MARKET SUMMARY 03-07-2023
Chinese soybean exports in the months of January and February were a record 16.2 MMT of soybeans, up 16% year-over-year. The prior record was in 2022. Strong soybean shipments from the U.S., as Brazil struggled with a late harvest, helped lift the Chinese February import. This also follows a record shipment volume of soybean in the month of December, as China quickly took in the newly harvested U.S. supplies. The U.S. export window is now closing as the Brazil harvest is starting to move at a more consistent pace. Brazil’s March shipments are likely to be very strong, which should result in good soybean import totals in April. March could be limited as U.S. supplies tightened, and Brazil was still plagued with a slow harvest. The extra soybean demand to start the year has helped support U.S. prices and created competition with domestic users for a projected tight supply.
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CORN HIGHLIGHTS: Corn futures were lower throughout most of the session, as many traders are expecting a neutral to perhaps somewhat negative report. Expectations are for an increase in carryout due to lower U.S. exports. May closed 2-3/4 cents lower at 6.34-1/4 and Dec was down 3 to 5.67.
Corn closed in a relatively quiet fashion with small losses. Those who hadn’t already done so were likely positioning ahead of tomorrow’s USDA report. General expectations are for U.S. carryout to be increased due to a decline in exports; sales commitments are 39% below last year’s level. Pre-report estimates show an average trade guess of 1,299 mb of U.S. corn ending stocks compared to 1,266 mb last month. World numbers might look a little different, however. Argentina’s corn crop has struggled with drought all growing season and some private analysts are projecting production around 40 mmt or lower. The average pre-report estimate is a little more conservative at 43.2 mmt, but still well below the USDA’s guess last month at 47 mmt. In other news, an announced sale of 11.5 mb of corn yesterday was sold to Japan and unknown destinations. The unknown could possibly be China, with rumors that they made the purchase after U.S. corn became cheaper than Ukrainian offers.
SOYBEAN HIGHLIGHTS: Soybeans closed lower today mainly driven by a sharp selloff in bean oil. Crude oil fell sharply as well following comments from Fed chairman Powell alluding that more rate hikes and bigger hikes may be coming. May soybeans lost 13-1/2 cents to end the session at 15.15-1/2, and Nov lost 5-3/4 cents at 13.73-1/2.
The market had a bearish tone today after Jerome Powell said that the U.S. may be in store for bigger and more rate hikes in order to slow the rate of inflation, and grains, crude, and the equity markets were all affected negatively. Soybeans were likely most influenced by a big drop in bean oil which fell just shy of 3% in the May contract. Factors influencing bean oil were Malaysian palm oil falling yet another 1.8% for the second day in a row, and crude losing over 3 dollars a barrel. Tomorrow’s WASDE will likely show the USDA finally cutting Argentinian production from its lofty estimates of 41 mmt, and some private analysts are projecting even a drop below 30 mmt. It is unlikely the USDA will make such a sharp move but a recalculation to the mid or lower 30s tomorrow is possible. Brazilian production is unlikely to be revised at a whopping 153 mmt, and U.S. exports are unlikely to be adjusted. Trade estimates for U.S. soybean ending stocks are at 0.220 billion bushels compared to 0.225 billion bushels last month. May beans are looking a little toppy as they haven’t been able to fully recover from the recent selloff, and Nov is in the same position right in the middle of all its moving averages.
WHEAT HIGHLIGHTS: Wheat futures had a mostly positive close, likely supported by the continued poor crop ratings in the U.S. southern plains. May Chi gained 2-3/4 cents, closing at 6.98 and Jul up 3 at 7.06-1/2. May KC gained 1-1/2 cents, closing at 7.99-1/4 and Jul up 1-1/2 at 7.93-1/4.
