MARKET SUMMARY 09-06-2022
The U.S dollar index started the day pushing to new 20-year highs. The recent strong movement in the dollar is tied to the position of the Fed in raising interest rates, tightening money supply, and the impact of the bond market as interest rates rise, bringing strong money flow into the dollar index. Another major portion of the dollar’s strength has been the weakness in other currencies against the strong dollar. The euro, British pound, and Japanese yen are trading at multi-year lows vs the dollar index. The weak currency in other countries is a reflection of economic concerns in those countries, and investors are buying the dollar against those currencies as a hedge. The move has been dramatic in the past year. The strong dollar can have impacts across the markets, possibly limiting demand as the end user buying power is challenged for higher prices on U.S. goods and commodities.
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CORN HIGHLIGHTS: Corn futures, after trading with little change last week, started firmer on the overnight, gaining 4 to 5 cents only to move into the pause session at steady. Yet, bulls kept coming and by day’s end, concern of hot temperatures and lack of rain in the western Corn Belt had traders on the offensive. Also supporting prices is private crop estimator Informa projecting yield at 176.6 bpa. Sep gained 11-3/4 cents to close at 6.80-3/4 and Dec added 10-1/4 to end the session at 6.76, a close back above the 100-day moving average. Between Friday and today, Dec corn has rallied 18 cents. Another new high in the dollar was notched today potentially keeping bullish traders cautious.
Western Corn Belt temperatures near 100 degrees will probably impact corn yield or at least test weight, confirming again that the likelihood of a crop yield nationally near 170 bpa makes sense. Expectations for more South American soybean production and therefore more double crop soybean to corn acres is likely. Yet fertilizer is said to be near 80% higher priced than a year ago and most is imported by Brazil. The implication of course is more acres, but perhaps not necessarily more supply without lack of proper fertilization. Our point, markets are dynamic with a lot of spinning wheels internationally. Northern Hemisphere crops are not going to be what they could have been. Increased production pressure from the Southern Hemisphere and the need for a rebound in the Northern Hemisphere next year loom large. Crop ratings remained unchanged at 54% good to excellent and 19% poor to very poor. Volatility will remain active. Stay vigilant.
SOYBEAN HIGHLIGHTS: Soybean futures closed lower today as demand concerns from China remain a focus, both the U.S. and South America may be looking at record production, and inflation and recession fears have traders nervous. Sep soybeans lost 20-1/2 cents to end the session at 14.90, and Nov lost 21-3/4 cents to 13.98-3/4.
The soy complex was pummeled today following news from over the weekend that China has placed 65 cities and over 300 million people on either full or partial lockdown due to Covid. While China has been locking down cities here and there over the past month, soybeans remained relatively unfazed because of the increased export business, but a lockdown of this magnitude was too large to be ignored. However, Chinese demand has shown no sign of slowing so far, and Nov soybeans on the Dalian exchange rose 0.3% today at the equivalent of $19.95, near the highs of the past two months. This morning the USDA reported that 18.2 mb of soybeans were inspected for export last week which is up from 16.1 mb the previous week. Another major blow to the soy complex came from Argentina’s government. Argentinian farmers have been hoarding soy products due to inflation, but to combat that, their government implemented a “soy dollar” that is now set at 200 pesos to 1 USD which will last until the end of September. This was a significant incentive for Argentinian farmers to sell, and a record 1 mmt of beans were sold today as a result. Crush margins have slipped a bit as well per the USDA’s crush report today. Non-commercials were buyers last week and increased their net long soybean position by 2,670 contracts to 101,801 contracts. Nov beans remain in a pennant formation and could break out to either side, but there is a gap lower on the chart at 13.49. If the USDA ends up increasing yields on the 12th there is downside potential.
WHEAT HIGHLIGHTS: Wheat futures made small gains today with the exception of MPLS contracts (which lost about a penny). The bullish underlying fundamentals are supportive but the rising U.S. dollar is providing a bearish headwind. Dec Chi gained 6 cents, closing at 8.17 and Mar up 4-3/4 at 8.32. Dec KC gained 4-1/4 cents, closing at 8.82 and Mar up 4-3/4 at 8.83-3/4.
