MARKET SUMMARY 01-30-2023
The cattle markets are looking toward Tuesday’s Cattle Inventory Report from the USDA, anticipating a confirmed tight supply picture going forward. One of the big data points the market will be watching is the Beef Cow Inventory totals. Expectations are for the Beef cow herd to be down 4.2% from last January’s totals. That kind of decline would put the beef cow herd at the start of 2023 at 28.860 million head, down 1.265 million head from a just a year ago and down 2.83 million head, or ‐8.9%, from four years ago. This would be the lowest beef cow herd on record, just eclipsing 2014 levels. Cow numbers have been pressured by strong slaughter pace throughout 2022 as high feed cost and drought conditions in cattle country caused producers to move cattle out of the operations. This tight cow herd sets the cattle industry up for another drop in the potential calf crop for 2023, which is expected to potentially drop by 2.8% from the already low 2022 level. Regardless, cattle supply is like to remain tight, and deferred futures prices have added the premium in, expecting that tight supply.
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CORN HIGHLIGHTS: Corn futures ended quietly but on a slightly positive note. March closed 0-3/4 higher at 6.83-3/4, and December added 2-1/2 to end the session at 5.89-3/4. Higher soybean and wheat prices were supportive; however, lower energy futures were not, with crude oil close to 2.00 a barrel lower. Some concern regarding rain delays for soybean harvest in Brazil may have added premium to corn.
Export inspections at 20.8 mb were on the lower end of estimates and considered less than friendly. Year-to-date inspections are 474 mb, which compares to 691 mb a year ago at this same time or a drop of 31%, hardly supportive numbers. The market may find some support from the idea there is little room for error with planting the second crop in Brazil. Rain delays might jeopardize soybean harvest and ideal growing conditions for the upcoming corn crop. A later crop could imply higher temperatures and less rainfall, both impactful to yield. Basis levels are firming, indicating farmers are reluctant sellers. With good cash flow and the possibility of tighter world inventories due to expectations of a smaller Argentina crop, corn could recover back to 7.00 or better. Yet, traders are reluctant to buy rallies. Historically prices are high. If you have excess inventory, keep selling rallies or at least consider a trigger point under the current market to sell if prices begin to weaken.
SOYBEAN HIGHLIGHTS: Soybean futures moved sharply higher, driven by big gains in meal with the March contract making new highs. March meal gained over 3% today, while bean oil posted gains as well despite lower crude. Mar soybeans gained 25-3/4 cents to end the session at 15.35-1/4, and Nov gained 16-1/4 cents at 13.67-1/2.
Soybeans continued their trend higher today, being led by a huge rally in bean meal. Argentina had a few weeks of decent rains as well as some over the weekend, but now the 16 to 30 forecasts have turned drier, and the supply of meal has become a concern again. The market has been trading South American weather very closely over the past month which important to watch. Central Brazil has received plenty of rain, and at this point it may be becoming too much during harvest time as well as delaying the planting of second crop corn. Harvest is around 6% complete in Brazil which is lagging about half of last year’s pace. Bean oil gained some ground thanks to a boost in palm oil which was caused by flooding during harvest, and Indonesia may export less. China is back from their Lunar New Year holiday, which has given traders some encouragement that they may pick up the pace with purchases. March soybean prices on the Dalian exchange have climbed to the equivalent of $20.23 a bushel which is more incentive for China to bump up imports. Last week’s CFTC report showed non-commercials as sellers of 21,000 contracts reducing their net long position to 147,000 contracts. March soybeans remain in an upward trend with resistance at this month’s earlier high of 15.49.
WHEAT HIGHLIGHTS: Wheat futures closed modestly higher without much news to drive the trade in either direction. Mar Chi gained 2-1/2 cents, closing at 7.52-1/2 and Jul up 3-1/2 at 7.63-1/2. Mar KC gained 4-1/2 cents, closing at 8.73-3/4 and Jul up 5-1/4 at 8.58-1/2.
