TFM Daily Market Summary 01-25-2023


The money flow out of the hog market has been very aggressive.  Lean hog futures have tumbled in price since the end of December as the market has seen strong outflow of money from managed money or fund positions.  On last week’s Commitment of Trader’s report by the CFTC, funds held a relatively small, long position in lean hogs at 10, 663 combined contracts.  This was down nearly 40,000 contracts from the recorded position at the start of the year.  In that time frame, lean hog futures tumbled nearly $12 from high to low.  The market fundamentals were difficult as the cash and retail market struggled during this time window, directly weighing on prices and triggering additional long liquidation.  The hog market is oversold, and could be due for some correction, and a more positive money flow would help that change of direction occur.

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CORN HIGHLIGHTS: Corn futures ended quietly and weaker. March futures lost 2-1/4 cents to close at 6.74-3/4 and December gave up 3-1/4 to close at 5.88. Another sale of 100,000 mt to unknown destinations was noted today. This might suggest interest is picking up for U.S. corn as only 5% of the Argentine crop is rated as excellent. Yet, despite higher wheat and soybean prices, corn futures looked sluggish. Corn used for last week’s ethanol grind was 101.3 million bushels, up from last weeks 94.8 mb.

Chart support for March corn is 6.61-1/4, the most recent low and where both the 40 and 50-day moving averages currently rest. Resistance is at the recent high of 6.88-3/4, also where the upper Bollinger band sits. Ethanol stocks rose by 7.2% compared to a week ago at 25.1 million barrels. Recent rains in parts of Argentina were more than expected and the forecast suggest more on the way. Bearish traders will argue this most recent and forecasted rain events are coinciding with a weakening La Nina weather pattern. On the one hand, this is supportive for crop production. On the other, it might suggest delayed harvest for Brazil soybean planting, creating a later than desired planting window for Brazil’s second crop corn.

SOYBEAN HIGHLIGHTS: Soybean futures finally caught a break and closed higher today as the news of Argentina’s improved forecast becomes old news. Bean meal moved higher, while bean oil closed lower despite a slight move higher in crude oil. Mar soybeans gained 14 cents to end the session at 15.02-1/2, and Nov gained 6-3/4 cents at 13.44-3/4.

Soybeans found some support today after 5 consecutive days of losses that were prompted by more favorable Argentinian weather forecasts. Over half of the Argentine crop is rated poor to very poor, so the question has been brewing over how much the rains will help their crop at this stage. A portion of the crop is beginning to set pods, and that is the portion that will be benefited the most. In Brazil, harvest is 2% complete, but 6% done in Mato Grosso, the biggest soybean producing area, and early reports are saying that yields may be closer to an average of 60 bpa or higher, which is a big jump from previous estimates. US soy exports have held stronger than expected so close to Brazil’s harvest and another flash sale was reported this morning of 4.8 mb to unknown destinations for the 22/23 crop year. There is still a fear that cancellations could begin cropping up once shipments start leaving Brazil, but so far, that hasn’t been seen. While bean meal followed beans higher today, bean oil fell thanks to the biggest one-day loss in palm oil in six weeks, which fell by 3.6%. Crush margins have weakened in the past few weeks, but still remain profitable for processors. Crush demand in the US will continue to grow as we gear up for many new soybean processing plants opening around 2025 to take advantage of bean oil as biofuel. March beans managed to hold a close above the 50-day moving average, but are trading near the bottom of their upward channel and could go either higher or lower at this point. Continued good weather in South America and a big Brazilian harvest will likely send prices lower in the near term.

WHEAT HIGHLIGHTS: Wheat futures managed another day of gains as the US dollar is lower and funds may be short covering. Mar Chi gained 6-3/4 cents, closing at 7.41-1/4 and Jul up 6 at 7.50-1/2. Mar KC gained 9-1/2 cents, closing at 8.43-1/4 and Jul up 8-3/4 at 8.31.

