MARKET SUMMARY 10-28-2022
The growing drought in the crop producing area of the United States is drawing a lot of focus going into the winter months. The focus of the majority of the past growing season has been the southern Plains and the winter wheat crop. As the 2023 crop is going into planting and germination windows, the level of drought has accelerated in recent weeks. On the last drought monitor maps, 74% of the projected winter wheat are in some form of drought, this is up from 53% just a couple of months ago. At 74%, this is the highest percentage of drought acres associated with the winter wheat crop for the calendar year. As of the last Crop Progress report, 79% of the winter wheat crop is planted and 49% was emerged. Next Monday will bring the first round of winter wheat crop ratings, which could impact the market given the level of drought that is persistent in the winter wheat acres.
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CORN HIGHLIGHTS: Corn futures experienced another uneventful close after trading both positive and negative. December closed at 6.80-3/4, down 1-1/2 cents, while December of 2023 closed at 6.21, losing 0-3/4. For the week, December 2022 lost 3-1/2 cents, hardly any change considering a big week of harvest pressure, lack of export sales and weaker wheat prices. Firmer soybeans provided support, as did higher equities, which may be signaling that demand fears maybe overblown.
A smaller and smaller trade range is developing and creating a triangle shape on charts. A breakout in either direction is likely as time passes when the market has more news or bias. Another week of poor export sales is concerning, yet slow export sales at harvest is not necessarily new. End users, given the high dollar and high price of corn, are likely only buying as needed. As harvest winds down and farmer selling slows, end user buying will likely take a different form, one more aggressive. This may explain why buyers keep buying the dips, anticipating a ramp up in end user purchases. The market may also reflect a more near-term behavior of traders who are buying the dips and selling rallies. Why? Because it is working. This usually doesn’t’ last very long. It is best to prepare for prices to move lower easier than higher, at least in the near term, as there isn’t much weather or news over the next 45 to 60 days that is, at least from a historical perspective, market moving. The growing importance of strong southern hemisphere production will be influential to price as weather developments remain critically important.
SOYBEAN HIGHLIGHTS: Soybean futures closed higher today, along with bean meal, while bean oil closed lower, along with lower crude oil. Big crush margins have kept soybean prices supported and that trend continued today. A flash sale was reported to China as well, offering support. Nov soybeans gained 5-1/2 cents to end the session at 13.87-3/4, and Jan gained 6-3/4 at 14.00-1/4. On the week, Jan soybeans lost 4-1/4 cents.
Crush margins have been the central factor keeping soybean prices supported in their range. Based on January futures, the value of crushed soybeans has now ended the week 3.84 above the cost of beans at record highs. December bean meal closed up 10.00 at a new one-month high, while bean oil was lower due to falling crude oil prices. Regardless, this strong domestic demand led by crush margins is a main element keeping bean prices elevated. Earlier today, the USDA reported a flash sale of 11.9 mb of US soybeans sold for 22/23, with 7.3 mb to Spain and the rest to China. Trade was concerned that China would back off on US purchases after securing so many beans the previous two weeks, but the trend continued with today’s sale. South American soybeans remain cheaper, but China needs US beans too, even if they are reluctant. Despite the low water levels on the Mississippi, which will likely not be cleared up by spring, the USDA reported that 851 barge unloading in New Orleans last week and 101 mb of soybeans shipped. The remaining bearish threat is Brazil and their potentially record production, which could put US soybean prices at even more of a premium, but planting is not finished there yet and issues with weather could throw a wrench in those plans. January soybeans remain in their sideways trading range and will likely make a big move one way or the other when they do break out.
WHEAT HIGHLIGHTS: Wheat futures posted losses again today as the market took a risk off posture. Though some commodities were able to recover, wheat did not fare as well. Dec Chi lost 9-1/4 cents, closing at 8.29-1/4 and Mar down 9 at 8.49. Dec KC lost 7-1/4 cents, closing at 9.25 and Mar down 7 at 9.24-3/4.
Another risk off day in many commodities did not help the wheat market today. Also, not of help was the fact that the 6-10 day forecast shows broad rain coverage across the western US where drought has been an issue. The European weather model does put some rains into western Kansas, but the American models is somewhat in conflict, with no precipitation in that area. Despite any rain that may come, drought in the HRW crop region is unlikely to go away any time soon. Also, though they closed slightly higher today, Paris milling wheat futures are still below both the 50 and 100-day moving averages, which may act as resistance. Many traders seem to be waiting for news regarding the Ukraine export corridor deal. With Russia still increasing their attacks, it does not seem likely that they will allow the agreement to continue. In fact, they may be reluctant, as they recently claimed that only 3% of the exports have gone to the poorest countries and half have gone to western countries. As a bullish item of note, only 11% of Argentina’s wheat crop is rated good to excellent.
