MARKET SUMMARY 05-05-2022
The action in the wheat market may be poised to lead the grain markets higher after a potential upside breakout on Thursday. The wheat market has been strong this week, led by the KC wheat complex, which saw the July contract finish 53-3/4 cents higher on Thursday to $11.77 a bushel. The price move was fueled early in the week with a cut to the India wheat crop projections from 113 MMT to 105 MMT and the talk of India halting or limiting wheat exports. The strength on Thursday was fueled by the U.S. weather forecasts. Expected rainfall across the southern Plains was disappointing over the past couple days, as areas missed on needed rainfall totals. In addition, forecasts for next week are targeting the first heatwave of the season with temperatures pushing into the 90s to 100s across the southern Plains, adding more stress to a historically poorly rated wheat crop. This has triggered new money flow into the wheat market, as prices are trying to break out of the consolidation wedge pattern the market has been building since hitting highs in March. The key after today’s price move will be follow-through buying, pushing prices higher. If this is truly a new price move for the wheat market, the entire grain complex will likely see some buying support.
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CORN HIGHLIGHTS: Corn futures closed with modest gains of 2-1/4 to 3-1/2 cents. Sharply higher wheat prices and some talk China may be in the market now that a holiday period is over added underlying support. Jul corn gained 3-1/4 cents to end the session at 797-1/2 and Dec added 2-1/4 to close at 7.38-1/2. Depending on where you are in the Midwest, planting is about to pick up in a major way, or remain delayed. Cumulatively, progress will advance as temperatures increase and drier conditions in the East prevail in the days ahead.
Export sales were supportive at 30.8 mb old crop and 29 mb for new crop. Year-to-date sales are now at 2.295 bb or 91.8% of total expected sales of 2.5 bb. If less than ideal weather persists in Brazil, look for a potential increase in export sales in the very near term. Next week’s Supply and Demand report could show an increase of expected sales as the world is looking for inventory to fill the void from Ukraine, and it will likely come from the U.S. The dominant weather for price direction will come in the form of weather. We just can’t put ourselves into a category to argue that weather is a dominant factor affecting yield at this time. Yet, each day that passes weather will become more critical for the planting season, in particular for those who are very wet and are looking at more rain in the forecast.
SOYBEAN HIGHLIGHTS: Soybean futures firmed, closing modestly higher gaining 6-1/2 cents to close at 16.47 and Nov added 5-1/4 to end the day at 14.91-3/4. Traders were buying meal (after hitting 3-month low yesterday) and selling oil. Meal gained 1.70 in Jul, while Jul soybean oil gave up 58 points. Export sales at 27 mb put the total for the year at 2.143 bb or 1.3% above the total forecasted sales of 2.115 bb. The 18 mb increase above the total forecasted suggests the USDA will raise exports next week on the WASDE report and lower carryout.
Keeping prices in check is a surge in the U.S. dollar and expectation for more soybean acres as was reported on the March 31 acreage estimate. However, probably the biggest determinant of soybean acres is how well corn planting goes. With some very saturated soils, it is likely there could be some re-measurement of whether or not to plant corn in these areas if it stays wet through the end of next week. They may choose to shift to more soybeans. We don’t believe, at least in conversation with producers, that there was much switch back to corn acres. Once farmers began conversations with vendors, they found fertilizer prices were either too high or there was no guarantee they could have delivery. Therefore, they likely stuck with their intent to increase soybean acreage.
WHEAT HIGHLIGHTS: Wheat futures again traded sharply higher on several supportive news items outlined below. Jul Chi gained 30 cents, closing at 11.06-1/2, and Dec up 26-1/4 cents at 11.08. Jul KC gained 53-3/4 cents, closing at 11.77, and Dec up 49-3/4 at 11.81.
The news that India may be restricting or banning wheat exports is still not confirmed, but the fact that the Indian government reduced its production estimate to 105 mmt is significant. Down from an expected 111.3 mmt (and with some private estimates below 100 mmt), India likely won’t play a major export role. In addition, Pakistan and Bangladesh are said to have lower wheat crops as well and they could ultimately be importers. Aside from the India news, there was another item of note which likely contributed to higher prices today. Oklahoma’s wheat crop is projected at just 57 mb (vs 115 mb last year) and yield at 23.5 bpa (vs 39 bpa last year). This information comes from the Oklahoma Grain and Feed Association. Aside from that, Texas may be in dire straits; their crop is rated only 8% good to excellent and 77% of the crop is rated poor to very poor. With triple-digit temperatures expected there in the coming days, the drought concerns are only on the rise. On a bearish note, export sales data was unspectacular. USDA reported an increase of 4.4 mb of wheat export sales for 21/22 and an increase of 1.6 mb for 22/23.
