still a major concern for some, but it appears that it is a matter of cost and not necessarily supply for most. We must believe corn priced at 7.30 on Dec futures is one way or another buying acres.
SOYBEAN HIGHLIGHTS: Soybean futures rallied finding support from the Biden Administration’s support for E-15 ethanol this summer and strong gains in the corn and soybean markets. The need to purchase more soybeans for summer is paramount for China and with lockdowns easing, traders were adding to soybean long positions. May soybeans added 15 cents to close at 16.70-1/4 and Nov gained 21-1/4 to close at 15.07.
Higher corn prices for new crop are encouraging producers to consider switching back to corn creating an environment of acreage competition. Today’s new crop close above 15.00 looks impressive. You might recall the last time Nov closed above 15.00 it was only a short time before they dropped to under 14.00. It looks different this time as less than ideal planting for those trying to plant and harvest early may be in jeopardy. In addition, the realization that Ukraine will have a shortfall of crops is adding additional support, creating a tight vegetable supply problem for the world. Expect steady or improving exports. It is thought China has only near 20% of its summer needs booked. Most will come from South America, yet it is likely exports will reach or exceed the current USDA yearly expectations. This implies a tighter draw-down.
WHEAT HIGHLIGHTS: Wheat futures continue to rise as war conditions deteriorate in eastern Ukraine and U.S. winter wheat conditions remain poor. May Chi gained 22-1/2 cents, closing at 11.03-3/4, and Jul up 23-1/2 at 11.12-1/2. May KC gained 20-3/4 cents, closing at 11.62-1/4, and Jul up 21-1/4 at 11.66-3/4.
The winter wheat crop was rated 32% good to excellent, up 2% from last week, but down from 53% at this time last year. The poor to very poor rating was unchanged from last week at 36%. The crop progress report also showed U.S. spring wheat to be 6% planted, which compares to an average of 5%, and 10% at this time last year. As it relates to the market, Ukraine’s grain traders union, UGA, is estimating their wheat crop at 18.2 mmt, down about 40% from last year’s 30.3 mmt. The Russian forces appear to be regrouping for another round of attacks, and Ukraine is accusing them of using chemical weapons. It is also reported that the cities of Kharkiv and Mariupol may be running out of the supplies and ammunition needed to fend off the attackers. Paris milling wheat futures gapped higher on the May contract, breaking out of the sideways pattern and finishing 19.75 euros per ton higher to a new high close of 399.25. This may signify a few things, including the continuation of war concerns, Russia’s recent wheat export tax hike, and the news that Egypt is tendering for wheat only from European sources.
CATTLE HIGHLIGHTS: Cattle futures finished higher despite the strong trade in grain markets, as short-covering and technical buying led by demand optimism supported the cattle complex. Apr live cattle gained 1.425 to 139.950, and Jun was 1.500 higher to 136.300. For feeders, May gained 1.025 to 160.925.
The Jun contract saw buying strength moving through the 200-day moving average, breaking out of its consolidation range for the past day. Closing back above this price point brought additional short-covering and money flow. The key will be additional follow-through into the end of the week. The cash market will still be a key this week, and the strong winter storm across the Northern Plains may have helped trigger some early cash trade. Some very light trade triggered in the South at $139, up $1 over last week. There has been individual regional talk of firmer price levels as packer inquiry has been stronger this week. The market is optimistic of holding the firmer tone, adding to the buying support. Beef cutouts are higher at midday (Choice 272.86 +0.75, Select 261.54 +1.25), with improved box movement of 72 loads. Moving past the Easter holiday could help spur some retail buying as stores prepare for May and the expected uptick in grilling demand. The feeder market climbed nicely off early session lows supported by the buying strength in live cattle prices. Feeder price action was very positive, with closing trade at the top end of today’s range and well-off morning’s low for the second day in a row. This could open the upside more on Wednesday. Apr feeders are likely tied to the index, which gained 0.14 to 155.81 but is running at a slight discount to front-month futures. Cattle prices are turning the corner in the near term, as a firmer cash tone and improved demand prospects going into the late spring are bringing some buying optimism and positive money flow.
LEAN HOG HIGHLIGHTS: Hog futures finished strongly higher, posting triple-digit gains in the front end of the market, and constant building strength in the deferred contracts. Strong retail demand and technical buying helped push hog prices higher on Tuesday. Apr futures, which expire on Thursday, closed higher, gaining 1.200 to 99.625, but Jun hogs jumped 3.450 higher to 118.475.
Jun hogs broke out of its consolidation pattern, and crossed back above the 50-day moving average, following through the strong close on Monday. If the upward momentum can continue, prices will be looking to test the price gap on the Jun chart at 120.225 from earlier this month. The strong price move came against a softer tone in cash trade. National Direct midday values were unreported on Tuesday due to “Confidentiality”, and the 5-day average dropped lower to 98.74. The Lean Hog Index was lower, losing 0.43 to 99.63. With the strong price move, deferred futures added back to the premium over the index, which could be a limiting factor. Pork carcasses closed strong on Monday, helping support prices at the open, but values traded lower at midday on Tuesday. Pork carcasses were 0.76 lower to 105.88 on a load count of 178 loads. After such a strong midday move on Monday, pork values have been less than impressive. Daily hog slaughter is estimated at 473,000 head, down slightly from last week, and 10,000 head lower than last year. The hog market numbers are still tight, and the rate of slaughter may be our first indicator of supplies tightening. The price move on Tuesday was technically driven, breaking through key levels of resistance. The overall strength of this rally will need to see a strong tone in the cash market or retail values to lead. Overall, hog numbers are still looking to tighten going into the summer months, and the hog market likely hit a value point to trigger money flow into the group.
DAIRY HIGHLIGHTS: The demand for dairy spot products has quieted down over the past two sessions, keeping the dairy market paused. Over the past two days, just a total of 3 loads have traded in cheese, whey, powder, and butter combined. The question now is if demand has cooled off with such elevated spot market levels, or if there is just a short-term lull in demand. Over the past two sessions, cheese and whey are both unchanged, powder is down 0.25c, and butter is down 0.75c. Aside from a quieter spot market, there is no new news for the dairy trade this week. Next week will be a busy one though with a Global Dairy Trade on Tuesday, a milk production report on Wednesday, and a Cold Storage report on Friday.
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Author
John Heinberg