MARKET SUMMARY 10-13-2022
The pace of beef cow slaughter has stayed consistently above last year’s record levels and is now hitting a seasonal uptrend. Cow slaughter has remained elevated, averaging around 28,000 head on a 5-day average basis, as producer continue to move cattle off operations. The strong cattle slaughter has stayed supported by the impact of high-priced grains and low-quality pasture conditions, which have forced cattle producers to limit the herd size. Moving into the late fall/winter, cow slaughter typically begins to pace higher, and current levels are an indicator of that stronger pace. The strong cattle slaughter of the past two years will have longer term ramification as the expected calf crops for 2022 and 2023 will be reduced, keeping beef cattle numbers low. The tight supply picture will help support live and feeder cattle prices well into next year.
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CORN HIGHLIGHTS: Corn ended up closing higher today after trading lower throughout most of the day as yesterday’s WASDE report was digested. Bearish CPI data from this morning that sent equity markets spiraling likely influenced grains as well. Dec corn gained 4-3/4 cents to end the session at 6.97-3/4, and March gained 5 to 7.05.
Corn was subject to weakness earlier in the day following CPI data which was released that showed an unexpected increase of 0.4 percent and has risen 8.2 percent over the last 12 months. Trade was expecting less of an increase and as a result the stock market fell sharply bringing most commodities lower as well before both recovered to end the day on a strong note. This negative CPI data may cause the Federal Reserve to continue their 75 basis point hikes instead of slowing the hikes to 50 basis points as traders had hoped. Extreme volatility was the theme today as the Dow traded a 1,500-point range and corn traded a 15-cent range. Yesterday’s WASDE numbers may give corn more upward momentum as ending stock estimates were cut to a 10-year low of 1.172 bb despite cutting both exports and production. While corn supply is tight, Ukrainian and South American corn is still cheaper so the big gains in wheat may have been guiding corn higher as Russia hints that they will not renew the grain shipping deal. The EIA had ethanol production rise for the second week to 932,000 barrels, an increase of 36,000 barrels per day, but weekly production is still about 10% below a year ago. Dec corn remains in an uptrend but is battling with the 7-dollar area of resistance.
SOYBEAN HIGHLIGHTS: Soybeans closed higher apart from Nov which lost 1/4 of a cent, while bean meal closed lower, but bean oil ended with a higher close. All three products were under pressure earlier in the day due to bearish CPI data. Nov soybeans lost 1/4 cent to end the session at 13.95-3/4, and Jan gained 1/2 to 14.05-1/2.
CPI data that came in higher than expected pressured the grain market and most commodities earlier in the day, but bullish support from yesterday’s WASDE report kept soybeans afloat, while meal and bean oil were mixed. Crude oil had a wide trading range today and was lower earlier in the day but closed higher, which gave bean oil a boost. Yesterday’s WASDE report gave the soy complex big gains as production and yield estimates were lowered and ending stock estimates were left unchanged, all a surprise to traders. In more bullish news today a sale of 9.7 million bushels of soybeans were announced to China, as well as another 8.9 mb to unknown destinations for a total of 37.9 mb of new soy sales within two days. Despite cheaper soybeans in South America, China is contending with new highs being scored for Nov beans on the Dalian exchange at the equivalent of $21.77 a bushel, an obvious reason for increasing US imports. Brazil has experienced excellent weather for early planting while 3/4 of Argentina’s bean crop areas are still experiencing extreme drought, and the two countries are still expected to produce 1.32 bb more than the previous year. In the US, low water levels on the Mississippi River have worsened making barge traffic a nightmare right as we get into the thick of harvest, and there still may be a railway strike to contend with. Overall, beans appear to have made a bottom and have exited oversold territory. Resistance is near the 50-day moving average around 14.15 for Nov beans.
WHEAT HIGHLIGHTS: Wheat futures were able to gain back some ground today with help from the financial markets. Dec Chi gained 10 cents, closing at 8.92-1/4 and Mar up 9-1/2 at 9.08-1/2. Dec KC gained 12-1/4 cents, closing at 9.82-1/4 and Mar up 12 at 9.80.
