MARKET SUMMARY 01-19-2022
Summer hogs are looking to challenge upper levels with a price breakout this month. The Jun lean hogs contract broke to new contract highs on Wednesday, as strong buying strength helped support the livestock markets. Jun hogs crossed back through the $1.00 barrier and are seeing good upward momentum. Hogs prices are supported by a tighter overall hogs supply picture that was outlined in the latest USDA Hogs and Pigs report. In addition, further hog supplies may be tightened with talk of PRRS (Porcine Reproductive and Respiratory Syndrome) showing again in animals this winter and spring, tightening the supply of pigs to fill hog barns for summer markets. Outside the U.S., the demand for U.S. pork stays strong and ongoing issues with ASF in Europe and Asia will keep that demand active. The summer hogs market looks to have some potential upside as both technical and fundamentals support that market.
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CORN HIGHLIGHTS: Corn futures finished with strong gains following sharply higher soybean and wheat prices. Mar futures closed 11 cents higher at 6.10-1/2 and Dec 7 cents firmer at 5.64-3/4, a new contract high. Strength in energy prices was also supportive with Feb crude oil reaching 87.91, which is up over 2.00 on the session. Expectations are growing that demand for gasoline will remain stronger as the Omicron virus is not limiting travel as first expected.
Short covering in the futures market may have been a feature today as prices climbed above channel line resistance as well as the most recent high of 6.11-1/4 from January 4. The prior high was on December 28 at 6.17-3/4. Today’s high was 6.14-1/2. A wedge, sometimes referred to as a triangle, formation on price charts suggests that if prices take out the December 28 high, the next objective is 6.40. On May 7, 2021, a new contract high price was established at 6.40-1/2. Despite improved weather this week, soybean prices surged, likely pulling corn with it. Wheat is finding support from cold weather (lack of snow cover) forecasted in the winter wheat crop. Additionally, the tension between Russia and Ukraine has helped wheat prices surge about 60 cents since Monday.
SOYBEAN HIGHLIGHTS: Soybean futures rallied sharply on short-covering, spillover support from higher wheat prices, and stronger oil and meal. Traders short may have been quick to exit, as across the board buying in row crops was noted. Mar soybeans gained 30 cents to close at 13.91-1/4. Nov soybeans ended the session gaining 20-1/2 to close at 13.04-1/2. After a couple of down days, today’s sharp gains are impressive. Today’s crush figure was 186.4 mb in Dec and plus 2% from a year ago and slightly more than expected. Forecasters are indicating the potential for drier weather after this week, especially in parts of southern Brazil. Crude oil prices reached new contract highs adding support to soybeans.
An inverted head and shoulders formation suggests that soybean oil could break into new contract highs with an upside potential near 68 cents. Soybean meal rebounded today gaining 6 to 8 dollars reversing most of yesterday’s losses, yet rain this week in Argentina is considered very beneficial. Today breeds new life into a market that looked somewhat toppy. Weather is the most key factor for price direction in the weeks ahead. From our perspective parts of southern Brazil will only receive minimal rain, if any, and consequently, this may be the driving force behind traders more aggressively purchasing today.
WHEAT HIGHLIGHTS: Wheat futures had another very strong day, as hostility between Russia and Ukraine continues to escalate. Mar Chi gained 27-1/2 cents, closing at 7.96-1/2 and Jul up 27-3/4 at 7.87-1/4. Mar KC gained 27-1/4 cents, closing at 8.00 and Jul up 28-1/2 at 8.05-1/2.
News in the wheat market this week seems to be revolving around the political and military actions between Russia and Ukraine, causing prices to rally sharply. Antony Blinken, the U.S. secretary of state, said today that Russia could take “further aggressive action at any moment”. Reports out of Ukraine also suggest that Russia is close to completing its buildup of forces along the border, further heightening the fears of an invasion. Purportedly, the Biden administration today stated they will provide $200 million in military aid to Ukraine. With all that said, keep in mind that markets tend to move on perception, momentum, and attitude. The perception right now is that conflict between two major wheat exporters could cause a multitude of problems related to supply loss, logistics, sanctions, and more. In reality, however, nothing has yet happened; it is the fear of these things that is driving price upward. There are other factors that may be playing a part as well. Wheat inspections came in at 13.6 mb (with totals now at 470 mb). Though still not a stellar number, it is an improvement over some recent figures. Other markets are also improving, with Paris milling wheat futures gapping higher. One bearish point of note is that the Buenos Aires Grain Exchange revised Argentina’s wheat production, with an increase to 21.8 mmt. Further down the road, the U.S. southern Plains could remain dry this spring, and the La Nina pattern could cause this dryness to pervade into the western Corn Belt.
