MARKET SUMMARY 02-02-2023
The USDA Cattle Inventory report on Tuesday afternoon brought little surprises but confirmed a shrinking U.S. beef cow herd. The total U.S. beef cow herd as of January 1 was at 28.9 million head or down 4% from last year and even lower than the 2014 herd reduction bottom. The combination of adverse weather in cattle country and high input costs have cost producers to move cattle out of their operations. This low total will have lingering effects in the cattle markets as the calf crop was also reduced. The July 1 calf crop was down 2% from last year, and expectations are for the 2023 calf crop to be even smaller given the lack of breeding stock. This tight supply should keep cattle prices well supported into the near future.
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CORN HIGHLIGHTS: Corn futures ended on a weak note with Mar giving up 5-3/4 to close at 6.75-1/4. New crop Dec lost 1-1/4 to end the session at 5.95. Since peaking two days ago at 6.88-1/2 Mar corn has struggled despite today’s better-than-anticipated export sales at 62.7 mb and yesterday’s helpful corn grind for ethanol at 103.3 mb. Softer energy prices and a rise in the dollar today were negative influences on prices.
Export sales at 67 mb were above expectations and supportive, yet prices slid regardless. Drier weather in the forecast for Argentina also failed to provide support. It seems like the market will need more than one week of good exports before it believes prices will find support. Technical analysis has an interesting look on the March contract with a long-term down trend line now acting as support as futures recently broke above this resistance point. A reminder that on charts when resistance is broken, it becomes support. Yet the larger trend is sideways. Soybeans and wheat prices were higher today and this concerns bulls even more as corn was lower on positive news. Stay with a bias that prices could work lower if bullish news remains sparse.
SOYBEAN HIGHLIGHTS: Soybean futures closed higher today pulled up by bean meal as soybeans continue to trade Argentinian weather. Nearby bean oil closed slightly higher, while deferred months traded lower as crude oil traded both sides of unchanged before ultimately ending higher. Mar soybeans gained 14 cents to end the session at 15.34-1/4, and Nov gained 10-1/4 cents at 13.70-1/2.
Argentinian weather has been the biggest catalyst for soybean prices over the past month with trade moving higher or lower based on moisture forecasts. As of this morning, forecasts are calling for a mostly dry 1-2 weeks with some scattered showers. The dry weather has been a big boost to meal prices as Argentina is the largest exporter of meal, and the thought is that the U.S. might make up for meal exports that Argentina won’t be able to produce. Mar meal closed nearly 2.50% higher, while Mar beans gained just 0.90%. Export sales were slow, and the fact that beans closed higher despite that shows how powerful the weather market is. For last week the USDA reported an increase of 27.0 mb of soybean export sales for 22/23 and an increase of 7.1 mb for 23/24. Last week’s export shipments were solid and were 72.0 mb, well above the 23.9 mb needed each week to meet USDA estimates. There is talk that China has begun purchasing Brazilian beans which will further hurt U.S. exports. Today’s afternoon crop ratings from the Buenos Aires Grain Exchange are not expected to show much change, and last week’s good-to-excellent rating was just 7%. Resistance for Mar beans is at 15.50.
WHEAT HIGHLIGHTS: Wheat futures traded both sides of neutral but settled in a relatively quiet manner. Disappointing export sales pressured the market but the 15-year low supply levels and the fact that commercials are long are both supportive to the market. Mar Chi gained 1-1/4 cents, closing at 7.61 and Jul up 2-1/2 at 7.75-1/2. Mar KC lost 3-1/2 cents, closing at 8.80-3/4 and Jul down 2-1/2 at 8.65-1/2.
Despite poor export sales, wheat was able to rebound off of the daily lows to eke out a positive close in Chi and only small losses of a few cents in KC. The USDA reported an increase of only 5.0 mb of wheat export sales for 22/23 and 1.2 mb for 23/24. Wheat export commitments for 22/23 are down 6% from last year. To add to the bearish side of things though, the USDA cancelled a tender of 3.3 mb of HRW wheat. The U.S. continues to see icy storms in the southern part of the country but HRW areas are mostly dry. The American weather model does show up to 1.5 inches of rain next week in some of those dry areas of Nebraska, Kansas, and the Texas/Oklahoma panhandles. However, the European weather model does not show any rain during that timeframe, in conflict with the American model. Perhaps lending some support to wheat is the fact that the U.S. Dollar Index hit a new near-term low today (though it has since rebounded). Also offering support is the fact that commercial firms are net long wheat and may see current prices as a good value.
CATTLE HIGHLIGHTS: Both live and feeder cattle roared higher today with good export sales giving fat cattle a boost and lower corn-supporting feeders. Feb live cattle gained 1.325 to 159.750 and Apr cattle gained 1.600 to 163.825. Feeders saw strong buying gaining 2.675 in the Mar contract to 185.925.
Live cattle had a strong showing today scoring new contract highs in all contracts, Feb through Dec. Futures were supported by good export sales of 25,200 metric tons with the top buyer being South Korea. Boxed beef moved slightly higher at midday with choice gaining 0.11 to 265.18 and select gaining 0.68 to 253.47. Another standoff is occurring with cash trade today and significant business may hold off until tomorrow. Asking prices in the South are between 158 and 160, and are 252 plus in the North. Last week feedlots held firm against packers lowball offers as well, which resulted in a delay in cash trade that lasted until the end of the day on Friday. Packers do not have many cattle bought ahead and will need to step up to get the animals they need. Feeders caught support from weakness in corn as well as momentum from a relatively friendly inventory report. All live cattle contracts are at contract highs and technically overbought but may continue moving higher as long as demand holds firm. Mar feeders recovered nearly all of yesterday’s losses and may face some resistance at the top of their Bollinger Band near 188.
LEAN HOG HIGHLIGHTS: Lean hog futures looked much stronger today. The question is, has a bottom formed, or was this only a bounce? Cash has been acting as an anchor, yet yesterday’s lower trade may have been overdone and gave traders incentive to buy into the market today. Feb hogs gained 1.375, closing at 75.350 and Apr was up 1.700 to 86.000.
The bearish trend in the hog market since the beginning of the year may be hard to overcome, despite a firmer close today. Yesterday may have been a lower close on technical selling and the market may have simply seen a bounce today. Yesterday’s National Direct Afternoon report was up 2.18 which may have contributed to today’s strength as well. It does look like front month futures may finally be establishing a bottom, but the Feb contract is still at a premium to the index and is also approaching expiration – this is a concern. Apr futures now hold a premium of over 13 dollars to the index. The fact that nearby futures are at or near oversold levels could trigger some technical buying if there is any friendly news to spark the fire, but so far that has been absent. Today’s export sales data showed net sales of 30,900 mt for 2023 but there were also decreases for several countries. In general, the slaughter pace is strong, but cutouts have not found decent support as pork floods the market.
DAIRY HIGHLIGHTS: A 3.00 cent gain in spot butter helped propel Class IV futures to their best day in three months with the March contract closing at $18.70. While cheese was essentially unchanged, spot whey closed up 4.50 cents to get back to the $0.40/lb mark. It will take a bit more to get the dairy complex out of its sideways to lower trend, but the new month has been friendlier through the first couple days. Regional reports say that “cheese demand spans the spectrum” as some are fielding strong orders, while others remain in a rut. Barrel producers in the Midwest did note a quiet demand tone as inventory remains adequate as the spot price sits 27.50 cents underneath blocks. The USDA will release its December Dairy Products Production tomorrow to close out the calendar year.
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Author
Amanda Brill