MARKET SUMMARY 10-26-2022
The national average corn basis is turning positive and trending well above its highest levels in 5 years. The impact of a limited supply this year, and last year overall, has had an impact on the cash corn market. As harvest has moved past the 60% complete level last week, the cash market is trying to secure supplies in areas hardest hit by the lack of production, the western Corn Belt. Basis levels have turned aggressive as end users are trying to secure supplies for feed uses or ethanol production. The strong western cash market is trying to pull bushels across the Corn Belt to help meet the demand. The eastern Corn Belt has comfortable supplies, and the market and basis levels reflect that. The strong basis tone at this time frame will be supportive of the corn market because of its competition for supplies.
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CORN HIGHLIGHTS: Corn futures firmed in the morning hours on positive ethanol stats, a weaker dollar and higher energy, but slid into the close with December losing 1-1/4 to close at 6.85, the same price it traded at seven weeks ago. Ongoing harvest is keeping prices in check. Harvest has slowed some as many were rained out the last couple of days, however, it won’t take long for harvest to kick over the next few days. Yesterday’s 6-to-10-day outlook has the entire nation receiving above average moisture. With harvest likely approaching 70%, it is possible rain delays into next week may slow harvest on the remaining 30%.
The ethanol grind was viewed as supportive as 7.231 million barrels were produced last week, the highest figure since July 29. This is a 20.8% increase from the 9/23 report. Weekly ethanol stocks increased slightly to 22.291. Corn used last week was 103.38 mb, nearly 10 mb more than two weeks ago. Firmer crude oil prices provide support as well. If you have December corn options, know they have 30 days until expiration. Export sales for tomorrow are expected to remain slow at likely less than 20 mb. End users appear to only buy what is needed. Ultimately, one must believe sales will pick up. There just is not enough substitute of any commodity in the world to take the place of corn. This, in part, may be why bulls continue to buy dips. Farmer selling remains light and sources suggest that will continue to be the case as farmers fill up their storage bins. Exceptions are improving basis levels in corn deficit areas where yields are solid and firm basis levels are encouraging producers to sell more actively.
SOYBEAN HIGHLIGHTS: Soybean futures traded higher all throughout the day, but faded into the close after reaching the upper level of the trading range and closed relatively unchanged. Meal fell, but bean oil closed higher thanks to a boost in crude oil. Nov soybeans lost 1/4 cent to end the session at 13.81-3/4, and Jan gained 3/4 at 13.93.
Soybean futures approached the top end of their trading range today before retreating and closing basically unchanged. While meal fell, bean oil held its strength along with crude oil and diesel, which soared following the DOE’s report that ultra-low sulfur distillate supplies are up a half-million barrels to 95.4 million barrels last week, but are still down 16% from a year ago at this time. US oil production is tight at around 12 million barrels a day, and global energy supplies are tight as well heading into winter. Soybean oil has benefitted from this as demand for bean oil as biofuel ramps up and more processing plants open across the US to increase production. This situation is creating extremely generous crush margins that are keeping soybean prices supported as domestic demand remains strong. Bearish aspects include the water levels on the Mississippi, which will take months to recover, and the hesitancy of China to buy US beans due to international tensions. As far as the Mississippi, soybeans are still managing to be exported through other ports, and as for China, as unwilling as they are to buy US beans, their estimated production deficit of 3.61 billion bushels will force them to anyway. Brazil’s potential record crop is bearish as well, but the bear/bull arguments seem to be keeping prices gridlocked within a trading range of 13.65 and 14.20.
WHEAT HIGHLIGHTS: Wheat futures posted modest gains today as they may be starting to correct from an oversold situation. Dec Chi gained 5-3/4 cents, closing at 8.40-1/2 and Mar up 5-1/4 at 8.59-1/2. Dec KC gained 6-1/4 cents, closing at 9.40-3/4 and Mar up 6-1/2 at 9.40-1/2.
