MARKET SUMMARY 02-01-2023
The Feb lean hog contract is moving closer to expiration, and the discount of the cash market is pulling the futures to new lows. Feb hogs are trading at their lowest point since October 2021, which was the first few weeks of the contract life. At the close today of 73.975, the Feb hog futures are within a couple points of the actual contract low of 72.100 from September 15, 2021. The weakness and selling pressure in the market are coming from a very weak trend in cash hogs. The lean hogs cash market has struggled with larger hog supplies than anticipated, and a softer demand tone. The demand tone may be trying to improve as retail values have lifted in recent sessions, but cash hogs continue to struggle. The market will be looking at those new contract lows unless the cash market can find some footing.
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CORN HIGHLIGHTS: Corn futures ended the day with small gains in Mar which added 1-1/4 cents and stronger gains in Dec which closed 5-1/2 higher at 5.96-1/4. At one point Mar had traded as low at 6.72-3/4, down 7 cents, which makes the close look strong, especially after posting a bearish-key reversal lower yesterday. A late session comeback was sparked by a sell-off in the U.S. dollar which reached its lowest level since early May 2022. A strong recovery in wheat prices may have also spilled over to the corn pit. Yet, weaker energy prices and a 3% reduction in the cattle herd according to yesterday’s Cattle Inventory report suggests a potential reduction in feed usage is possible.
The combination of recent rains in Argentina coupled with weak export sales suggests that corn futures have their work cut out in front of them if they are to reach 7.00 on Mar futures. Yet, prices are holding in there. Hope of improved exports soon due to lack of competition is supportive until the Brazil crop is further along. Expectations for downgrades to the Argentine crop on the February report (due February 8) could be mostly mitigated by increases in the Brazilian crop and reduced demand for U.S. corn. Nonetheless, if the world needs corn expect strong buys to U.S. corn. It just has not happened yet. While offering at a cheaper level, Ukraine corn is limited for exports for the 2022 crop and likely the year ahead. The 100 and 200-day moving averages were violated this morning but held as support as futures closed back above these key supportive moving averages.
SOYBEAN HIGHLIGHTS: Soybean futures closed lower today pressured by lower soybean oil thanks to a decline in crude by 2 dollars a barrel bringing it to 76.80. The Federal Reserve increased rates again and signaled that more may come which affected outside markets. Mar soybeans lost 17-3/4 cents to end the session at 15.20-1/4, and Nov lost 2-3/4 cents at 13.60-1/4.
Soybeans were under pressure today as the Fed raised interest rates by a quarter of a percentage point but signaled that further rate hikes would likely be coming which put pressure on markets. Argentina received some rain today with scattered showers forecast throughout the week, which pressured the soy complex as well. The US Ag Attaché in Argentina has reduced estimates for the crop to just 1.32 bb which is 349 million bushels below the USDA’s estimates from January. China has returned from holiday but been quiet on the export wire with talk that they have been booking sales of Brazilian beans as their harvest chugs along. Brazilian harvest pace is at half of their normal speed as rains continue to fall and slow things down. Over 10 mmt of the crop has already been harvested and a record large harvest is expected. Brazilian soybeans are at a 75-cent discount compared to offers in the U.S. Gulf, and Brazilian meal is at a $45 discount. U.S. exports will probably continue to lag as buyers turn to Brazil, but domestic demand has remained stout thanks to profitable crush margins. Mar beans remain in their uptrend, but the stochastics are close to showing a crossover sell signal.
WHEAT HIGHLIGHTS: Wheat futures, with the exception of Mar Chi, closed higher. Winterkill concerns for HRW crops gave KC an edge over Chi today. Mar Chi lost 1-1/2 cents, closing at 7.59-3/4 and Jul up 1-3/4 at 7.73. Mar KC gained 5-1/2 cents, closing at 8.84-1/4 and Jul up 4-1/2 at 8.68.
