MARKET SUMMARY 05-02-2022
After closing at new highs for the year on the last day of April, followed by the weakness to start the first trading day in May, some in the corn market could be wondering if the high is in? Typically, the Dec corn contract does not put a high in the month of April. Since 1973, this has only happened 4 times. Last year, the corn market had a strong spring, like this year, and Dec corn peaked on May 7, for a rare May high. Like April, since 1973, and adding last year, Dec corn has hit its high in May 4 times as well. Typically, spring highs reflected short-term concerns, and see strong price support in the early season. This year, between the strong demand tone, poor South American weather, and the overall inflationary environment, there seems to be plenty of reason for prices to stay supportive. Typically, the months of June (8 times) and July (7 times) are the most common months for the yearly high in Dec corn prices. While an April high is not a typical occurrence, only time will tell. However, with the market volatility, and supporting storylines, the potential for prices pushing to a new high later in the calendar still seems likely.
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CORN HIGHLIGHTS: Corn futures struggled throughout the session as prices plunged early in sympathy with many markets. After scoring new contract highs on Friday, bulls may have temporarily run out of supportive new news. Planting progress in the western Corn Belt followed by much-needed rain had bears in charge. China continues with stringent lockdowns, continuing to worry investors that long-term demand and a 20% drop in energy use during April point to lower commodity prices. Sharply weaker soybean prices also weighed on corn futures. Jul corn gave up 10 cents on the session closing at 8.03-1/4 and Dec dropped. Technical weakness was noted with today’s move under the 10-day moving average, likely triggering stop orders.
The daily limit is now 50 cents, from 35, as enacted by the Exchange today. This may have had some impact today, although probably not much. News from Ukraine is not good for supplies (world) and China’s lockdowns will likely impact planting progress in that country. Nonetheless, today’s drop is concerning, yet we don’t want to read too much into it. This is the second Monday in a row where prices have dropped rather hard. We must keep in mind just how high prices are and how vulnerable they could be to a price drop, perhaps without cause. Like many springs, it is quickly becoming the have and have nots. Some are well done with planting and then have received beneficial moisture, while others have not turned a wheel and are concerned it could be several days or longer until they hit the fields. Coming into the trade session the average guess at planting progress is 16% with a range of 12 to 24%, according to Reuters. Export inspections at 66 mb were termed supportive.
SOYBEAN HIGHLIGHTS: Soybean futures plunged due to a large drop in soybean oil and concerns that exports for old crop have about maxed, as importers will concentrate on new crop. Export inspections at 22.1 mb were supportive bringing the year-to-date total to 1.735 bb or 82% of expected sales of 2.115 bb. Strong gains in the U.S. dollar and a 2.00 to 3.00 drop in crude oil were likely responsible for a weak opening. After peaking on Friday, soybean oil finished with a negative technical hook reversal (new high and lower close) which likely signaled those who were long to place sell stops under the market to exit if prices dropped. These orders were triggered adding to downside weakness with oil trading 200 to 400 points lower during the session.
Last week, we made the remarks that continuous pesky rains and wet weather would likely suggest that producers who were considering planting corn will likely stay with the extra soybean acres they intended to plant when surveying in mid-winter. We believe that continues to be the case after weekend rains kept many from advancing fieldwork. Historically the March-April-May window is a challenge for soybean prices to sustain uptrends if spring weather is close to normal. South American product fills the demand pipeline. While not an ideal spring, we still cannot make the argument of any significant delays or drawdown on yield potential either in corn or soybeans. That may change soon but for now, we continue to suggest an average crop with technology and farming practices indicating above-average yield.
WHEAT HIGHLIGHTS: Wheat futures had a mixed close today. Chi contracts Dec onward had small gains, but KC posted modest losses all the way out to May 2023. It seems that the market is stagnating and needs fresh news to provide direction. Jul Chi lost 1/4 cent, closing at 10.55-1/2 and Dec up 1-3/4 at 10.60. Jul KC lost 7-3/4 cents, closing at 10.98, and Dec down 6-1/2 at 11.04-3/4.
