MARKET SUMMARY 7-13-2022
U.S. inflation hits a 41-year high on this morning’s Consumer Price Index (CPI) report. The market was greeted with a disappointing inflation number this morning. CPI for June was at 9.1%, above expectations of 8.8%. This matches the highest monthly jump since November 1981. The month-over-month measure surged as well, with the CPI measure hitting 1.4%. This was the highest month-over-month growth since March of 1980 when the measure hit 1.5%. Energy sector stays as a driver of the inflation totals, accounting for nearly half of the monthly gain. Commodity prices have fallen off in the back half of June, so this number could be a peak number, but time will tell. The markets will now focus their attention to the actions of the Fed and the potential interest rate move at its upcoming meeting. The ongoing tightening of monetary policy and movement of interest rates will be key in trying to manage inflation concerns.
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CORN HIGHLIGHTS: Corn futures recovered after the 8:30 pause session, trading with double gains, but again finished on a somewhat lackluster note. September futures gained 6 cents, closing at 6.00, however, it finished 12-3/4 cents off its high for the day. The good news is that if finished 15-1/4 cents off its low. December added 8-3/4 cents, closing at 5.95-1/4. July corn closed at 7.40. Tomorrow is the last trading day for the July contract.
Both the European and American models look warmer and drier on the 6-to-10 day forecast, as well as the 8-to-14-day outlook. Keeping prices in check is a lack of demand. Lockdowns in China have resulted in lower consumer consumption of almost anything food related. In addition, lockdowns can create potential supply disruptions as unloading facilities and workers could be shut down or furloughed. As an example, imports of edible oils into China recently reached a seven year low according to Bloomberg news. A heat wave in China may also cause a rolling blackout of energy consumption also a less than desirable outlook for demand. China will be releasing GDP data this Friday with expectations of growth slipping to 1%, down from the first quarter of 4.8%. The availability of Brazilian corn could make it more difficult for US exports in the weeks and months ahead. Strong basis is noted, yet the inability of September futures to move toward the July contract price suggests end users are not aggressively buying.
SOYBEAN HIGHLIGHTS: Soybean futures closed higher today with August leading the way up and deferred months trailing behind. Uncertainty over the severity of the hot and dry forecast was supportive, while today’s bearish CPI data did little to bring grains lower. Aug soybeans gained 16-1/2 cents, closing at 14.84-3/4 and Nov gained 6-1/2 cents at 13.49-1/2.
The big news today was the CPI data that showed inflation at 9.1%, well above the forecast of 8.8% and the highest since 1991, but similarly to last month’s CPI report, soybeans were not significantly affected. Even the stock market and crude oil experienced minimal loss as high inflation numbers are coming as less of a surprise. Trade has been seemingly dependent on weather lately, and forecasts have shown above-normal temperatures and dryness for the next two weeks, but critical weather for the bean crop is still weeks away from becoming more concerning. The thing needed to kick this market into high gear is improved export business, and Chinese imports have fallen by 2 mmt for old crop and are now estimated to be 1 mmt lower for new crop imports as cheaper Brazilian beans become more appealing. Fears of renewed Covid restrictions in China are adding more worries about the strength of demand. Soybean meal was significantly higher today, but early day losses in crude, along with a large plunge of 8.6% in Malaysian palm oil, dragged soybean oil lower. November beans are still below the 200-day moving average, and their next target will be to get back above as beans typically don’t stay below that average for long.
WHEAT HIGHLIGHTS: Wheat futures gave up their gains into the close as recession and inflation remain on the forefront of trader’s minds. Sep Chi lost 3-1/2 cents, closing at 8.10-3/4 and Dec down 2-1/2 at 8.27-3/4. Sep KC lost 5-1/2 cents, closing at 8.62-1/4 and Dec down 5-1/2 at 8.70-1/4.
What at one point looked like a good day for wheat turned into a negative one by the close. Wheat struggled to hang onto earlier gains and posted small losses. This still seems to be tied to concerns about recession, higher inflation, and the rise in the US dollar. CPI data this morning came in higher than expected at 9.1%, confirming that inflation is getting worse. In global news, there was a meeting today in Turkey between officials from there, the UN, Ukraine, and Russia. The talks again centered on opening up export corridors for Ukraine out of the Black Sea. This is still viewed as unlikely to happen as neither Russia nor Ukraine want to back down, but if a resolution is reached, it certainly would add a bearish tone to the marketplace. As we mentioned yesterday, the monthly USDA report was relatively neutral, so the fact that prices have not been able to find their footing is cause for some concern as well.
