TFM Daily Market Summary 01-26-2023

MARKET SUMMARY 1-26-2023

The CME Lean Hog Index has been reflecting the negative trend in the hog cash market.  On Friday, the index was trading at $72.11, and its lowest point since early last year.  A larger than expected supply of market hogs and a softer demand tone have combined to put pressure on the cash market.  With this pullback, the hog futures tumbled off its most recent high as the April contract lost over $12.00 from high to low over the past handful of weeks.  The Lean Hog Index has placed a bottom the past two years in the last December/January window, and that may be occurring again.  On Wednesday, cash hog prices saw price gains at midday, and the Lean Hog Index traded higher for the first time this year on Wednesday.  Even though the hog market is not in the clear, the small turns in cash and the index triggered an aggressive short covering rally in the April contract on Thursday as prices rallied $3.30 of the morning lows.

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CORN HIGHLIGHTS: Corn futures, after yesterday disappointing close, had an impressive showing today gaining 7-3/4 cents in March to close at 6.82-1/2, its highest finish in seven sessions. December added 2 cents to close at 5.90. Bull spreading, double digit gains in wheat and soybean futures, and solid export sales in all three row crops provided support today. Stronger than expected fourth quarter U.S. GDP was stronger than expected. Additionally, with the U.S. and Germany indicating they would support Ukraine with tanks it appears the war is likely escalating.

While in line with expectations, today’s export sales figure at 36 million bushes was still an uptick from recent weeks and an indicator the end users are stepping up purchases. What will likely be a smaller crop in Argentina coupled with a slightly slower than expected harvest in Brazil so far (it is early), and it might be easier to see why importers are willing to get more aggressive. Prices are high historically and to sustain a rally it will likely take more then small harvest delays to the Brazil bean harvest and a small uptick in exports. The war continues but this is not new news. If Argentina weather was not a factor, then it might be expected that prices would be near where they were in early December which was about  50 cents lower on March futures than were they closed today. Bottomline, we don’t want to be negative to price potential, yet there still is not enough of a story to be bullish. Tight supplies keep the bullish spring compressed, but over time if the spring is not triggered it eventually losses it’s strength.

SOYBEAN HIGHLIGHTS: Soybean futures closed higher again today with the front months leading the way as export came out strong and supported the market. Bean meal posted the highest percentage gains with March 2.50% higher, and bean oil moved higher along with crude oil. Mar soybeans gained 21 cents to end the session at 15.23-1/2, and Nov gained 7-3/4 cents at 13.52-1/2.

Soybeans managed to continue yesterday’s support and are maintaining their uptrend in the March contract while showing a reversal on the November chart. Export sales were strong and provided the majority of today’s support as well as an encouraging flash sale to China during their Lunar New Year holiday. Soybean net sales for 22/23 were 42.1 mb which was up 16% from last week and 53% from the prior 4-week average. Shipments were strong as well at 69.8 mb and far above the needed 25.3 mb needed each week to meet the USDA’s estimates. In addition, private exporters reported sales of 106,000 mb of soybeans to China for the 22/23 marketing year. It is good to see some strong sales while the export window is still open for the US before Brazil takes over the majority of business. The recent rains in Argentina helped the crop slightly causing the Buenos Aires Exchange to increase their good-to-excellent ratings from 3% to 7%, but 54% is still rated poor to very poor. More positive news came as major media outlets have begun to report that the Department of Energy will spend $100 million to expand bio-fuel production as the need for bean oil as biofuel increases. March beans remain in an upward channel with support at the 50-day moving average around 14.80.

WHEAT HIGHLIGHTS: Wheat futures closed with solid gains today, as funds are likely short covering, and the war ramps up again in Ukraine. Mar Chi gained 11-1/4 cents, closing at 7.52-1/2 and Jul up 12 at 7.62-1/2. Mar KC gained 21-1/2 cents, closing at 8.64-3/4 and Jul up 17-3/4 at 8.48-3/4.

Alongside corn, soybeans, and Paris milling wheat, US wheat futures rallied today. In fact, March KC wheat futures have increased about 60 cents since Monday’s low. This may be in part reflected by the concern about winterkill for parts of the HRW crop. Another cold spell is set to hit as far to the south as Oklahoma and Kansas and the single digit temperatures may affect the crops without snow cover. Aside from these concerns, there has been recent escalation in the Black Sea. News outlets are reporting that both the US and Germany are sending tanks to Ukraine. Russia supposedly responded by claiming this as direct involvement in the war. There are also reports of new Russian missile attacks across the country with at least 11 people being killed. Though the war (to some degree) has become old news, it still has the potential to have a great impact on the markets if there are significant changes. And on the topic of Russia – the USDA came out and said that Russia’s official wheat crop estimate is not feasible. The USDA’s estimate of 91 mmt compares to the Russian projection of over 104 mmt. As a final point of note, US export sales data today was better than expected. The USDA reported an increase of 18.4 mb of wheat export sales for 22/23 and an increase of 2.2 mb for 23/24.

CATTLE HIGHLIGHTS:  Cattle futures traded mostly lower on the day as cash bids and early trade were softer than last week, and a strong day in grain markets pressured the feeder complex.  Feb cattle were 0.875 lower to 156.725, and Apr cattle lost 1.025 to 160.525. March feeders were 0.900 lower to 182.850.

The cash cattle market looks to be disappointing again this week, and that brought selling pressure in the live cattle market.  Though initial trade was light and not enough to establish a trend, the combination of trade and weaker bids brought sellers forward.  Southern bids were $153-154, softer than last week, and early light dress trade in Nebraska was at $248, which was steady.  More trade should build later in the day into tomorrow.  Retail markets were mixed at midday with choice adding .23 to 268.51 and select slipped .15 to 251.65 on light demand.  Weekly export sales reported this morning showed new sales of 25,100 mt of U.S. beef last week as South Korea, Japan and China were the top buyers of U.S. beef last week.  Feeder cattle saw January expiration on the day.  January closes its trading life gaining .175 to settle at 179.575 on the day.  Deferred futures were pressured by the stronger corn markets on Thursday.  Price action in the cattle market was weak, and going into the weekend could bring additional selling, especially if the cash market remains soft into the end of the week.  The momentum in the near-term is still soft in the cattle market as a series of lower highs dominate the market.  The market is still in an uptrend, but prices may be looking to test some lower levels of support.

LEAN HOG HIGHLIGHTS: Lean hog futures turned higher on the session as short covering triggered a strong price rally, back by a good week of export sales.  Feb hogs were .225 higher at 77.025, and April gained 1.675 to 87.000.

After a couple days of consolidation trade, the April contract shook off a potential break to the downside to trade 3.300 of the lows for a strong close near the top of the trading range.  The April and other contracts posted bullish reversals on the daily charts and are looking for additional buying strength and short covering going into the weekend. The turn in the markets was triggered by an improved cash market and weekly export sales.  The Lean Hog Index traded higher for the first time in January, gaining .21 to 72.32.  The direct cash hog was higher yesterday, but gave back some value on Thursday, losing 1.94 to 70.33.  The export market was supportive with the USDA releasing weekly export sales on Thursday morning.  The USDA reported new sales of 44,700 mt of pork last week with Mexico, China and Japan the top buyers of U.S. pork last week.  Retail values were higher at midday as pork carcasses gained 2.74 to 81.85.  The load count was light at 134 loads.  The price action in lean hogs on Thursday was strong, and the market was heavily oversold.  Prices will have the potential to push higher, with $89.000 area on April, the next target, but the fundamentals will need to stay supportive.

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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Author

John Heinberg

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