CATTLE HIGHLIGHTS: The cattle market was choppy on Friday, finishing lower as the influence of pending October expiration likely weighed on the markets. Oct live cattle dropped 1.025 to 150.375 with expiration on Monday, October 31 and Dec lost .425 to 153.000. Feeders were mixed, battling a softer grain market tone and weakness in the live cattle market. The new front month November feeders were .250 lower to 177.875. For the week, December live cattle were .575 higher, and November feeders were .475 lower in a choppy cattle week overall.
Upward momentum has slowed in the cattle market this week as futures dealt with October expiration. Liquidation of long October positions likely pressured the entire cattle complex on Friday. Price have moved into consolidation trade, and will need some supportive news next week to resume the uptrend. Cash trade was mostly wrapped up for the week. Southern live deals have been marked at mostly $150, $2 higher than last week’s averages. Northern dressed sales were at $240, nearly $5 higher than last week’s average. The trend in the cash market will be a key for price strength again next week. The cash market will need to be supported by the retail values. Retail values stay supportive overall. At midday, choice carcasses traded .73 higher to 263.22, and select was 2.66 higher to 234.57 on good movement of 62 loads. Choice carcass had a good week, adding nearly $9.00 in value above last Friday’s close. The strong overall retail tone should allow the packers to keep bids strong next week in the cash market. Today’s slaughter totaled 124,000 head, 2,000 head more than last week, and 4,000 greater than last year. Saturday’s kill is estimated at 32,000 head, bringing the weekly total to 668,000 head, 5,000 below the prior week, but even with a year ago. Feeder cattle where choppy, adjusting to November being the new front month. Prices were firm, based on the weakness in grains, but as grain prices found footing, selling pressured the feeder market during the session. The Feeder Cattle Cash Index is trading at a 3.000 discount to the new lead month, November feeders. The momentum has slowed this week, but the cattle market stays overall supported by higher trending cash and retail values. The expiration of October futures likely pressured the market this week. Fundamentals are still supportive, but prices may be working sideways for the near-term.
LEAN HOG HIGHLIGHTS: Lean hog futures got some price recovery on Friday after the strong selling pressure from the previous day, as technical support held under the front month contracts. Dec hogs gained .975 to 86.100, and Feb hogs added .700 to 88.850. For the week, December hogs dropped 3.025 and February hogs fell 1.675.
Hogs futures were vulnerable to correction after the strong rally, and prices broke on Thursday. Dec hogs dropped back to support at the 100 and 200-day moving averages, and held that level to end the week. The retail market was likely the anchor limited prices upside this week. The Pork Cutout Index failed to rally with hog futures, and that made the rally seem unsupported. The Cutout Index closed .78 lower to 99.44, challenging the lows for the year, established in early October. At midday, pork carcass values were firmer, signaling a possible turn higher, gaining 4.80 to 103.26 on a strong load count of 207 loads. Retail values trended lower all week, but the strength of Thursday’s close and midday trade today completely turned the trend back higher. The afternoon retail close may be key going into next week. In the cash market, the national direct morning cash trade was lower, losing 4.02 at midday, with a weighted average price at 87.63 and the 5-day rolling average moved lower to 94.04. The CME Lean Hog Cash Index traded .32 lower to 94.15. The Cash Index now holds an $8.050 premium to the Dec futures, which should help support the front of the market. Pork carcass values haven’t moved the amount needed to help support the hog rally, and that triggered selling this week, but the late week rally in retail values may have softened the blow on the week overall. Prices will have and need to hold key support at the 100 and 200-day moving averages.
DAIRY HIGHLIGHTS: The lack of fundamental news this week led to dairy prices following the path of least resistance lower. Class III prices took a major hit this week with second month November prices dropping from a high of $21.30 to close out Friday trade at $20.21. The $20 level on second month Class III has been both resistance and support multiple times over the last two years, more often than not this price had worked as resistance so a close below could set a trend of milk prices below $20. Class IV prices moved lower this week as well but fared much better than its Class III counterpart. Second month November fell from $23.88 to $23.65. The only major spot market to close higher this week was powder, gaining a single penny on the week to settle at $1.43/lb. The spot cheese market was a significant loser on the week, starting the week at $2.06/lb. and closing Friday’s spot session at $1.9425/lb. Butter lost 5 cents on the week to settle Friday’s trade at $3.14/lb., while whey continues to trend sideways to finish the week a penny lower at $0.43/lb.
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Author
John Heinberg