TFM Daily Market Summary 01-13-2023

The CME and Total Farm Marketing offices will be closed Monday, January 16, 2023, in observance of Martin Luther King Jr. Day.

 

MARKET SUMMARY 01-13-2023

Thursday’s USDA report made a surprise move in soybean yields, which keeps the carryout projection tight going into early 2023. With a 0.6 bushel drop in yield, caused by dry conditions this past growing season, lowered overall production last fall. The drop in yield shaved nearly 70 million bushels off last fall’s production. Even despite a cut in demand of 59 million bushels, U.S. soybean carryout was lowered to 210 million bushels for the marketing year. This total is well below the 350 million bushel mark at this time last year, but still up from 2020-21 totals. The key going forward will be the demand for the remaining soybean supplies. Export demand has improved, but is still under the influence of a potential large Brazil soybean crop, and domestic demand to meet a growing crush market will keep prices supported in the near term. With tight overall bean supplies, the room for error this next growing season will be narrow, which will likely keep prices supported, but volatile.

 

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CORN HIGHLIGHTS: Corn futures closed on a firm note with Mar adding 4 cents to close at 6.75, well off the most recent lows of near 6.35 from December 7, but still below the recent high of 6.85 from December 30. For the week, Mar futures gained 21 cents. Dec added 2-1/2 cents on the session closing at 5.98-1/2 and added 7-1/2 for the week. Support came from higher soybean prices, yesterday’s neutral report, and dry weather in Argentina.

The bigger story this week may not be the drop in acres (1.6 million) on yesterday’s WASDE report, but private estimates that continue to downgrade Argentina’s crop potential. According to the BAGE report, (Buenos Aires Grain Exchange), corn plantings are at 83%, vs. 70% last week. They also lowered their planted acres to 7.1 million hectares down from 7.3 million. Corn conditions also continue to deteriorate with G/E at 7% down from 13% last week, while 47% of the crop is poor/very poor, up from 32% the previous week. By some estimates, the crop could be reduced 8 million metric tons or about 320 million bushels. This would keep world supplies snug and suggest that U.S. exports could be on the rise, something the USDA made a big cut to yesterday (down 150 mb). The signal to farmers is to not be in a big hurry to sell. The signal to end users is to step up purchases.

SOYBEAN HIGHLIGHTS: Soybean futures closed higher again today on momentum from yesterday’s bullish WASDE report, but both bean meal and bean oil closed lower. Crude oil continued its recent gains with a move higher of 1.50 to 79.85 a barrel. Jan soybeans gained 8-3/4 cents to end the session at 15.38-1/4, and Mar gained 9-1/4 cents at 15.27-3/4. For the week, Mar gained 35-1/4 cents.

Soybeans traded mostly rangebound this week, up until yesterday’s bullish WASDE report, which caused prices to jump higher. Yesterday the USDA lowered U.S. production, quarterly stocks, and U.S. ending stocks, but raised world ending stocks on account of Brazil’s huge crop. The world ending stocks number was the only bearish element to the report. Yesterday, weekly sales slipped a bit again from the previous weeks, as China becomes a more unwilling buyer as they wait for Brazil’s harvest and cheaper soybeans. Falling export demand remains a threat to keeping prices at these elevated levels, and even with very strong domestic demand as crush margins soar, prices could slip in the coming months. Yesterday’s USDA estimate for soybean crush demand was unchanged at 2.245 bb, but this comes as crush margins continue to widen and Argentinian crop conditions worsen. Forecasts in Argentina have turned a bit cooler over the next few days but no moisture is predicted until next Friday, and rainfall may be meager if it comes at all. Mar bean meal closed below its contract highs from yesterday while Mar bean meal is oversold and showing a buy signal crossover in the stochastics. For all the bullish news from the WASDE report, today’s highs were unable to take out those from December 30, but prices sit at the top end of their Bollinger Band.

WHEAT HIGHLIGHTS: Wheat futures closed mixed; KC was higher across the board but Chi had contracts in both the red and the green. The trade may have been following through on yesterday’s report data. Mar Chi gained 1 cent, closing at 7.43-3/4 and Jul down 1/2 at 7.53-3/4. Mar KC gained 8-3/4 cents, closing at 8.43-3/4 and Jul up 7-1/2 at 8.35.

Today’s trade was a continuation of yesterday’s momentum (or lack thereof). For the week, Mar Chi was up just 1/4 cent but Mar KC was up 11-3/4. The mixed close in wheat is cause for caution going forward, even though the USDA report puts 22/23 U.S. wheat ending stocks at a 15-year low at 567 mb. And the world number (minus China) is the lowest in 14 years at 4.57 bb. Though these are supportive numbers, exports for the U.S. are poor and have been pressuring the market. Interestingly, the USDA did not adjust Russian or Australian crops, despite talk of higher production. Going forward, the continuation of the Ukraine war will limit crops, and drought may continue to impact those in the U.S. southern plains. Ultimately, wheat may be undervalued at current levels, but unless exports can pick up, this may not matter much. The U.S. dollar is trending lower, which should provide support though.

