MARKET SUMMARY 02-10-2022
Soybean futures posted reversals on charts indicating a potential market top. May futures posted a new contract high price of 16.34-1/2 this morning before closing 19 cents lower at 15.76-1/2. A reversal after a sharp rally may suggest the market has most, if not all, bullish news factored in. Conab, (reporting agency in Brazil) lowered the production estimate for Brazil to 125 million metric tons. Yesterday, the USDA estimated Brazil’s crop at 134 mmt. The January figure was 139 mmt and last year’s crop was 138 mmt. The initial estimate for Brazil’s upcoming crop was 144 mmt. With today’s sharply lower estimate, the market rallied, gaining than 35 cents this morning only to give it up and lose 19 cents on the session. Is the much lower estimate by Conab now old news? Time will tell, but today’s trade may suggest it is.
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CORN HIGHLIGHTS: Corn futures experienced a wide trading range today gaining over 15 cents and moving into new contract highs before reversing and closing 5 cents lower in Mar at 6.41-3/4 and 3-3/4 weaker in Dec to end the session at 5.84-3/4. Grain and oilseed prices were trading strongly higher but appeared to just run out of buying interest. Once prices fell, sell stop orders were triggered, accelerating the down move into the close. Export sales at 23.3 mb were a disappointment.
As far as new news, there really wasn’t much to provide support or resistance for prices today. Continued weather conditions in South America, especially wet conditions reducing soybean harvest in the northern and eastern regions and potentially delaying corn plantings is a growing factor. Today looks somewhat negative on price charts, yet futures were considered overbought. Mar futures reached the top end of a Bollinger Band and failed to break through 6.62-3/4. This may have been a signal for traders to sell. Farmer selling was a noted feature today after futures topped through 6.50.
SOYBEAN HIGHLIGHTS: Soybean futures blasted higher this morning on strong export sales (58.7 mb) and a large downgrade to the crop by Brazil’s Conab. Conab is now estimating the Brazil crop at 125 mmt, much lower than yesterday’s USDA WASDE figure of 134 mmt. Mar futures reached a high today of 16.33 (up 38-1/2 cents) before closing at 15.74-1/4 down 20-1/2 cents. Nov closed 5-1/2 weaker at 14.32 well off the high of the session of 14.69-3/4.
To say the bean market had a wild ride today may be an understatement. Sharp gains in recent sessions and then today’s reversal and sharp losses are examples of just how much high volatility comes into play when prices are moving on a variety of different rationales. On the one hand, today’s supportive crop estimates were countered by higher prices and expectations that demand will likely slow. Yet, good export sales and continued concern that weather could be a problem might suggest today’s sell-off was nothing more than technical in nature as traders took gains. As prices dropped, sell stops were uncovered accelerating the sell-off. It appeared that money was moving out of markets as both commodities and equities were on the decline. The Dow Jones Index was trading well more than 500 points lower as of this writing.
WHEAT HIGHLIGHTS: Wheat futures had a two-sided trade but ended up closing lower due to profit-taking and technical selling. Mar Chi lost 13-1/2 cents, closing at 7.71-1/2, and Jul down 11 at 7.75. Mar KC lost 14 cents, closing at 8.01 and Jul down 13 at 8.05-1/2.
What started out as another positive session, turned into double-digit losses for wheat. Corn, soybeans, and livestock also struggled as the day wore on and ended up closing in the red. The reversal is somewhat surprising given recent strength and the rally yesterday (despite a WASDE report that was not necessarily friendly to wheat). The USDA reported today an increase of 3.1 mb of wheat export sales; this dismal number did not offer much help to the market. Given the weakness not only in wheat, but the other grains too, what the market might have experienced today was simply profit-taking, stops being hit, and technical selling. On the news front, there is not much to tell. There are reports that Russia is conducting new military drills, but the trade did not seem concerned today. U.S. weather remains bullish with persistent dryness in the Southern Plains.
CATTLE HIGHLIGHTS: Live and feeder cattle futures posted reversals today ending the session with losses. Feb lives lost 55 to close at 142.35 and Mar feeders gave up 1.55 to end the session at 166.725. It felt like the markets were recipients of managed money liquidation and it was a broad sell-off in most of the agricultural markets. Weaker cutout values were again noted, suggesting that new contract high futures prices may have been primed for a risk-off session.
Today’s estimated slaughter was 123,000. This compares to 117,000 last week and 115,000 a year ago. Good demand continues to underpin the market, yet declining cutout values is a bit of a growing concern. Export sales were termed as moderate to poor. This as well might have some impact on traders’ mentality moving forward. Bottom line, the market has had a sharp recovery in both the live and feeder pits, but today’s reversal likely will have bullish traders taking measuring their confidence. We don’t want to read too much into any one day, so the key is how the market trades tomorrow and Monday. If weakness extends itself, a near-term high may be in place. A market holds or reverses higher the bullish trend remains intact. To our liking, the market has made the rally we anticipated, however, we are not sure if there’s much more upward potential after today.
LEAN HOG HIGHLIGHTS: Hog futures, in spite of recent strength, closed lower. It seems that the markets, in general, had a risk-off day, with profit-taking and technical selling. Feb hogs (which expire on Monday) lost 0.050, closing at 90.175. Apr lost 1.350, closing at 103.425.
Lean hogs may be running out of gas; Apr posted a bearish key reversal at the top of a market which is not a good sign. In conjunction with an overbought situation, this may trigger further technical selling. In addition, the higher prices may have an impact on export demand. The WASDE report was friendly to hogs and cash was 2.00 higher on yesterday’s National Direct Afternoon report. Additionally, packers have been more aggressive lately to keep up with an increasing slaughter pace. But bearish today were weekly export sales (sales of 18,100 mt of pork were down 40% from last week) with most sold to Mexico at 10,500 mt. The downturn in grains may have caused some spillover weakness in livestock as well, as profits were taken and stops were hit.
DAIRY HIGHLIGHTS: Class III milk futures were all higher today with the exception of a penny loss for the May contract, as the second month contract extended its push back over $22.00. This puts the March contract 84 cents beneath the high posted by the February contract last month, while the 2022 average hit a new all-time high at $21.53. The spot trade saw spot cheese unchanged at $1.87875/lb while whey fell for its second day in a row, dropping 3.75 cents on top of yesterday’s 4.00 cent setback. This represents about a 9% drop from Tuesday’s all-time high, as the market was getting overdue for a correction. Caution may be warranted with a stagnant cheese market, a possible top in spot whey, and a shift away from the explosive exports that characterized 2021. We will hold our targets in place for now.
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Author
Bryan Doherty