MARKET SUMMARY 01-06-2022
The latest Cold Storage report showed an alarming trend regarding the amount of meat stored in coolers. The total supply of the four main proteins; beef, pork, chicken, and turkey at the end of November was only 1.783 billion pounds. This was 11% lower than the previous year, and 17% below the 5-year average. Some of this tightness is likely due to the strong demand for meat products both domestically and internationally. A major component may be tied to the ongoing issues with supply chain and labor concerns. The constant impact of workers lacking in the slaughter plant and the handling of the final protein product has kept supplies tighter across the country. This has helped push the value of retail meat products to multi-year highs, despite the current slaughter pace staying consistent, and strong production throughout 2021. Beef production in 2021 is forecasted to set a new record for total production. This trend may be key going forward into 2022 because the stored supplies of protein products can have a direct impact on prices.
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CORN HIGHLIGHTS: Corn futures traded both sides of steady finally ending the session with small gains. Mar closed at 6.03-3/4 up 1-1/2, while new crop Dec ended the session at 5.54-3/4 losing 0-1/2 cent.
Export sales at 10.1 mb were disappointing, bringing the year-to-date total to 1.614 bb. This compares to last year’s figure of 1.730 for the same time. Note, last week reflects a holiday week. Nonetheless, this was not a good number. The sales to date figure is solid, but remember most of those were big purchases from before summer. The current pace is a growing concern. Weather will continue to dominate the headlines as South American production is critical to world supplies. A slightly wetter forecast for drier regions had markets on the defensive early today. We contend that carry-in from the 2019 and 2020 growing season is likely less than has been estimated due to a tight basis. One school of thought is that tight supplies and firm basis pretty much emptied storage bins by late summer, so in a year of 177 bu yield and the second-largest crop on record, prices moved higher regardless of this year’s big crop. Of course, there is a chance next week’s WASDA report could indicate a smaller yield. We are not convinced a big change to yield is in store for next week.
SOYBEAN HIGHLIGHTS: Soybean futures had a robust trading range today of near 20 cents before ending the session 7-1/2 cents lower in Mar closing at 13.87-1/4. New crop Nov gained 2-1/2 cents to finish at 13.06-1/2. Bear spreading was a noted feature today, as a more favorable weather forecast for Brazil and somewhat favorable for Argentina weighed on futures. Yet, it is expected over the next week to remain well above normal temperatures and below-average rainfall for northern Argentina.
Export sales at 14.1 mb were viewed as less-than-ideal countering supportive dry weather in parts of South America. Overhead resistance in Mar is 14.00. If prices break above this level, expect a move to the high from June 7 of 14.45-1/2. Most analysts are suggesting a drawdown of about 10 mmt for Brazil, which will put the crop at 134 mmt, below last year’s 138 mmt, which by the way was a record. Our cautious side suggests it is too early to draw strong conclusions, yet it is probably safe to say the South American soybean crops will not be what they could have been. Historically, soybeans futures have a tendency, in recent history, to move lower after the USDA report in January. This is likely a calendar tipping point as it is easier to anticipate a good South American crop by mid-month in more normal weather-type years. That may not be the case this year.
WHEAT HIGHLIGHTS: Wheat futures traded significantly lower due to a lack of bullish news, poor export sales, and broad selling pressure. Mar Chi lost 14-3/4 cents, closing at 7.46 and Jul down 12-1/4 at 7.48-3/4. Mar KC lost 18-1/2 cents, closing at 7.68-1/2 and Jul down 16-1/2 at 7.70-1/2.
On today’s export sales data, the USDA reported an increase of a dismal 1.8 mb of wheat export sales. This certainly did not help prices today and added to the bearish tone in the wheat market. Also limiting upside potential is the U.S. Dollar Index, remaining stubbornly above 96. The U.S. southern Plains remain overall dry, however, there has been some recent snow cover in that region. Another issue weighing on the market is the fact that U.S. prices are uncompetitive to world buyers. In world news, Kazakhstan is experiencing civil unrest. What initially started as protests around a rise in gas prices, rapidly turned into a political issue. Kazakhstan borders both Russia and China and is rich in natural resources including oil and precious metals. Perhaps more important to the marketplace, Kazakhstan is the world’s eighth-largest wheat exporter. Similar to concerns surrounding the Russia/Ukraine conflict, one might expect this would help wheat prices to rally. In reality, however, it appears that the market has either not yet taken this into account, or simply doesn’t care. The Kazakhstan conflict news is rather fresh, so perhaps the former is true. From a technical point of view, the recent selloff has left wheat in oversold territory and due for a correction.
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Author
Bryan Doherty