Wheat seems to be continuing to consolidate and is unable to break out to the upside. The Chi contracts have been testing the 50-day moving average recently but have been overall sideways for about seven weeks. One of the major concerns surrounding the market continues to be the evolving situation at the Zaporizhzhia nuclear power plant. There was reportedly new shelling in the area, as well as an attack on a major grain silo, which destroyed thousands of tons of grain. Additionally, the IAEA said that the shelling needs to stop immediately in order to avoid a nuclear disaster. From a more global perspective, the worries about inflation and recession are still major concerns and may be limiting overall wheat demand. The USDA export sales data is also still delayed to September 15, but inspections data is still being reported. (The USDA pegged wheat export inspections at 17.6 mb). In other news, Iraq made a purchase of U.S. HRW wheat which may have offered some support to the market.
CATTLE HIGHLIGHTS: The cattle market saw buying support to start the week, following through from Friday’s strength as firm retail values and technical buying supported the market. Oct live cattle gained 0.500 to 145.050 and Dec live cattle added 0.625 to 150.875. Feeder cattle used the strength in live cattle to trade higher as Oct feeders gained 1.150 to 186.100.
The market has moved back from the Labor Day holiday and has a more optimistic short-term tone. Oct and Dec cattle have pushed through moving average resistance and look poised to work higher in the short-term. The strength in the cattle market still came in the face of a shaky outside market and afternoon strength in the corn and wheat market, which is encouraging. Cash trade was undeveloped today, typical to start the week as bids and asking prices are still overall undefined. The direction of cash trade will be a key this week, given the premium the Oct contract has built over the cash market after Tuesday’s trade. The expectations are for cattle numbers to start to tighten and make near-term cattle supplies more manageable. That picture could help build some leverage for feedlots in the cash markets. Retail values found some support on Monday. At midday, choice carcasses gained 0.98 to 260.47 and select was 3.23 higher to 241.81. The load count was light at 59 midday loads. Choice carcasses trended lower last week, losing 5.47 which could be a concerning trend, but the carcass values holding near the $260.00 level are still overall supportive. Feeder cattle saw buying support from the strength in live cattle, despite a strong price action in corn and wheat markets. The Feeder Cash Index traded 2.29 lower to 178.96. Sep feeders are trading at a $5.00+ premium to the index and could be limited in that type of market structure. The cattle market may be anticipating tighter cattle supplies now that the market has moved past the Labor Day holiday. This window typically can bring some weakness in price, and this year fell into that pattern. The recent price action looks supportive of further upside in the near term, but the cash market will be a big factor in that strength.
LEAN HOG HIGHLIGHTS: Lean hog futures are trying to find some buying support and traded higher to start the week, as support levels held an early session test, and a more positive tone in the retail market helped provide support, triggering some light short covering. Oct hogs gained 1.075 to 91.110 and Dec was 0.800 higher to 83.500.
Hog markets are still in search of a near-term low, but the price action on Tuesday may again be the beginning of a low. Oct did trade above the most recent low and posted a hook reversal to the upside. This is not a sign that a near-term low is in place, and the market will need additional buying strength and may need to have improved fundamental pictures for that low to get established. Fundamentals are still concerning. The cash trade is still trending lower with midday direct cash trade down another 0.70 to 95.90 and a 5-day rolling average of 99.25. The Lean Hog Cash Index was an additional 1.52 lower to 104.74, reflecting the ongoing weaker cash trend. Oct futures are still trading at a 13.640 discount to the index. The trend lower in cash is still very concerning, despite the index premium. Retail values have found some footing, helping to bring some support to the market. At midday, retail carcasses traded firmer gaining 3.78 higher to 106.03. Today’s midday load count was moderate at 180 loads. Last week, hog slaughter touched 2.350 million head, which was down 50,000 head from last week and 35,000 head from last year. The Labor Day holiday window is typically difficult for livestock markets, and this year was no exception. The market may be looking ahead to a potential tighter supply picture for hogs overall.
DAIRY HIGHLIGHTS: For the first time since June 7, the Global Dairy Trade price index closed the auction higher. The increase from the event was a positive 4.90%, giving a lift to global cheese, butter, and powder prices. This snaps a streak of five down auctions in a row and is just the second up event in the last twelve. Within today’s GDT, butter added 3.30%, cheese added 1.00%, skim milk powder gained 1.50%, and whole milk powder recovered 5.10%. Global prices are at steep discounts from where they had been six months ago, so it’s not surprising to see buyers add to inventories at these levels. The fact that buyers returned to GDT was enough to give the US market a boost today. US spot cheese, butter, and powder were all bid higher on Tuesday. Second month Class IV milk added 47c to $24.10 while second month Class III added 15c to $20.09.
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Author
Bryan Doherty