MARKET SUMMARY 01-31-2023
The U.S. Dollar Index has moved into a quieter trading range the past month, after its bearish tone and long liquidation phase since the September highs. The Index has been building a base in the 101–102 point range for the majority of the month and now awaits the next Fed decision regarding interest rates on Wednesday. The market is anticipating a 0.25% raise in interest rates, slowing the pace from previous months, but still pressuring the market. Also, this week will be Initial Jobless Claims, the ADP report, and the Non-Farm Payrolls report or the “Jobs” report on Friday. All three could have impacts on the dollar value beyond the Fed decision. The chart for the dollar still holds a bias to the downside, despite finding some foot, but this week could likely send the U.S. Dollar Index on a new path for the near future.
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CORN HIGHLIGHTS: Corn futures end on a weak note with Mar losing 4-0 cents to close at 6.79-3/4. Dec added 1-0 to close at 5.90-3/4. Bear spreading was a feature today and bulls may have decided to exit longs after prices failed this morning to move above the most recent high price of 6.88-3/4 from January 18. This morning’s high was 6.88-1/2. Bulls might also be even more concerned as wheat prices rallied into the close gaining near double digits. As of late, corn and wheat have been mostly moving in tandem.
It appeared traders were exiting front months and buying new crop. Brazilian farmers are selling corn to importers for less than the U.S., which may have had an impact on today’s bear spreading. The next WASDE report is due out on February 8, 2023. We would not be surprised to see another cut to exports. China hog numbers showed an increase of 1.4% for the sow herd in December but even this news has been over-shadowed by the slow export pace year to date as it appears China is avoiding making purchases from the U.S. There was an announced sale of Brazilian corn to China for July delivery. The message is, however, no immediate rush by China to buy U. S. corn confirming continued slow buying due to a weak China economy and now, what appears to be an unfolding theme, of a lack of buying for political reasons. Looking back it makes sense as China has indicated, on several occasions, warnings regarding relations with the U.S. Most recently at a World Trade Organization meeting, China accused the U.S. of unilateral bullying.
SOYBEAN HIGHLIGHTS: Soybean futures closed modestly higher in the nearby months but lower in the deferred contracts, as strong domestic demand keeps nearby bean prices elevated. South American weather continues to affect futures as forecasts fluctuate. Mar soybeans gained 2-3/4 cents to end the session at 15.38, and Nov lost 4-1/2 cents at 13.63.
Soybean meal was king yesterday scoring new contract highs and bolstering the rest of the soy complex, but has backed off a bit today with some profit taking likely, but cheaper Argentinian meal offers undercutting potential to U.S. meal exports. Bean oil was able to move higher today thanks to a small move higher in crude and the concerns over Malaysian palm oil supply. There have been no flash sales reported since China returned from their Lunar New Year holiday, but the bull spreading today may be a sign of export sales working, or it may just have to do with crush margins driving domestic demand. The growing renewable diesel scene has been a big boom for crush margins with the value of crushed beans exceeding the value of uncrushed by 3.23 a bushel based off the Mar futures, a very attractive offer for processors. Earlier today the U.S. Energy Department said plant capacity for producing renewable diesel and other biofuels increased by 141% from a year ago. Brazil’s harvest is currently 6% complete which is well behind the average pace of 12%, as heavy rains delay harvest. Brazilian production is still expected to be record large at potentially 5.62 billion bushels and China has already begun easing off of US purchases and is likely waiting for Brazil’s harvest to be better underway. Mar beans on the Dalian exchange reached their highest levels in seven months at the equivalent of $20.38 a bushel. Mar beans remain in an uptrend with resistance around the 15.49 level.
WHEAT HIGHLIGHTS: Wheat futures posted decent gains today without much influence in terms of headlines. Fundamental support may be coming from tight supplies and fund short covering may also be playing a part. Mar Chi gained 8-3/4 cents, closing at 7.61-1/4 and Jul up 7-3/4 at 7.71-1/4. Mar KC gained 5 cents, closing at 8.78-3/4 and Jul up 5 at 8.63-1/2.
