MARKET SUMMARY 09-27-2022
The Dow Jones Mini Futures contract mirrors the Dow Jones Index (representing 30 large American companies). The chart below shows the front month futures. As you can see, the trend is down since peaking in January, representing a growing concern that inflation and higher interest rates will cut into corporate profits. There are two ways to view the chart. The market is either making a healthy correction and providing buying opportunities for investors, especially those who buy continuously (think of those who contribute to their 401k each paycheck), or a more concerning view of not only the U.S. but also economic conditions worldwide. The big spike down was in the spring of 2020 when the pandemic hit full force throughout the world. Now the concern is declining economic conditions in Europe and China. Couple that with what appears to be an escalating war in Ukraine and investors are moving to the sidelines. So, is this a buying opportunity or will stocks continue to decline? If it looks like interest rates will be on the rise, the market may continue to discount equities until a positive perspective of economic growth is on the horizon. Currently one is lacking.
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CORN HIGHLIGHTS: Corn futures edged higher today gaining 1-1/4 cents in Dec to close at 6.67-1/2 and 2 cents firmer in Mar which ended the session at 6.72-3/4. Yet, it was another disappointing day as double-digit gains couldn’t hold. The dollar, after a weaker morning session, turned positive essentially squelching the corn rally. Expect farmer selling to be light, yet lower equities again today coupled with slow export sales and harvest give the nod to the idea prices may go lower easier over the next month than higher.
Early yield results are a variable but probably suggest the weekly crop progress numbers are accurate. The very poor and poor category is now 21% and good to excellent at 52%, not the kind of numbers that suggest the crop will suddenly be much better than expected. Yet, with the dollar higher and energy prices trading 20.00 to 30.00 lower than several months ago, it might be asking a lot for the corn market to gain upward price momentum. Expect light farmer selling, yet prices are still high historically. This could imply that those that have high yield may sell out of the field. Little or no carry suggest little or no reason to believe storage is paying longer-term dividends. Friday the quarterly stocks figure will be released and could provide the market with a new bias. A firm basis all summer suggests tight inventory or lack of strong farmer holding.
SOYBEAN HIGHLIGHTS: Soybean futures closed only slightly lower today as the U.S. Dollar Index continues to rise. Crude oil moved higher despite this and offered some support to bean oil keeping it from more significant losses. Nov soybeans lost 3-1/4 cents to end the session at 14.08, and Jan lost 2-1/4 to 14.14.
All three soy products experienced only mild losses as the U.S. Dollar Index reached the high levels that were hit yesterday. This, along with harvest pressure, has thrown a wet blanket on the markets despite some pretty bullish underlying fundamentals concerning demand. Crush margins remain strong incentivizing processors, but China will need to become more of an active buyer from the U.S. after making big soybean purchases from Argentina. China is rebuilding its hog herd and will need meal for feed. Soybean basis is strong in the U.S. Gulf rising 13 cents yesterday to 1.93 over Nov futures. Crop conditions were released, and soybeans were unchanged at 55% good-to-excellent and 15% rated poor to very poor. A potential bearish factor is Brazil’s bean crop, which is estimated at a huge 5.55 billion bushels assuming continued good weather. Argentina on the other hand is concerningly dry but have some showers expected this week. Friday’s September Stocks and Small Grains report is expected to peg September 1 soybean stocks at 247 mb, higher than the WASDE and up 10 mb from a year ago. Nov beans remain in their uptrend but closed below the 50-day moving average for the second day in a row.
WHEAT HIGHLIGHTS: Wheat futures settled in the green, but well off daily highs as pressure from outside markets and the U.S. dollar are hurting commodities. Dec Chi gained 13-1/2 cents, closing at 8.71-1/2 and Mar up 13 at 8.84-1/4. Dec KC gained 13-3/4 cents, closing at 9.43-1/4 and Mar up 14-1/2 at 9.40-1/2.