It was a good close all things considered, with wheat well off of the daily lows, and settling within a few cents of the corresponding highs. There was again a lack of news to drive the wheat market today which, to some degree, makes this rebound all the more impressive. Is the market finally recognizing the 15-year low supply levels? The threat of winterkill for the HRW crop is still out there, and that may be why the KC contract fared better than Chi today. But weak exports are still a pain-point with U.S. sale commitments 7% below last year. U.S. wheat is still more expensive than both Russia and Germany, and Egypt’s GASC tender for Feb/Mar wheat is likely to be sourced from Russia. Here in the U.S., the SRW crop conditions are favorable, and the expectation for a drier April trend could help with the harvest of that crop. In the southern hemisphere, Argentina weather has been affecting the corn and soybean markets, but their wheat already suffered a major drought. The interesting part is that Argentina announced a 27 million dollar bailout for the farmers. It is estimated that the combined losses for corn, soybeans, and wheat could be up to 20 mmt. The money given to the farmers may not be enough to offset their losses, however.
CATTLE HIGHLIGHTS: The cattle market got caught up in the risk-off trade in a large number of markets on Wednesday, as selling triggered some long liquidation off the most recent market strength. Feb live cattle lost 0.425 to 158.425 and Apr cattle fell 0.800 to 162.225. Feeders saw strong selling pressure losing 2.900 in the Mar contract to 183.250.
The Cattle Inventory report reflected what the market expected on Tuesday afternoon, which is a tighter longer-term cattle supply. The report offered minimal surprises, and with the recent market strength, left the market susceptible to selling pressure. In addition, outside markets were in sell mode before the Fed announcement regarding changes to the main lending rate. Despite the weakness, the supply side of the cattle market is friendly and prices are still in an uptrend. The cattle market has been waiting for cash trade to develop and will need to wait until Thursday. Bids are still absent, and asking prices are $158-160. Trade will likely start building later in the week. Retail values are a concern and were softer at midday on Wednesday as choice lost 1.33 to 264.76 and select slipped 0.98 to 251.94. The load count was light at 84 midday loads. Feeders were the hardest hit in the selling pressure on the day with strong triple-digit losses across the complex. A strong corn market tone at the end of the day added to the selling pressure. The cash index today was 0.05 lower to 180.37, but trading at a 4.500 premium to the index. The cattle market remains in an uptrend and the supply side of the picture is favorable to prices. The market could see an additional setback, but the trend remains higher.
LEAN HOG HIGHLIGHTS: Lean hog futures finished sharply lower, as the cash market discount limits the upside potential in the hog market and the sellers pushed to remove that premium. Feb hogs declined 0.900 to close at 73.975, and Apr dropped 2.125 at 84.300.
Moving closer to expiration, the Feb contract broke to a new nearby low on Wednesday and is trading at its lowest point since Oct 2021. Only the contract low of 72.100 from Sep 2021 is in the way of a new contract low. The Apr hog futures is still trying to etch out a bottom and broke strongly to retest the most recent low. The contract low from Oct 2021 stays as a last line of support. The resurgence of selling was triggered by the market looking to tighten the premium between the cash and futures markets. Midday direct cash traded 0.10 higher to 70.43 and a discount to the Feb and Apr futures. The Lean Hog Index lost 0.13 to 72.84. The index is trading at a discount of 1.3950 to Feb and over $11.00 to the current Apr futures. Retail values have been the bright spot recently, but were softer at midday, losing 0.29 to 79.96. The load count was light at 162 midday loads. If retail values can maintain a firmer pace, that could help build the cash market support. The USDA Weekly Export Sales report will be released on Thursday morning, and that has been supportive to the market over the past couple weeks. The hog market was trying to turn higher but broke to retest the recent lows on Wednesday, proving the market wasn’t in the clear yet.
DAIRY HIGHLIGHTS: After weeks of steady selling pressure took several dairy products to multi-year lows, the market turned the corner on Wednesday in the first trading day of February. Each spot product was bid higher with butter up 2.50c, cheese up 1.375c, powder up 4.75c, and whey up 3.50c. The demand tone was a noticeable change from recent sessions. Buyers may finally be supporting the market at these discounted levels. In response to the strong session in the spot trade, most Class III and IV milk futures rallied double digits. March Class III added 8c to $17.64 while March Class IV was up 23c to $18.36. The dairy market is very oversold after recently pushing down into new lows for the move, so a correction higher could be needed. The trend still remains down, however.
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