A solid close today for wheat may indicate that it is at a turning point. The managed funds are said to be net short 73,802 contracts of Chi wheat, equivalent to 369 million bushels. This is more than the U.S. produced in 2022. Along with the fact that commercials are net long, the market could see some serious short covering, especially if any friendly news comes along. Winterkill remains a concern for some of the HRW areas, though on the 6-14 day forecast, there are chances for precipitation in the southwestern U.S. plains. The recent NASS update still showed a poor outlook for the HRW crop with the highest good to excellent rating found in Colorado at 38%. Texas, by comparison, was rated 14% good to excellent. SRW seems to be faring quite a bit better as the delta and southeast have been getting decent rains. Down the road, traders will be watching for any dryness that may pop up this spring in the northern plains and Canada that could affect the HRS crop. There has not been much else to report in wheat news today but Egypt’s GASC may be tendering for wheat alongside Jordan’s tender for 120,000 mt.
CATTLE HIGHLIGHTS: The live cattle market finished mixed, but feeders were higher in trade before the USDA Cattle Inventory report on Tuesday afternoon. Feb live cattle gained 0.100 to 158.850 and Apr cattle slipped 0.325 to 163.025. Mar feeders were strong adding 2.225 to 186.150
The market was anticipating the USDA Semi-Annual Cattle Inventory report today after the market close, anticipating a further reduction in the cattle herd. All cattle and calves as of January 1 were at 89.27 million head, down 3% from last year. Most closely watched was the beef cow herd, which was down 4% from last year at 28.9 million head, the smallest beef cow total on record. The 2022 calf crop was down 2% from last year at 34.4 million head, the lowest level since 2014. Most of the numbers were in line with expectations, but the tight beef cow herd will likely carry into the 2024 and 2025 marketing years reflecting the tight supply. A lot of the news from the report was priced in, but the trend in cattle numbers overall is still supportive of prices. In market fundamentals, the cash market is still undeveloped as bids and asking prices are limited. Expectations are for steady trade with last week’s totals. Retail values were mixed with choice losing 1.52 to 266.58 but select adding 1.54 to 253.06. The load count was light at 66 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, supported by technical buying after Monday’s strength, quiet grain markets, and the anticipation of the inventory report. The potential tight supply picture has built some premium in the longer-term feeder market. The cash index today was 0.54 higher to 180.42, but trading at a 5.730 premium to the index. The Inventory report was in line with expectations, confirming the tight supply picture. Cattle prices have added a high amount of value, but still have room to go based on the tight supply picture into the future as the trend still looks supportive.
LEAN HOG HIGHLIGHTS: Lean hog futures finished mixed to mostly lower as the cash market discount limits the upside potential in the hog market. Feb hogs declined 0.275 to close at 74.875, and Apr slipped 0.100 at 86.425.
The Apr hog futures is still 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 for the third session. Prices have been using the 10-day moving average of around $86.00 as support. Prices look ready to rebound, but the cash market weakness is still a major limiting factor in its discount to the futures. Midday direct cash traded 0.08 higher to 70.33 and a discount to the Feb futures. The Lean Hog Index has been starting to trend higher. On Tuesday, the index gained 0.07 to 72.71. The index is trading at a discount of 2.165 to Feb and over $13.00 to the current Apr futures. Retail values have been the bright spot recently, gaining 2.84 at midday to 83.12, as prices have trended higher over last week’s values. The load count was light at 154 midday loads. If retail values can maintain a firmer pace, that could help build the cash market support. The hog slaughter pace remains strong with estimated slaughter at 483,000 hogs on Tuesday. This was down 1,000 from last week but up 5,000 over last year, as the hog supply remains comfortable for the packer. The hog market is trying to turn higher. The retail demand may be the key. With beef prices trending higher and pork supplies available, the domestic consumer could turn to pork, and that demand could help turn the market for a more complete price correction.
DAIRY HIGHLIGHTS: Second month Class III February contracts are trading at its lowest level since November of 2021, while nearly all Q1 and Q2 contracts have closed in the red for 5 of the last 6 sessions. That selling pressure has now spilled over into Q3 and Q4, and those contracts lost 20 and 19 cents, respectively, during today’s action. Class IV price activity has been unchanged to lower recently and not under the same selling pressure as Class III, moving back into a premium after being at a brief discount earlier in the month. Despite the premium to Class III pricing, the Class IV second month contract is at its lowest level since early November of 2021.
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Author
Brandon Doherty