MARKET SUMMARY 1-27-2023
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 were again the recipient of bull-spreading with front month March closing 0-1/2 cent firmer at 6.83 and December closing 2-3/4 cents lower at 5.87-1/4. For the week, Mar gained 6-3/4 cents, while December gave up 8-1/2 cents. Though recent rains were helpful for the Argentine crop, expectations are the supplies will fall short of original estimates, tightening world inventories. Good export sales (not great) were noted this week. Ideas of more end user buying is supportive old crop, however, a slowing shrinking drought monitor map for the U.S. is suggesting new crop prices on a slippery slope as end users don’t see the need to chase the market.
We like the way old crop is holding, yet we can’t find enough either real or perceived news to suggest a leg higher for prices. Bulls and bears have their arguments, but neither is winning. While most farmers are not pressed to sell, we believe many are continuing to make incremental sales, especially where basis improvements exist, and this too is keeping rally potential in place. The mindset is one where many believe snug supplies can help to rally prices, yet the idea of prices sliding from high levels is not appealing either, especially if you have a lot in storage. A somewhat friendly GDP report this week was supportive as it may indicate demand for driving could be steady or increasing. To be watched, however, is a negative reversal for crude oil prices today. Without support from the energy sector, it is unlikely corn futures will find new buying interest of magnitude.
SOYBEAN HIGHLIGHTS: Soybean futures lost some of their momentum from the past two days and closed lower as excitement from export sales dwindled and Brazil’s harvest takes center stage. Mar soybeans lost 14 cents to end the session at 15.09-1/2, and Nov lost 1-1/4 cents at 13.51-1/4. For the week, March beans gained 3 cents, while Nov beans lost just 3/4 cent.
Soybeans got a nice boost over the past two days with help from strong export sales yesterday, but as Brazil’s harvest gets underway and early yield estimates come out higher than expected, pressure has been put on the market. South American weather in general has been much better and is forecast to continue through next week. The Buenos Aires Grain exchange increased their good to excellent rating on the crop from 3% to 7%, not a game changing move, but a step in the right direction. Central and northern Brazil are receiving rain along with Argentina and southern Brazil, which is delaying planting pace a bit, but yields in Mato Grosso are looking like they will be larger than expected. Export sales were a supportive factor this week with 42 mb reported last week, keeping total commitments up 5% from a year ago, and yesterday, China purchased 106,000 mt for the 23/24 marketing year. Traders are weary, however, that cancellations may begin on US beans in favor of cheaper Brazilian beans once they are ready. March bean meal posted good gains for the week, moving higher by 9.80, but a slight loss in March bean oil of 1.35 as lower palm oil and crude oil pressured the market. March beans remain in an upward channel with support at the 50-day moving average around 14.80.
WHEAT HIGHLIGHTS: Wheat futures had a mixed close with Chi posting losses, but gains in KC. Southern Plains weather and war premium may be contributing to the recent price action. Mar Chi lost 2-1/2 cents, closing at 7.50 and Jul down 2-1/2 at 7.60. Mar KC gained 4-1/2 cents, closing at 8.69-1/4 and Jul up 4-1/2 at 8.53-1/4.
In the face of a poor start to the week, March KC wheat managed a weekly gain of 21-1/4 cents. This may be, at least in part, due to the dry weather persisting in the southwestern US Plains. Areas of Nebraska and Oklahoma are severely in drought and their HRW crops could be in jeopardy of winterkill with single digit temperatures expected this weekend. As we mentioned yesterday, tanks being sent to Ukraine by the US and Germany are also increasing tensions with Russia and could be adding some war premium to the marketplace with increased Russian aggression. It was also reported today that the Ukrainian Grain Association said that their wheat production is not anticipated to exceed 16 mmt in 2023. That compares to 33 mmt before the war. With citizens displaced, scarcity of fuel and fertilizer, and logistic issues it is not hard to imagine why. Though Chi wheat finished marginally lower today, a near-term bottom could be forming as support from tight global supplies should help prices.
CATTLE HIGHLIGHTS: Both live and feeder cattle traded higher today with feeders leading the way on a soft corn market. Cash was called steady in the North, while in the South, feedlots are fighting for higher bids and cash trade is delayed. Feb cattle were unchanged at 156.725, and Apr cattle gained 0.300 to 160.825. March feeders were 0.625 higher to 183.475. On the week, Feb live cattle gained 10 cents and March feeders gained 2.500
Steady cash in the North has given some support to futures, but in the South, a stalemate has been going on with producers pinning asking prices at 157 or better, while the packer’s bids of 154 are being passed. The packers have not gotten many cattle bought ahead, so someone will need to give in and hopefully the South sees at least steady numbers. Beef cutouts were lower on the midday report with choice falling 0.21 to 268.54 and select losing 1.16 to 250.32. Slaughter pace has maintained a quick speed and packers will need to keep inventories stout, so better cash shouldn’t be off the table. Feeder cattle may be sensing some weakness in the corn market because despite the gains in corn over the past few days, feeders have held their ground. Feb live cattle have stayed mostly rangebound since the beginning of the year and closed just above their 50-day moving average. March feeders appear to have carved out a bottom last week and are hovering around their 50-day moving average.
LEAN HOG HIGHLIGHTS: Lean hog futures had a mixed close with losses in nearby futures, but gains in the deferred. A combination of friendly (oversold) technicals and short covering may lead to a bottom forming. Feb hogs declined 1.150 to close at 75.875, and Apr was down 0.550 at 86.450. For the week Feb lost 1.950 and Apr gained 0.725.
Though at or near oversold levels, nearby hog futures are struggling to make much positive headway. There may be expectation for greater demand down the road (and potentially tighter supply), and this was reflected in higher deferred contracts today. The front month February remains at a significant premium to the index of 72.52, which may be acting as an anchor for that contract, but cash this week did move higher for the first time this year. This is encouraging, but the recent overall lower trend in cash is a concern and may need to see more of a turnaround before futures get a significant rally. The National Direct Afternoon report fell 1.70 yesterday, but the Direct Morning report was up 0.31 today. Pork cutouts totaled 223.26 loads with 210.47 loads of pork cuts and 12.79 of trim. In general, with the oversold nature of futures, traders may begin short covering the front months soon. Additionally, two weeks of strong export sales should provide support to the market.
DAIRY HIGHLIGHTS:Second month futures in Class III came within a few pennies of $19 on Tuesday but otherwise trended lower throughout the week. Monday’s gains of 43 cents on the February contract were wiped away by selling pressure and ended up down overall on the week by 17 cents to settle at $18.07. Class IV second month futures were less volatile during the week, trading in a narrower range and settling at $18.92 at Friday’s close, up 17 cents on the week overall. Quarterly changes to Class III are as follows: Q2 down 8 cents, Q3 down 7 cents, and Q4 down 14 cents. Changes on Class IV quarterly contracts are as follows: Q2 down 2 cents, Q3 down 9 cents, and Q4 down 13 cents. These prices moving south are a similar pattern that plays out in the dairy markets to begin most years.
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Author
Bryan Doherty