Wheat seemed to be just about the only market that could hang onto decent gains today (although it did close well off of daily highs). This was also in the face of the U.S. dollar making a recovery which pressured the markets. U.S. wheat is currently at a premium compared to other world exporters which is a concern. The European Union is estimating the Russian wheat crop at 95 mmt, whereas the USDA’s estimate is at 91 mmt. There is also still a question as to the future of Black Sea exports. So far 231 vessels carrying a total of 5.3 mmt of grain have left Ukraine in the corridor export deal. That deal, however, is set to expire in late November. It is also said that the planting of new crop in Ukraine is not going well with only 16% of intended acres planted so far. Here in the U.S., the southern plains continue to be dry which provides some bullish support. Yesterday afternoon, the USDA said that 31% of the winter wheat crop is planted compared to 30% average. Additionally, 96% of the spring wheat crop has been harvested, which is in line with the average of 97%.
CATTLE HIGHLIGHTS: The cattle market stayed under pressure from broad market selling, as the risk of a recession continues to move the money to the sideline as traders are exiting long positions. Oct cattle gained 0.100 to 143.575 and Dec cattle were 0.450 lower to 146.900. Selling pressured feeders as well with Oct losing 1.175 to 175.700.
Both live cattle and feeders closed lower except for Oct fats which gained a meager ten cents. Pressure from the higher U.S. dollar and lower equity markets have continued to bring livestock lower. Some cash traded at 143 today in the South, which is steady with last week’s averages, but not enough head were traded to establish the market. Asking prices in Kansas are firm at 145 but nothing has been established in the North just yet. The slaughter pace has been brisk indicating good domestic demand, but choice boxed beef prices are near their lowest levels in about two and a half years which is surprising given the rapid inflation. Overall slaughter pace so far this year is running up 1.5% from a year ago and was steady at 677,000 head last week. Even with the possibility of higher cash this week, futures may have trouble gaining as traders adopt the risk-off mentality thanks to the bearish outside influences. Friday’s CFTC data showed funds as buyers and we will look to see if that trend continues this week. Oct live cattle closed below the 50-day moving average and are approaching oversold territory. Oct feeders closed at the bottom of their Bollinger Band and are oversold.
LEAN HOG HIGHLIGHTS: Lean hog futures suffered another very rough close. Despite opening higher this morning, gains turned to sharp losses as traders have concerns about recession and inflation on their minds. Oct hogs fell 1.675 to close at 88.700, and Dec hogs were down 3.150 at 76.250.
Like the grain market, outside pressure is influencing hog futures. Despite higher cash and cutouts yesterday hogs could just not find support and that story was echoed today. Thursday will feature the quarterly hogs and pigs report which may help provide direction to the market, but there has been little in the way of fresh news to drive this market downward. Rather, it seems that traders fear recession and what it will do to demand for goods and food (especially beef and pork). Managed funds hold net long positions in both live cattle and lean hog futures, meaning that these markets are disposed to long liquidation. Private estimates for the upcoming report are estimating September 1 hog inventory to be down 1.6% from last year which is supportive. But the question remains as to what will tip the scales (vs global economic concerns). In other news, there were reports by some news outlets that China plans to release more pork from its reserves for the fourth time this year.
DAIRY HIGHLIGHTS: There remains to be quite a bit of uncertainty in the dairy markets at this time (and commodity markets in general) as several factors are keeping outlook questionable. The rising dollar is weighing on all commodities as its price is working up into new yearly highs almost daily. Additionally, the stock market is weakening as the economy appears to be on shaky ground. This all brings demand into question. Over the past few sessions, milk futures have pulled back off their highs, the grains have dropped back down to their 50-day moving averages, and fuel has dropped to lowest prices since March. For dairy, cheese prices remain elevated over $2.00/lb and butter remains near multi-year highs. These two factors alone are supporting market prices well above average. In Tuesday’s session, spot cheese fell slightly while butter regained 2.25c. Second month Class III milk futures were up 47c to $21.29, while second month Class IV held steady at $24.30. Each Class III contract September through January closed green, while each contract February through August ’23 closed red.
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Author
Bryan Doherty