CATTLE HIGHLIGHTS: Live cattle and feeder futures saw mixed trade with some buying strength in live cattle, but feeders were pressured by strength in the grain markets. Feb cattle were 0.175 higher at 157.725, but Apr cattle slipped 0.025 to 160.900. In feeders, Jan feeders were 0.875 lower to 181.250. For the week, Feb live cattle gained 0.950, but Mar feeders were 2.775 lower.

Feb and Apr live cattle finished the week in consolidation trade holding support level underneath the market, looking for overall direction. The cattle market was processing cash trade, retail values, and money flow, in general, going into the end of the week. Price action looks soft, and there could be some additional downside room in front of the market if support breaks. Cash trade was mostly completed on Friday with southern deals seeing $156 as the most active trade level. This was $1 under last week’s averages and limited the upside in the market. Northern dress trade was at $250, steady with trade early in the week, but still $2 under last week. Today’s slaughter totaled 123,000 head, 2,000 below last week, but 11,000 above last year. Saturday’s kill is estimated at 33,000 head, bringing the weekly total to 661,000 head, 98,000 greater than the prior week, and 43,000 above 2022. Retail values were soft during the week as choice carcasses were 8.56 lower going into Friday. At midday, choice carcasses were firmer, gaining 0.94 to 278.43, and select was 1.03 higher to 20.39. The load count was light at 68 loads. Feeder cattle saw additional selling pressure as grain markets traded mostly higher. The Jan feeders expire on the 26th and are trading at a discount to the cash index. The cash index was 0.33 lower to 182.03. The cash index may not be reflective of the physical cash market as prices for feeders in the countryside are stronger. This may equal out closer to expiration, but the technical picture in feeder charts looks concerning. Feeder charts are looking defensive, holding support, but a strong move higher in grain markets could trigger additional long liquidation. Next week’s trade in grains may be key for near-term feeder prices. The price action looks concerned that the market could see some pull back to test lower support levels. Despite the overall friendly fundamental picture, momentum seems to be slipping in the cattle markets as some further price erosion could be on the horizon.

LEAN HOG HIGHLIGHTS: Lean hog futures finished mixed on the day with some profit taking at the end of the week. The heavy slaughter numbers and the struggling cash markets have kept the sellers active in the hog market, but a possible bottom may be looking to form. Feb hogs were 0.100 lower to 78.650, but Apr gained 0.100 to 87.275. For the week, Feb hogs were 1.625 lower and Apr hogs lost 2.375.

Apr hogs tested and held trendline support on the market Friday, before finding some buying into the end of the day. This may be signaling the beginning of a potential bottom, but the fundamentals will need to turn as well to have any meaningful recovery. The price action on Friday may have been just short covering going into the 3-day weekend. The big problem in the hog market continues to be the eroding cash market. The CME Lean Hog Index traded 0.47 lower to 75.49 and is still at a discount to the Feb and Apr futures. For the week, the cash index traded 2.77 lower, reflecting the cash market tone during the week. The direct cash market has stayed weak as well. Midday direct trade today was 0.03 lower to 72.35 and a 5-day average of 72.56. Retail values have trended lower this week but were 4.40 higher at midday to 83.37.  The load count was moderate at 216 loads. The retail strength may have helped the price recover in the session today. Finding a bottom is still a process, and the hog market is still struggling to build that base. Could Friday’s trade have been the beginning of that process? Only time will tell. The downtrend is both technical and fundamental at this time. Until the market can find some fundamental support in terms of stronger pork values or improvement in cash prices, the hog market is still searching for its low.

DAIRY HIGHLIGHTS: Second month Class III and IV futures were both higher this week following big losses from the week prior. Class III second month had a trading range of 23 cents and up 8 cents overall this week. Class III quarterly futures were as follow: Q2 down 2 cents, Q3 up nearly 22 cents, and Q4 down just over 2 cents. The Class IV second month contract had lost 74 cents last week but rebounded 27 cents higher this week to recoup some of those losses. Class IV quarterly futures were as follow: Q2 down 29 cents, Q3 down 26 cents, and Q4 down nearly 18 cents. Quarter one is historically the poorest performer for dairy and that is playing out currently in the markets. Fundamentals of growing cheese supplies, ample milk, and export strength waning, has put pressure on the markets.

Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of the National Futures Association. Stewart-Peterson Inc. is a publishing company. SP Risk Services LLC is an insurance agency. A customer may have relationships with all three companies. TFM Market Updates is a service of Stewart-Peterson Inc. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.

Author

Bryan Doherty

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