After trading both sides of steady, all three US wheat futures classes closed in the green. Early pressure from a lower stock market and higher US dollar eased when the trend flipped. The Dow went positive (up about 900 points at the time of writing) and the US dollar turned negative. Interestingly, CPI data this morning came in at 8.2%, which was higher than expected by many. This data was bearish, but wheat was able to gain back some ground along with corn and soybeans – a very encouraging close. There were also reports today that Putin is leaning to the side of not renewing the Ukraine export corridor in November. Another bullish headline comes from the southern hemisphere, in which the Rosario Exchange reduced their estimate of Argentina’s wheat production to 16.5 mmt (the lowest in 7 years) and there is talk about them restricting exports as a result. There are items to note on the bearish side of things though. For example, concern about the size of the Russian crop – on yesterday’s report the USDA left it unchanged at 91 mmt, but some private analysts are closer to a 100 mmt crop. Additionally, the Fed is likely to raise interest rates another 75 basis points in November.
CATTLE HIGHLIGHTS: Cattle market was quiet and choppy again on Thursday as the influence of outside markets and grain market kept cattle buyers on the sideline, despite a print higher in cash trade this week. October live cattle gained .275 to 146.450, but December was lower losing .525 to 147.925. Feeders saw moderate gains as November feeders traded .575 lower to 176.100.
Cash trade saw some action today with southern trade targeting $145 for settle some business, this traded $1 higher than last week, northern trade was still pending, but bids were trending higher, keeping the positive tone in place. More trade will likely build into the end of the week. Packer margins will now become an issue as those margins are starting to tighten, which could help limit the cash market. Today’s slaughter was estimated at 127,000 head, even with last week but 6,000 above last year’s levels. Beef cutouts were mixed at midday, with choice trading .42 lower to 246.24 but select added .56 to 214.82 on light to moderate demand of 110 loads. The choice/select spread is still trading at a wide 31.42 at midday, reflecting the demand for higher quality beef. USDA will release export sales for beef on Friday morning, which has been supportive of the market as international beef demand has stayed strong. Feeders saw light selling pressure tied to the quiet action in the live cattle market, and the firmer tone in the corn and wheat markets. it is encouraging that feeders are holding recent gains. The feeder cattle cash index was 1.01 lower on Thursday, staying in line with the October futures with expiration around the corner. The price action on Friday will be key going into the end of the week. Consolidation day, and firmer cash market is supportive of the market. Prices will likely be choppy into the weekend, but the price tone on Friday may help set up next week’s price direction.
LEAN HOG HIGHLIGHTS: Lean hog futures finished mixed to slightly lower as prices consolidated going into the expiration of the October futures on Friday. October hogs, which expire on Friday, gained .325 to 93.425, but December hogs slipped .100 to 80.600. October futures and options expire on 10/14.
December hogs have now added $6.00 of the most recent lows and trading above the $80 mark, consolidated, holding near the top of the trading range. With the October contract expiring on the 14th, the December hogs look to take over the lead contract month. The CME lean high index traded .46 lower on the day to 92.49 but is still at a 11.89 premium to the December futures. The market will be watching to see if the futures move towards the index or the index down to the futures. The cash hog market is trying to firm as morning direct trade was .42 higher to 87.79 and a 5-day average of 86.27. This direct cash market has traded higher for the past 3 midday sessions. Estimated hog slaughter for today is 491,000 head, 2,000 higher than last week, and 17,000 over last year, as hog numbers off available supplies remains strong, limiting the cash market. Pork retail values were softer at midday losing 1.50 to 102.44 on light demand of 131 loads. Retail demand has picked up recently, but the focus of the market will be the export totals. USDA will release the weekly export sales report on Friday morning. Chinese pork prices are running a strong premium to U.S. prices, and the market will be looking for possible Chinese business to replenish supplies after the “Golden Week” holiday they celebrated last week. A stronger demand tone will give the market some price optimism. The hog market is building a recovery off recent lows, with December gaining $6.00 in the past six sessions, held some of those gains today as price consolidated. This has been a product of money flow and short covering, now the fundamentals will need to kick in to make the rally last as prices try to recover.
DAIRY HIGHLIGHTS: Spot cheese and whey were both higher in today’s action but Class III futures were red with the second month chart down a dime to $21.16. For the week so far, the November Class III is down 69 cents as $22.00 keeps its status as a roadblock intact. Class IV futures were even weaker with an unchanged spot butter trade and 2.50 cent drop in powder. The spread between the second month contracts has dropped about $2.00 in the last six weeks with Class IV now at a $2.41 premium. With a quiet week for dairy-related fundamental reports, the path of least resistance has been lower.
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Author
John Heinberg