The Ukraine war provides a bullish backdrop as there is no end in sight. Several reports suggest that Russia destroyed the Odessa airport over the weekend and will continue its assault for the foreseeable future. In other world news, a heatwave in India has the potential to reduce their wheat crop, and the EU Commission has reduced their estimate of the EU soft wheat crop from 131.3 mmt to 130.1 mmt. Also bullish is the fact that the panhandles of Oklahoma and Texas and western Kansas are likely to miss upcoming rains. There are two sides to the coin though, as some HRW areas have chances for moisture. Last week the U.S. Dollar Index hit a high of 103.9280 – this is the highest level since December 2002 and may also provide a headwind to wheat prices, limiting upside potential. Weekly wheat inspections were pegged at 14.1 mb with total inspections now at 689 mb. Wheat exports are estimated by the USDA at 785 mb for 21/22. In other news, the Kansas Wheat Quality Tour is scheduled to start on May 16. This is delayed as it is typically completed ahead of the May WASDE report (which is due for release on May 12).
CATTLE HIGHLIGHTS: Cattle futures saw strong buying support, as a break lower in grain markets sent buyers pouring into the cattle market after the strong sell off. Jun cattle led the live cattle market higher gaining 2.550 to 135.200, and Aug live cattle gained 1.775 to 137.050. Feeders surged higher, as May feeders jumped 5.075 to 161.425, and Aug feeders were 5.800 higher to 174.075.
Jun cattle used the weakness in the grain market and the expiration of Apr cattle to start “May beef month” with a strong price recovery. Jun live cattle closed Friday trading $8.00 under the final trades in Apr and looked under-valued. Prices moved quickly of the trend line support from Friday’s close. Jun cattle challenged the 200-day moving average as overhead resistance, and this mark may be a key swing point for the Jun market. Last week’s cash market was supportive of prices, and that helped bring some buying support into the June cattle. Typical cash trade for Monday as cash trade was undeveloped and watching the trend. Expectations are for a packer to stay supportive of cash bids again this week. The trend in cash markets will be a key for price stability this week. Beef demand has been a concern, as colder wet weather has pushed some of the spring demand back but the improving forecast may have helped prices on Monday. Boxed beef prices were higher at midday (Choice 263.60, +2.82; Select 249.13 +1.16), on light movement at 82 loads. Feeder cattle futures quickly rejected Friday’s lows as prices surged higher during the session. A weak tone in the grain markets was the fuel, triggering a short-covering rally in an oversold market. The charts turned more friendly, posting chart reversals, and closing above nearby moving averages. The Feeder Cash Index lost 0.40 to 155.24. A strong start to the week and technical and strong price action helped support the market from an oversold condition. The key will be follow-through as the market moves along this week. Cash trade and improved demand will be key for that support. Not calling today’s move a low, but a possible good sign.
LEAN HOG HIGHLIGHTS: Hog futures saw strong selling pressure continue to start the week, as the path of least resistance is still trending lower. Demand concerns on the export front and the retail consumer are the fundamental concerns pressuring the market. May hogs were 1.025 lower to 99.875, and Jun closed 1.400 lower to 104.975.
Jun hogs keep the downward trend intact, posting its lowest close since January. Prices did try to work off session lows, but the mid-range close still keeps the trend intact, as prices are looking to challenge the 100-day support level at 101.700. The cash hog market at midday eliminated any chances of a trend higher, as midday direct trade was 3.50 lower to 96.08. The Lean Hog Cash Index was 0.04 lower to 101.77. With the trade today, May hogs are at a 1.895 discount to the index, but Jun is still 3.2050 higher. The tightening spread between the cash and futures could help slow the selling pressure on the front end of the market. Pork retail values were sharply higher at midday, gaining 5.59 to 110.17. Product movement was moderated at 157 loads. Demand has been a concern with slowing export demand and a cold spring forecast. Retail prices may have some optimism with a worming forecast that could help trigger some of the delayed spring demand due to weather. Estimated hog slaughter is 482,000 head for Monday, up 17,000 from last week as available hog numbers stay heavy. Lean hog charts are still on the defensive, and the trend is still lower as the market searches for a bottom. The hog market is moving into oversold territory, but the path of least resistance at this point still looks to be searching for a low.
DAIRY HIGHLIGHTS: A lack of demand and buying interest on the US spot dairy trade on Monday put a negative tone in the futures market to start the week. Buyers may want to first wait to see how tomorrow’s Global Dairy Trade Auction looks before proceeding with new orders. Heading into tomorrow’s event, the GDT has closed lower three auctions in a row, most recently falling 3.60% on April 19th. The results of tomorrow’s event will be watched closely. In the US spot trade today, all products were offered lower. Spot cheese fell 3.125c, spot butter fell 0.75c, spot whey fell 1c, and spot powder fell 0.50c. This kept futures red during the session. By close, May class III was down 24c while May class IV held steady. July and August class III were down 43c and 48c respectively.
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Author
John Heinberg