Wheat may be hitting some support levels, and today’s higher close might be the first sign of a turnaround. There has not been much news to move the market recently, which may, in part, have contributed to the grind lower. However, in general, the market seems to be in a wait and see mode. A lot is riding on whether or not the Ukraine export corridor agreement will be renewed. There are opinions on both sides of the fence, with the ADM CEO recently stating that he thinks Russia will in fact extend the deal. Others look at the escalation of the war and new missile attacks and find this hard to believe. Here in the US, recent rains in Oklahoma, Texas, and parts of Kansas have pressured the wheat market. However, despite these recent rains, much of the HRW growing areas are still in extreme drought. On a bullish note, USDA’s FAS has reduced their estimate of Argentina’s wheat crop to 15.5 mmt. This is a 2 mmt decline from the USDA’s last estimate. Australia’s wheat crop, while projected to be historically large, is also in question. Heavy rains may result in downgrades to their wheat quality.
CATTLE HIGHLIGHTS: The cattle market finished mixed to mostly higher on Wednesday as the cash market has been slow to develop, but retail prices are staying supportive. Oct live cattle slipped .225 to 151.450 with expiration on Monday, 10/31 but Dec added 0.275 to 153.575. Feeders were higher with the exception of the front month with expiration on the 27th. Nov feeders traded .900 higher to 178.825.
December cattle continued to consolidate, but price action was favorable as prices closed off the lows for the day. Seasonal cattle prices are strong into the October live cattle expiration, which is on Monday, October 31. Cash trade was still undeveloped on Wednesday, but expectations are for cash trade to trend higher. Fed Cattle Exchange traded on Wednesday, but all lots went unsold, not meeting reserve prices. Countryside bids are still absent, but trade will likely start building going into Thursday. Packer margins remain positive, supported by a strong retail price move in the past couple of weeks. At midday, choice carcasses traded .70 lower to 260.73, but select was 2.08 higher to 229.43 on good movement of 96 loads. The choice/select spread remains strong at 31.30 in a window this spread typically tightens. The strong overall retail tone should allow the packers to keep bids strong for the tightening cash supply. Weekly export sales will be announced on Thursday morning, which could help provide some direction to prices. Feeder cattle recovered with a firmer live cattle tone and a quiet grain market. The Feeder Cattle Cash Index gained .11 to 174.96 and is still trading at a discount to the October futures with expiration on the 27th. In the near term, the fundamentals are still pointing higher as the cattle market is trending to new highs or poise to challenge those highs, but the market may be ready for a pause and wait for a strong cash confirmation.
LEAN HOG HIGHLIGHTS: Lean hog futures stayed in consolidation trade and finished slightly higher on the day, trading off early session lows. Dec hogs gained .050 to 88.500, and February hogs added 0.325 to 91.000.
Dec hogs have moved into a trading range since reaching these levels late last week. Prices have become oversold and are trading in a consolidation pattern waiting for news to set the next price direction. In the cash market, the national direct morning cash trade was sharply higher, gaining 8.23 at midday with a weighted average price at 98.31 and the 5-day rolling average moved up to 94.80. The CME Lean Hog Cash Index traded 0.14 higher to 94.81. The cash index still holds a $6.310 premium to the Dec futures, helping support the front of the market. The turn higher should build some optimism to the hog prices on the board. Retail values were lower on the close on Tuesday, but the softer value triggered strong buying as 416 loads traded. At midday today, pork carcasses gained 1.78 to 100.27 on good demand again of 191 midday loads. Weekly export sales will be watched on Thursday morning to see some follow through after last week’s strong 40,000 MT. The hog chart looks supported on the prospects of demand and an improved technical picture; the trend stays currently higher, despite the consolidation tone to start the week. Positive news could be all the market needs to challenge to new highs.
DAIRY HIGHLIGHTS: Over the past five sessions, the US block/barrel average has fallen from $2.1275/lb down to $1.98875/lb. This has led to a pullback in Class III milk futures, especially now that cheese is back below the elusive $2.00/lb level. The butter market also continues to fall, closing Wednesday at $3.15/lb. This is down 11.75c from all-time highs set on October 6 at $3.2675/lb. The whey and powder markets haven’t been much better lately either, as both press lower. The dairy trade isn’t seeing much seasonal holiday demand yet on the spot trade, and the weaker trade is weighing on futures. Contracts from November 2022 into the future are giving back premium at a steady pace and the highest 2023 contract is September up at $19.92. There are now no $20.00+ Class III contracts in 2023 at the moment. The next few days will be interesting on the spot trade to see if cheese buyers gobble up inventory below $2.00/lb.
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Author
Bryan Doherty