It was another day with little fresh news, but wheat rallied anyways. Help came from Paris milling wheat, which rose again today. Wheat may be correcting a bit from an oversold situation with a bottom forming. The market could also be seeing short covering by the funds with their large net short position. In general though, Black Sea wheat has been a recent anchor for US prices and exports. As an example, Algeria is said to have purchased 40 mb of wheat from Russia over the past six months, whereas they have generally sourced it from France in the past. Here in the Untied States, a winter storm is moving across parts of the Midwest, but dryness in the southwestern Plains looks like it could continue beyond March. There is some concern about a polar vortex that could bring colder than normal temperatures. Right now, it does not look like it will get cold enough to stress the HRW wheat crop, but that potential still exists. The US dollar was also under pressure today, which may have contributed to wheat’s gains. On a bearish note, Stone X is estimating that Brazil may ship up to 3 mmt of wheat this year.

CATTLE HIGHLIGHTS:  Cattle futures finished the day mostly higher as the majority of live cattle and feeder cattle contracts posted marginal gains off of yesterday’s trade.  Feb cattle were 0.250 lower to 157.600, but Apr cattle added 0.250 to 161.550. March feeders were 0.150 higher to 183.750.

A quiet day in the cattle markets as trade was looking for the development of cash trade to help provide some direction on the week.  With the exception of the Feb contract, price strength continued as deferred futures are building a uptrend since the Cattle on Feed report last week.  Cash trade stayed undeveloped on the week. Packers have been quiet with bids looking for direction, while producer asking prices are $157.  The expectation is for the trend to be steady with last week’s trade.  Trade will likely hold off into the end of the week.  Retail values were softer is choice, losing 1.42 to 268.22 and select down 1.87 to 250.52.  The softer retail tone has weighed on cash bids.  Feeders found some buying support as corn futures faded softer during the session.  January feeders expire on Thursday and were tied to the index.  The Feeder Index traded .22 higher to 177.77, but is at a discount to the futures.  The cattle market has put a comfortable trend higher since last Friday’s Cattle on Feed report.  The cash market or retail demand will need to step up the support for a more sustained rally.

LEAN HOG HIGHLIGHTS: Lean hog futures closed mixed on the session as price may be looking to build a low.  Hog futures traded within yesterday’s range as prices are consolidating near the lows. Without much bullish news or fundamentals, the hog market may be treading water and looking for direction in an oversold market. Feb hogs were 0.300 lower at 76.100, and April lost 0.050 to 85.325.

The hog market stayed bear spread as the front end of the market stays heavy with hog supplies and concerns regarding the demand in the retail market and the soft cash tone.  The cash market may have got a shot of positive feelings after midday direct trade was 2.21 higher to 72.27.  The afternoon trade will be key to closing the strength, but 2.21 higher was a good jump in value.  Follow through will be keys to see if this was a turn.  Prices were likely supported by the winter storm moving through portions of the Midwest.  The Lean Hog Index is trending lower, losing .54 to 72.11 on Wednesday.  The index trades at a discount to the futures and is a limiting factor.  Midday retail values were firmer, gaining .57 to 80.63, getting back above the $80 handle.  Weekly export sales on Thursday morning from the USDA could be supportive like they were last week with good sales totals.  Estimated slaughter was 490,000 on the day, up 9,000 from last week and 24,000 over last year as hog supplies are comfortable.  The hog market is trying to build a bottom, and still need some fundamental support.  Cash prices could help out if today’s strength in direct trade can carry through tomorrow.

DAIRY HIGHLIGHTS: This afternoon was filled with dairy fundamentals as both a Milk Production and Cold Storage report were released. Before the reports were released, milk prices were under heavy selling pressure. Class III second month contracts had their lowest daily close since 21/01/2021; those losses were felt throughout Q1 and Q2 contracts on milk, while Q3 and Q4 were only down slightly. Class IV contracts were mainly lower, while the spot trade on dairy products were mixed with whey up one half cent, butter unchanged, powder down 2 cents, and cheese with a significant move lower of 8 cents. Activity was decent in the spot market with those lower prices with 8 loads of powder trading and 5 loads of cheese trading. December’s milk production report showed a 0.8% growth in milk production year-over-year, milk production per cow rose 0.4% YoY, and the number of milk cows were raised 0.3% YoY.

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Bryan Doherty

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