TFM Daily Market Summary 02-07-2022

MARKET SUMMARY 02-07-2022

As the grain markets are dealing with crop concerns due to dryness in South America, longer-range models keep a dry bias for the United States this summer. The Climate Prediction Center released their long-range 3-month forecasts for June, July, and August, and is keeping the western half of the Corn Belt under a dry tone overall. The maps will be influenced by a longer-term La Nina weather pattern, holding in place for the second consecutive year. Given the current situation in the U.S. as drought monitor maps are already showing ongoing dryness across a large amount of the Corn Belt, These forecasts could add to some longer-term concerns. The crop losses being predicted in South America put pressure on another strong U.S. crop to reach the global demand. Even though these forecasts have a lot of variability, and time to develop, a market will likely stay volatile, keeping a close eye on the U.S. weather for the next crop season.

 

 

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CORN HIGHLIGHTS: Corn futures rocketed higher on the heels of sharply higher soybeans and weather issues in South America. Mar futures gapped higher on the overnight trade and finished 14-3/4 cents firmer at 6.35-1/4. Dec new crop ended 7-1/4 firmer at 5.81, a new contract high close.

Expectations that the U.S. could pick up additional export activity due to a continuous downgrade to parts of the Southern Hemisphere crops are viewed as supportive. A warmer drier forecast for southern Brazil and Argentina, along with continuous rains in other regions of Brazil hampering harvest and thereby potentially delaying the second crop corn, were features the market was factoring in today. There are no shortage of estimates coming from both private and this week’s government reports. Most are aiming for losses of somewhere between 8 and 12 million metric tons of corn production out of the Southern Hemisphere. As a reference point, 10 million metric tons would be a loss of near 400 million bushels.

 

SOYBEAN HIGHLIGHTS: Soybean futures rallied again today with Mar futures adding 28-1/4 closing at 15.81-3/4 and Nov gaining 20-1/4 to end the session at 14.16, another new contract high. Support comes from adverse South American weather, concerns regarding sunflow exports out of Ukraine, technical buying, and expectations this week’s USDA report will have supportive world numbers and possibly more exports.

Futures prices find support from a variety of areas, but the primary is weather. The secondary is a strong energy complex which has investment money continuing to pour into inflation-based commodities. Between weather uncertainty from South America and Ukraine and Russian tensions, traders are adding to long or exiting short positions. The near-term trend remains sharply higher. While overbought, that means little in a market that might be focusing on supply. Therefore, relying on indicators such as relative strength index or stochastics alone might suggest the market is ready to be sold, but the market instead will focus on potential supply disruptions as paramount.

 

WHEAT HIGHLIGHTS: Wheat futures posted moderate gains today, with help from higher corn and beans, as well as growing concerns over a lack of moisture in the U.S. Southern Plains. Mar Chi gained 5-1/2 cents, closing at 7.68-3/4 and Jul up 8-3/4 cents at 7.70-1/2. Mar KC gained 6 cents, closing at 7.91-3/4 and Jul up 7-1/4 at 7.98.

Weekly export inspections for wheat were pegged at 15.3 mb, with total inspections now at 515 mb (still behind the USDA’s pace). The U.S. State Department still believes that an imminent invasion of Ukraine by Russia is likely, but the trade does not seem overly concerned at this point. The Russian wheat export tax remains over $93 per metric ton, which is about the equivalent of $2.53 per bushel. There was an agreement made last week between Russia and China, in which the Chinese will import Russian wheat as well as barley. The U.S. drought monitor map continues to expand in the Southern Plains, including areas of Oklahoma, Texas, and southwest Kansas. Currently, forecasters expect March will remain warm and dry across the Southern Plains. Drought is expanding in North Africa as well, which may require them to import more wheat. In other news, Paris milling wheat futures also posted small gains today, possibly as they correct from an oversold situation. Additionally, the Ag Attaché in Brazil raised their wheat crop 1.45 mmt to 7.7 mmt. As a reminder, the monthly Supply and Demand report is due for release on Wednesday at 11 AM central.

 

CATTLE HIGHLIGHTS: Cattle futures saw quiet trade to start the week, but finished slightly lower on the day. The past few sessions have seen narrow trading ranges, as the cattle market may be looking tired. Apr cattle were 0.475 lower to 146.400 and Jun cattle slipped 0.275 to 141.100.

The front-month Feb contract hit first notice day on Monday, and this could have added pressure to the market as long positions in Feb cattle need to move to the sidelines or risk delivery. Apr cattle opened at a new contract high to start the day but faded setting up a reversal signal on the charts. The cattle market is overbought, but the upward momentum may be slowing. Fundamentally, the retail markets have been trending lower, and that may be making the market cautious. At midday, carcass values were mixed (choice -0.66 and select +0.88) with light movement of 44 loads. Cash trade was undeveloped to start the week with bids and offers unavailable. Optimism will be for a firmer cash tone after last week’s strength. Feeder cattle saw selling pressure after the strong day in the grain markets. Mar feeders dropped 1.075 to 165.025, and Apr slipped 1.150 to 170.275. The Cash Feeder Index was stronger, gaining 0.92 to 160.17. The cattle market has had a strong move higher, but price action is slowing. This may be signs of a short-term top, but the fundamentals may be the key which were quiet to start the week.

 

LEAN HOG HIGHLIGHTS: The buyers stayed active in the hog markets as prices pushed to new contract highs on technical buying and money flow continued to push the market. Feb hogs gained 0.675, closing at 87.700 and Apr was up 1.200 at 101.275.

Apr hog futures extended their gains past the $100.00 level and posted a new contract high and high close to start the week. Prices did fade off session highs but settled with a mid-range close. Summer month hogs followed suit, pushing through the $110 barrier, with Jun still holding above this level on the close. A strong demand tone and cash optimism are helping push this market higher. Midday direct trade was noticeably weaker, down 12.61 to 71.83, which pressured hog futures off the session highs. The Lean Hog Index traded 0.97 higher to 84.30, closing the gap with Feb hogs as expiration is on February 14. Pork carcass values were firmer at midday, with carcasses trading 4.06 higher, to 101.47. The stronger demand tone helps support the market overall, but the afternoon close for retails will likely give the market direction on Tuesday. The trend in the market is still higher, and still looking for a near-term top. A setback could be in the cards soon in this overbought market, especially if the cash market were to soften.

 

DAIRY HIGHLIGHTS: Milk futures added back some premium to contract months on Monday as the dairy spot markets continued to press higher. The spot cheese block/barrel average added another 0.75c and closed up at $1.9050/lb. This is the eighth day in a row that there was bidding in cheese. The cheese price still hasn’t hit a new high for the year yet, so the January high of $1.97875/lb will be watched closely. Cheese production in December was announced up just 0.10% higher than a year ago, which was below the November +1.50% growth figure. This may have given buyers more interest in grabbing inventory over the past couple days. The spot whey trade held steady at $0.8575/lb and has still not had a single down day so far in 2022.

 

Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of the National Futures Association. Stewart-Peterson Inc. is a publishing company. SP Risk Services LLC is an insurance agency. A customer may have relationships with all three companies. TFM Market Updates is a service of Stewart-Peterson Inc. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.

Author

John Heinberg

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