MARKET SUMMARY 09-30-2022
Soybeans futures took a nosedive today on the heels of an unexpected 32 mb increase in quarterly stocks. The technical picture has now turned negative with harvest pressure mounting at a time when China has turned to Argentina for supply. Yet, yield results will likely tell the story, as will Southern Hemisphere weather in the weeks and months ahead. Expect volatility to remain high. While today’s number was a disappointment, world supplies remain tight and an increase of 32 million bushels is not a game changer. If China was hoping to buy beans cheaper, especially after Nov futures recently exceed $15, they are much closer to their hopes being fulfilled.
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CORN HIGHLIGHTS: Corn futures traded both sides of steady prior to the acreage report. However, the stocks figure was bullish, and prices wasted little time gaining 20 plus cents shortly after its release. Dec futures rallied to a high of 6.96-1/4 before settling back and closing 8 higher at 6.77-1/2. Sharp losses in soybeans likely weighed on corn futures late in the session. Sharply higher wheat provided support as did more feedback from producers suggesting mixed yield results. For the week, Dec futures gained 0-3/4 cents.
Today’s quarterly stocks figure came in lower than expected at 1.377 billion bushels. The pre-report estimate was 1.512 billion. This drop of 135 million bushels was termed supportive and is reflective of the firm basis levels that have existed for most of the year, including late summer. Ultimately, this puts yield results for this year’s crop into a more critical category. If the crop does not yield the current USDA estimate of 172.5 bushels per acre, carryout will likely continue to drop. If one takes today’s figure of 135 million bushels and drops estimated yield another two bushels an acre, carryout could quickly angle toward 1 billion bushels and make for a very volatile and likely higher-priced new crop for 2023. Keeping prices in check is resistance at 7.00 and belief that interest rates will go up and therefore so will the U.S. dollar which diminishes export potential.
SOYBEAN HIGHLIGHTS: Soybean futures finished poorly breaking support and reaching their lowest price since late July. Nov closed 46 cents lower at 13.64-3/4 and lost 61 cents on the week. The quarterly stocks figure came in 32 mb higher than the average pre-report estimate of 242 mb. Though today’s figure at 274 mb is still snug, recent concern China may buy less U.S. soybeans due to increased selling from Argentina coupled with managed money likely rebalancing at the end of the quarter and exiting longs all were negatives in the market this week.
The technical picture looks challenged, yet we want to be cautious not to be overly negative. If China was waiting for harvest pressure to seek more inventory, futures are now closing in on 10% cheaper than at mid-September. Yet charts now point to a next target of 13.56 Nov, the low established in early August. The lower band on the Bollinger bands held prices in check today. Both soymeal and oil were softer with meal giving up near 5.00 and oil losing close to 240 points. Palm oil futures continue to slip on increasing supplies. Focus will now turn to harvest results and planting progress in Brazil. Fertilizer could be an issue for South America but for now, expectations are for record supplies which perceptively is not good for prices after a day like today. Bears will point out the poor technical picture, more South American production and funds likely moving to the sidelines.
WHEAT HIGHLIGHTS: Wheat futures closed sharply higher today after the market received friendly data on both the Grain Stocks and Small Grains Summary reports. Dec Chi gained 25-1/4 cents, closing at 9.21-1/2 and Mar up 24 at 9.32. Dec KC gained 24-3/4 cents, closing at 9.91-1/2 and Mar up 21 @ 9.85-1/4.
Although falling from daily highs, wheat still closed strongly after a friendly USDA Stocks report. The USDA reported September 1 wheat stocks at 1.776 billion bushels, which is down 19 million bushels from the pre-report estimate. This is the second lowest stocks number on September 1 in 15 years. The small grains summary was also released today and was also supportive to wheat prices. On that report, the USDA lowered US wheat production to 1.650 bb (from 1.783 bb). Additionally, the estimate of harvested acres was reduced by 2 million to 35.5 million acres. With the report out of the way, the wheat market will likely go back to trading news headlines, and it appears that trouble is brewing in the Black Sea. It was reported today that Ukraine is applying for NATO membership through an accelerated procedure. They will need to be approved by other NATO members, but this could potentially serve to escalate the war into a global conflict. What makes the situation more concerning are the recent comments by Putin that he will put nuclear weapons on the table if necessary. If the war does breach beyond Ukraine’s borders, it is difficult to say how the market will respond. The only thing safe to say is that it would likely lead to an increase in market volatility.
CATTLE HIGHLIGHTS: Cattle futures took a hit today as a combination of higher corn prices, a continued downtrend in the stock market, and recession concerns weigh on the market. Oct live cattle were down 0.850 at 143.275 and Dec lost 0.725 to 147.050. Oct feeder cattle lost 3.150, closing at 174.175.
The cattle complex could not find any support despite yesterday’s higher close and strong weekly export sales (which China is the 2nd largest buyer). This week northern cattle were $1 lower but southern cattle were steady. With Sep feeders rolling off the table yesterday, Oct is now the front month contract and is at a slight discount to the index (at 175.46). Pressuring the complex today was the increase in corn prices after a friendly Grains Stocks report to that market. But with that out of the way, both grains and livestock markets will likely go back to trading headlines and news (especially those related to the economy). Food inflation remains a concern for cattle prices as consumers pick alternatives or switch to less expensive cuts of meat. A lower stock market and mixed box beef prices also did not help the situation today with choice cuts down 2.33 and select up 0.35. On the technical picture, cattle futures are still oversold and due for a correction to the upside.
LEAN HOG HIGHLIGHTS: Lean hog futures finished mixed with Oct losing 22 points to close at 89.22 and Dec leading gainers closing 50 points higher at 76.22. For the week, Oct lost 3.40 and Dec gave up 6.57. Liquidation over worries about both the U.S. and world economies was a big feature this week that also led to technical selling.
China was set to recently have been releasing internal supplies to meet increasing demand. This does leave the door open for more potential exports. Yet, globally a more serious concern that a worldwide recession is at hand, along with an escalating war, seems to have had traders exiting long hogs and cattle. The dollar also gained ground again this week pushing to its highest level in over 20 years. None of these are good long-term signs. The Hogs and Pigs report did confirm a tighter supply, but the market seemingly dismissed this report and factored in worries about declining demand. Such an abrupt change in livestock prices the last two weeks is either overblown or providing a great opportunity for end users. Estimated slaughter was 476,000.
DAIRY HIGHLIGHTS: The October Class III contract came under selling pressure at the $22.00 mark once more, closing down 19 cents on the day but still up 85 cents on the week. The Class IV trade was mixed today but the October contract was up 6 cents on the day/week to close at $24.36, 81 cents above the November contract as the calendar shifts to a new month and quarter on Monday. The spot trade was quiet today on low volume and movement. Next week will give the market a Dairy Products Production report on Tuesday as well as a Global Dairy Trade Auction, followed by August Dairy Exports on Wednesday.
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Author
Brandon Doherty