CATTLE HIGHLIGHTS: Cattle futures finished lower in some profit taking, as grain prices traded higher, led by a wheat price surge that triggered long liquidation in the cattle market. In addition, strong selling pressure in the equity markets likely spilled over and pressured cattle markets. Jun live cattle were 1.050 lower to 133.775, and Aug live cattle fell 1.050 to 136.025. May feeder lost 1.925 to 160.325.
Jun live cattle futures failed to push through the 200-day moving average. The path of least resistance seemed to work lower. The price action was soft today, as prices closed at the bottom end of the daily trading range, which likely leaves more downside trade for Friday. The steady tone in the cash market has helped limit gains in the cattle markets. Light cash trade began building on Thursday with $140 cash trade in the South, steady with last week, and North ranging around $146. Northern dress trade was at $232, again steady with last week. Trade was quiet on Thursday, and there may be a few wrap-up deals to end the week. Beef retail values at midday saw carcass values trade lower (Choice: -2.91 to 256.83, Select: -1.78 to 245.90) on movement of 114 loads. Choice/Select spread narrowed to 10.93 and could be reflecting a more current cattle supply. Weekly export sales reported new net sales of 14,600 MT for 2022 were up 28% from the previous week and 1% from the prior 4-week average. Japan, South Korea, and Taiwan were the top buyers of U.S. beef last week. The feeder market was also lower with triple-digit losses as the strong tone in grains triggered some selling pressure. Feeder price action was weak, and charts turned technically weaker, leaving the door open for additional long liquidation int Friday. The action of the grain markets will stay as a trigger for buying or selling in the feeder market. Cattle markets have had a good start to this week, but prices are pressured, giving back those gains. Cattle prices will be watching the grain market and money flow trying to push cattle prices lower. The market seems poised to go and retest recent lows, especially if the grain market can find strong buying support again.
LEAN HOG HIGHLIGHTS: Hog futures found another round of short covering, pushing hog prices higher with strong triple-digit gains for the second consecutive day. May hogs traded 0.200 higher to 102.800, and Jun gained 1.975 at 107.075.
Jun hogs got the key follow-through off Wednesday’s strong gains, posting its first higher high of the week. The strong price action on the day leaves more upside room for prices to challenge back to the 100-day moving average and the 10-day moving average at the $109-110 levels. The cash market still looks to be an issue, limiting the front end of the market. The Lean Hog Cash Index lost 0.11 to 101.04, and back trading at a discount of 1.760 to the May and 6.035 to Jun contracts, limiting upside. In morning direct cash trade, prices were 2.66 lower to 101.58 and a 5-day average of 101.31. Retail carcasses were firmer at midday, gaining 4.28 to 108.11 on light demand of 135 loads. Carcass values, in general, have been choppy trending slightly lower on the week, so with strong midday trade, the afternoon close will be key for price direction on the Friday open. Weekly pork export sales report new net sales of 23,800 MT for 2022 were down 24% from the previous week and 13% from the prior 4-week average. Top buyers of U.S. pork last week were Mexico, South Korea, and Japan. The hogs may be putting in a season-low with the firming price action on Wednesday and the follow-through higher on Thursday may help confirm the move. The technical picture on deferred contracts looks more friendly, as the nearby months are still dealing with demand issues and a choppy cash market.
DAIRY HIGHLIGHTS: The Class III June contract fell from a contract high of $25.60, set on April 18th, to a daily low on Tuesday of $23.57, more than a $2.00 drop in 12 trading days. In the two days since, about half of that has been recovered. Fundamentally, some help likely came from another friendly export report for March and spot cheese prices have avoided a sell-off, closing 2.6250 cents higher today at $2.3650/lb. However, while the setback on milk prices was severe, the market was getting due for a retracement after a very sold first half of April. Other fundamentals continue to turn bearish with higher milk and dairy product production and a break in world prices. So far, the 2023 contracts have not been able to garner as much of a recovery as the nearby futures.
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Author
John Heinberg