CATTLE HIGHLIGHTS: Cattle saw strong buying support overall, as money flowed into the commodity markets. Led by a strong overall commodity market and risk-on trade, cattle futures tried to push out of recent trading ranges. Feb cattle gained 0.875 to 138.550, and Apr cattle was 1.500 to 143.350. In the feeder market, Mar feeders gained 0.200 to 165.625.
After Apr cattle traded within a $2.00 range for the last 9 sessions, today saw a breakout to the topside. Apr cattle have traded within this range for 9 consecutive trading sessions. Apr posted its highest close for the month, and with the strong price action, looks to challenge higher price levels. Prices are looking for direction, but with the near-term trend working lower, a possible break to the downside is still a possibility. Estimated slaughter today was 115,000 head, up 3,000 head from last week, as the market may be moving past concerns regarding plant slow down due to COVID. Cash trade continued to build at $137, slightly lower than last week, but with packers stepping into the market early, this is an encouraging sign of them wanting to secure supplies. More trade will develop later on in the week. Beef retail values are still trending higher. At midday, choice carcasses added 1.56 to 291.05 and select was 1.32 firmer to 279.71. Load count was light at 78 loads. The strong push higher in grain markets limited gains in the feeder complex on Wednesday. Jan feeders expire on January 27 and are closely tied to the cash index. The Feeder Index was 0.06 lower to 161.24. The cattle market broke out higher on Wednesday with good money flow moving into the market. A possible test on nearby highs looks to be in order. Long-term contracts for the end of the year and into 2023 made the move to new highs today.
LEAN HOG HIGHLIGHTS: Hog futures saw strong buying as prices posted strong triple-digit gains on short-covering and technical buying, and hog futures broke out to the topside. Feb hogs added 0.700, closing at 82.300, and Apr hogs were 2.075 higher, closing at 91.350.
Buying took yesterday’s strength to the next level as the Apr contract busted through trendline resistance and posted its highest closed since last June. A challenge of the contract high at 91.875 seems to be in order. Deferred contracts starting with May hogs and later all established new contract highs on Wednesday. Concerns regarding hog numbers and ongoing talk of PRRS (Porcine Reproductive and Respiratory Syndrome) affecting hog numbers may leave supplies of market hogs tight for the summer and later months. The Midday direct cash hog market had no comparison to yesterday but traded 70.70. The Lean Hog Index traded higher, gaining 0.88 to 76.78, and is still holding a 5.520 discount to the futures. The spread will likely limit the near-term upside in the futures market for the Feb contract. Pork carcasses traded higher at midday, helping support the jump in futures prices. At midday today, pork carcasses are a strong 6.29 higher to 93.50. The load count was moderate to 230 loads. At least in the short-term, the momentum is to the upside, as money is flowing into the hogs markets.
DAIRY HIGHLIGHTS: The dairy spot cheese trade on Wednesday gave the market mixed results, but prices ultimately traded lower for the day. The spot cheese trade had blocks down 3.50c to $1.8550/lb on no loads traded, while barrels fell 5c lower to $1.9050/lb on no loads traded. Cheese has now closed lower three sessions in a row and the block/barrel average is back to just $1.8750/lb. It will be hard for nearby milk futures to hold onto this premium if cheese prices keep dropping like this. We’re already starting to see premium taken out of the second month February contract. February Class III milk has closed red four days in a row and is now down $1.64/cwt from its January 13th high. Cheese reports out of the northeast show that cheese inventories are available for spot needs and there are reportedly pockets of softening restaurant demand.
On the other end of the spectrum, spot butter jumped 10.25c on Wednesday on 8 loads traded. This is after the market was bid 5.50c higher on Tuesday. Butter demand remains steady. The Class IV market took a step back though, likely as the market has been overbought and chart technicals call for a correction. The further out Class IV contracts were trading limit down after the markets settled today. There was also some additional selling in Class III futures after settlement as well. The spot session tomorrow appears to be an important one because a fourth down day in a row for cheese could create more selling pressure for Class III futures.
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