CATTLE HIGHLIGHTS: Both live and feeder cattle saw additional buying strength on Wednesday, with light gains in live cattle futures, and triple digit gains in feeder cattle. The cattle market has looked under-valued compared to countryside trade, and with strong money flow into the cattle market, seeing some buying support. Aug live cattle closed 0.200 higher to 136.875 and Oct was unchanged at 141.275. Aug feeders gained 1.225 to 180.800.
The cash market got a start on Wednesday, seeing mostly steady trade, which helped support the live cattle market. A light trade is being reported in most areas this afternoon, with southern live trade at $137, northern dressed business is at $230, about $2 lower than last week. Northern bids continue to run stronger than southern bids and northern cattle stay very current and supplies tight. Talk that packers are buying southern cattle and hauling them north to help fill cash cattle demand. Today’s slaughter totaled 126,000 head, even with last week, but 7,000 greater than a year ago, as cattle numbers remain heavy on the front-end, this could keep the cattle market limited. Boxed beef values were softer at midday, with choice losing .07 to 268.44 and select dropped .37 to 241.80. Load count was light at 71 loads. In outside news, Inflationary pressure remains as core CPI for June was at 9.1%, the highest since November 1981. The strong inflation number will keep the demand concerns active in the live cattle market as consumer income will likely stay tight. Feeder market saw additional strong money flow and technical buying after the breakout of the consolidation pattern on Tuesday. The futures market may be starting to reflect the countryside cash market for feeders. The Feeder Cash Index traded .87 lower to 171.34, and is still at a discount to the futures. There is still time until August expiration, but the gap between the two could be a limiting factor. The cattle market is seeing good money flow, push price higher on Wednesday. Especially in feeders, price action looks strong, and may have more room to move higher in the near-term.
LEAN HOG HIGHLIGHTS: Hogs futures gapped higher on Wednesday, and their highest levels in nearly 6-weeks. A strong surge in Chinese hog prices and cash strength help support the market overall. Jul hogs gained 0.900 to 114.500, Aug gained 1.500 to 110.500 and Oct added .950 to 93.550.
August hogs tried to push back through resistance at the 100-day moving average, but the resistance levels hold. The gap open shows some buying energy and leaves some upward momentum available. Overall, the market is still trading range bound between the 100 and 200-day moving averages. It may be difficult to push out of that range given the current overall market conditions. Pork cutout values were higher at midday with carcasses adding 1.32 to 118.79. Movement was light at 135 loads. Carcass values have been strong the first half of the week, helping support the hog markets. Strong demand may be tied to the strengthening Chinese pork values and potential export demand. China did add 11,000 mt of new pork export purchase on last week’s export sales report. Cash markets are choppy. After a strong day on Tuesday, Direct morning trade was softer on Wednesday, losing 6.19 to 115.58 and a 5-day rolling average of 119.35. The CME Lean Hog Index was .80 higher to 112.57. July expires on Friday, and is still holding a premium to the index, which could be a limiting factor. Estimated hog slaughter for Wednesday was 454,000 head, down 20,000 from last week. The market is still seeing overall heavy weights, but forecast for ongoing hot weather may be supportive of prices and tight hog weights. The hog market is trading in a range bound fashion, but if demand continues to pick up, could be poised for a breakout higher. The cash market will still be the key in the days ahead.
DAIRY HIGHLIGHTS: The dairy trade is continuing to press to the downside this week despite any fresh news out. With the way the reports lined up, there is nothing new this week. Next week will be a busy one though with a Global Dairy Trade auction on Tuesday, a Milk Production report on Thursday, and a Cold Storage report on Friday. Recent Milk Production reports have been bullish, but due to the fact that the report won’t come out for another six trading days could keep the market under pressure over that stretch. Now, prices are likely breaking down from a technical break of support beneath the May low. There could also be some farmer selling out into future months that still hold at higher levels over recent years.
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Author
Bryan Doherty