After trading both sides of neutral, wheat landed on the positive side at the close. With little fresh news today, there were simply more buyers than sellers. Decent inspections did lend a helping hand, coming in at 16.4 mb. This brings total 22/23 inspections now to 486 mb. With the USDA expecting exports at 775 mb, the inspection pace is in line to meet that estimate. There may also be some weather and war premiums factoring into the market. Nebraska and Kansas are getting temperatures well below freezing and, in some cases, below zero. This could threaten the HRW crop with winterkill. There is also talk that with increased Russian aggression in Ukraine, Putin may be preparing for a new offensive. And because of the ongoing war, the Ukraine Grain Association said that Ukraine’s wheat production will not exceed 16 mmt in 2023. Aside from these things, short covering by the funds may have played into today’s higher close. As of January 24, the funds are said to be net short 48,000 contracts of Chi wheat. Commercials however are net long 50,000 contracts.
CATTLE HIGHLIGHTS: Money flowed into the cattle market to start the week on buying strength in front of the USDA Cattle Inventory Report on Tuesday and adding some premium with difficult weather conditions in portions of the southern Plains. Feb live cattle gained 2.025 to 158.750, and April cattle added 2.525 to 163.350. In feeders, the buying strength in Live cattle spilled over and March feeders gained 0.450 to 183.925.
The cattle inventory report tomorrow is expected to reflect a sharply declining cattle supply. Beef cow inventory as of Jan 1 is expected to be down 4.2% from last year as a strong culling pace moved cattle out of operations. If realized, this will be the smallest beef cow herd on record, eclipsing the previous low from 2014. That should carry over into a reduced calf crop for next year. Analysts predict the 2023 calf crop could be reduced by 1.4% from last year’s already reduced numbers. The prospect of those number triggered the buying on the day. In fundamentals, Cash trade was undeveloped, typical for a Monday. Expectations are for steady trade at best again this week. Retail values were firmer with Choice gaining 0.07 to 267.83 and Select adding 1.14 to 251.68. The load count was light at 36 midday loads. The trend in the retail market has been working lower in recent weeks, and that has limited the cash market as packer margins have tightened. Feeders were firmer on the day, even as the grain markets remained firm. The potential tight supply picture has built some premium in the longer-term feeder market, The front end has stayed limited by the Cash index. The index today was 0.31 higher to 179.88, but trading at a 4.00 premium to the index. The market tomorrow will be about the inventory numbers and the potential for a bullish cattle inventory outlook.
LEAN HOG HIGHLIGHTS: Lean hog futures had a mixed close as the cash market stays as a limiting factor to the front end of the market. Feb hogs declined 0.725 to close at 75.150, and Apr gained 0.075 at 86.525.
The April hog futures is trying to etch out a bottom with the price action of the past couple sessions as prices laced a spike low, reversed higher, and have now been consolidating. Prices have been using the 10-day moving average around $86.00 as support. Prices look ready to rebound, but the market needs more fundamental support in order to have an established rally. Midday direct cash traded .39 lower to 70.25 and a discount to the Feb futures. The Lean hog index has tried to turn higher. On Monday, the index gained 0.12 to 72.64. The premium of the futures to cash is a very limiting factor on the front end of the market. Retail values have begun working higher, and that could help the cash market overall. At midday, Pork carcasses were 2.21 higher to 81.46. The load count was light to moderate at 186 midday loads. Hog slaughter pace remains strong with estimated slaughter at 491,000 hogs on Monday. This was up 2,000 over last week and 14,000 over last year. The trend in heavier than expected slaughter prices has limited the cash market opportunities, as packers are comfortable with the hog supply. The hog market is trying to turn higher, but the cash market stays as limiting factor in the short-term.
DAIRY HIGHLIGHTS: The selling pressure seen almost daily in the US dairy spot trade is keeping pressure on futures and has the dairy market in a steady downtrend. Since the 2022 peak, spot butter is down 91.50c and powder is down 74.75c. Both products are experiencing a drastic shift in price that is taking the market down from multi-year highs to about average price levels. The class III trade isn’t much different. Cheese is down 68.25c from its 2022 peak while whey is down 42.75c. The result of this is that milk futures have shifted from holding well over the $20.00/cwt level, to now some $17’s popping back up on the 2023 milk strip. At Monday’s close, second month class III fell 12c to $17.94 while second month class IV fell 14c to $18.78. At this time, nearby class IV still holds the edge over class III due to a strong butter market – despite the recent sell-off. With all dairy products in a downtrend, the market is searching for support. A catalyst could be needed to take the market out of this slump.
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Author
Amanda Brill