Wheat managed to finish the session in a quiet manner, although with slight gains. This is after hitting a 17-month low in Chi and a 13-month low in KC yesterday. Both Chi and KC contracts are very oversold technically and may be searching for a bottom. Minneapolis and Paris Milling wheat futures, however, continued their downtrend today despite also being oversold as well. It is somewhat surprising that Chi and KC wheat managed to post gains, considering the strong upward move in the U.S. Dollar Index today. What is not necessarily surprising is the fact that even with these gains, Russia continues to weigh on the wheat market as a whole. Reportedly, their export prices are well below that of other origins, making it difficult to compete. In addition, the Black Sea grain deal is now anticipated to be renewed as it allows Russia to export grain as well. And though it is a little early to trade weather, dryness remains in parts of the U.S. southern plains and areas of Canada. Kansas in particular has a crop rating of just 17% good to excellent which may lend support to the market. Aside from all of this – tomorrow’s USDA report is expected to be neutral to somewhat bearish. Average pre-report estimates show an increase of 8 mb to the U.S. carryout and an increase of 0.6 mmt to world ending stocks.
CATTLE HIGHLIGHTS: Cattle futures saw mixed trade in live cattle, but a firmer tone in feeders as grain market pressures and outside market actions limited gains on the day. Apr cattle slipped 0.125 to 165.975, and Jun cattle lost 0.450 to 160.550. The feeders held firm after Monday’s gains with Mar feeders adding 0.050 to 192.125 and Apr gaining 0.075 to 198.600.
The outside markets were an influence on cattle markets on Tuesday as a “risk-off” trade was triggered by the fear of additional interest rate hikes after Fed Chair Powel’s testimony before the Senate this morning. This sent equity and commodity prices lower, and the U.S. dollar surging higher. The cattle market holding most of the gains from yesterday shows the strength of the market in general, despite the outside pressures. The strong cash markets stay as the driver of the futures prices, even though Tuesday’s trade was not developed. Bids are still undefined, but asking prices are $167+ in the south, and live cattle cash trade will likely hold off until the end of the week. Retail values were mixed at midday with Choice slipping 0.56 to 289.64 and Select adding 0.03 to 276.50. The load count was light at 54 loads. Today’s cattle slaughter totaled 127,000 head, 1,000 more than last week, and 3,000 greater than a year ago. The feeder market slightly added to the gains from yesterday. The Feeder Cash Index is up 0.83 at 188.04, continuing its climb. The index is still at a discount to the front-end futures but talk on strong countryside cash markets has been lifting the index to the futures market. The cattle market looked a little tired early last week as charts posted some top-side reversals, but the price action today in both live cattle and feeder cattle has either removed those reversals or put them in challenging.
LEAN HOG HIGHLIGHTS: Lean hog futures traded mixed as bull spreading stepped into the Apr contract, narrowing the spread against the deferred futures. Apr hogs gained 1.325 to 84.800, but Jun was softer losing 0.550 to 100.075.
Apr hogs found some recovery on Tuesday, gaining on the deferred futures. Jun and other deferred futures are trending sharply higher versus the cash market, and this premium was tightened on Tuesday. The cash index has been trending higher and the $4-6 discount to the Apr contract seems more manageable. The Lean Hog Index traded 0.20 higher to 78.91, as the cash market gains are still trending higher. On Tuesday, direct cash hogs trade was 0.51 lower at midday to an average of 77.36. Retail values were 0.41 higher at midday to 87.74. The load count on Tuesday was light at 182 midday loads. The afternoon retail value close could be key for strength in the hog market on Wednesday morning’s open. The Pork Carcass Index has reflected the improving retail trade, trending steadily higher, gaining 0.27 to 85.67. The fundamentals have improved, and it feels like the hog market wants to work higher overall, but the runs of large slaughter act as a headwind to the market. The cash market and its discount to cash is still a limiting factor, especially to the deferred futures prices. If slaughter numbers stay heavy, which is likely, it may be difficult for any sustained rallies.
DAIRY HIGHLIGHTS: Tuesday’s Global Dairy Trade auction saw declines in five out of the seven products that traded, bringing down the GDT price index 0.70% to $3,403. This is the third lowest close for the GDT since December 2020. The auction event disappointed and showed that global markets are still under duress. The largest price change by far in the event was GDT cheddar. The cheddar price was offered 10.20% lower to a new 12-month low. This puts GDT cheese at $2.0450/lb versus the US spot block/barrel average price of $1.75625/lb. Despite the large drop, global cheese is still at a premium to US cheese. Shortly after the event, the US spot trade saw offering in cheese, powder, and whey. This kept futures on the defensive during the rest of the session.
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Author
Brandon Doherty