MARKET SUMMARY 02-08-2022
Apr hog futures are trading at rare prices with the strength of the rally on Tuesday afternoon. Apr hogs traded to a new contract high of 104.625 during the session, the highest point Apr hogs have traded since the PEDV rally in 2014. This also traded slightly higher than the COVID rally of 2021 as the markets recovered. A tight supply picture for market hogs, a strong demand tone, and a higher trending cash market have brought money flowing into the hog markets, as strength is being seen well out into the summer and fall months. Since the start of 2022, Apr hogs have rallied over $20.00 to today’s close. The hog market is well overbought, and the next few days may be telling to see if the market has built a double top with last year’s prices, or is poised to rally further.
Like what you’re reading?
Sign up for our free daily TFM Market Updates and stay in the know!
CORN HIGHLIGHTS: Corn futures started the session softer on increased farmer selling and likely some profit taking by traders. Potential for higher demand, and due to weather conditions suggesting lower South American crops, is keeping money flow active and on the buy-side of commodities, in particular corn and soybeans.
The big “guess” on the WASDE report tomorrow is the changes to both Argentina and Brazil crop production. After reducing exports last month, it may be somewhat early to expect the USDA to increase exports on the February report. Pre-report estimates have the Argentina crop at 52.1 mmt, verses 54 last month. Brazil’s pre-report estimate is 113 mmt, versus last month’s 115 and last year’s 138. U.S. carryout is not expected to change much at 1.515 bb versus 1.540 last month. Projected world ending stocks at 300.3 mmt would be 3 less than in January. As weather markets continue to unfold in the Southern Hemisphere, this will likely be the biggest determinant to future price activity. Technical activity suggests old crop corn prices could challenge 7.00 and new crop 6.00.
SOYBEAN HIGHLIGHTS: Soybean futures softened on the overnight session and stayed that way throughout the day, losing 12-3/4 cents in Mar to close at 15.69 while new crop Nov gave up 3 cents to close at 14.13. After gapping higher yesterday and finishing with sharp gains, it appeared traders may have been moving to the sidelines in front of tomorrow’s USDA WASDE report. Weaker energy prices and sharp losses in soybean and palm oil were also likely negative to bean futures today.
Tomorrow could be a big day as the reports could show big changes. Historically, the February WASDE report is not a big market mover. The average pe-report estimate for Argentine soybean production is 44.2 mmt versus the January estimate of 46.5. Brazil’s crop is expected to be downgraded to 133 mt from last month’s 139 and last year’s 138. Numerous private estimates are well below 130 mmt. Carryout in the U.S. is expected to decline from 350 mb to 314 and world-ending stock down near 4 mmt from 95.2. As weather markets unfold, crop estimates are highly likely to change and this will be the case after tomorrow as well. It appeared today was likely position-squaring in front of tomorrow’s report. Additionally, there just wasn’t much new news to feed the bulls, and consequently, prices finished weaker.
WHEAT HIGHLIGHTS: Wheat futures had a two-sided trade today with a mix of bearish and bullish news, but managed to close on a positive note. Mar Chi gained 10 cents, closing at 7.78-3/4 and Jul up 6-1/2 at 7.77. Mar KC gained 9-1/2 cents, closing at 8.01-1/4 and Jul up 8-1/2 at 8.06-1/2.
French President Macron met with Vladimir Putin on Monday to discuss the situation with Ukraine, in an effort to find a diplomatic solution. On that topic, Russian customs estimate their wheat exports at 32.9 mmt in 2021 vs 38.5 mmt last year. There were some recent reports that the Kremlin stated troops would be leaving Belarus this month. This put pressure on the market early today, but things turned around after Stats Canada released their December stocks report. The bullish report put the stocks number at 15.564 mmt vs expectations of 17.3 mmt. This is down about 38% from a year ago at 25.09 mmt. Weather continues to be a concern in the U.S. Southern Plains as drought conditions expand. North Africa is also experiencing a drought which should be watched closely. Tomorrow’s WASDE report is not expected to have major changes, but likely a small decrease to exports and a small increase to carryout.
CATTLE HIGHLIGHTS: Live cattle futures saw mixed trading action on Tuesday as the market stayed relatively range-bound and fought off early session lows. Apr cattle were 0.225 lower to 146.175 but Jun cattle gained 0.150 to 141.250. Feeder cattle saw modest buying strength with the Mar contract gaining 1.850 to 166.875.
The front-month Feb contract is now in delivery but saw no deliveries against futures position. Feb will likely be tied to the cash market and its trend until expiration at the end of the month. Apr cattle opened softer and dropped to test support levels at the 10-day moving average. Prices rejected this level and traded nearly $1.00 of the low for the day, but the chart has turned more negative with two consecutive lower closes. The cattle market is overbought, and 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 +0.29 and select -0.21) with light movement of 71 loads. The choice/select spread has moved extremely tight at a difference of 4.42 between the two, reflecting a firmer demand tone and overall tight supply for the choice product. Cash trade was still quiet and undeveloped to start the week with bids unavailable, but asking prices at $142-143, trying to build off last week’s strength. The market is optimistic for a firmer cash tone after last week’s strength. Feeder cattle saw good buying support after the weak day in the grain markets. The Cash Feeder Index was slightly lower, down 0.03 to 160.14. Feeder cattle posted a strong outside trading range day on the front-end contracts and could be poised for additional follow through, especially if the grain market weakness continues. A USDA WASDE report on Wednesday may aid in the direction of both markets. The cattle market has had a strong move higher, but price action is slowing. These may be signs of a short-term top, but the direction of cash trade and retail values will be key into the end of 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, fueled by product value and cash market trends. Feb hogs, which expires on Monday 2/14, gained 2.625, closing at 90.325 and Apr was up 2.525 at 103.800.
Apr hog futures traded to their highest point since 2014 and the PEDV rally in the hogs market, trading past last year’s post-COVID rally high. A strong demand tone and cash strength are helping push this market higher. Midday direct cash trade was firmer on Tuesday, gaining 4.75 to 76.58 on average with a high base price at $91.00. The Lean Hog Index traded 1.57 higher to 85.87. Pork carcass values were firmer at midday, with carcasses trading 1.06 higher, to 100.00. Within the primal cuts, the high-priced pork loin cuts are trading $104.00, over $20 higher than last year, and well above 5-year averages. The stronger demand tone helps support the market overall and provides the value needed to support the higher trending cash market. The trend in the market is still higher, and the buying strength remains. The hog market is searching for a top and is strongly overbought, but the fundamentals and carcass values still point to a higher trend.
DAIRY HIGHLIGHTS: The USDA released the December dairy export data this morning and the results likely weren’t what the market wanted to see. Leading up to this report, total U.S. dairy exports had increased on a year-over-year basis in each month since February by an average of 13.00%. The USDA said that December exports actually declined 2.60% from the same month last year. Additionally, total exports were down 15.40% from November even though December has one extra day. A likely reason for the slowdown in export demand is that U.S. butter, powder, and whey prices are sitting near multi-year highs and aren’t as competitive on the global markets as they had been in prior months. If export demand tapers off, it could give reason to be cautious moving forward.
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
Bryan Doherty