MARKET SUMMARY 02-11-2022
There has been much speculation as to how the markets may react if Russia were to invade Ukraine. The market did react today, from sources suggesting an invasion could be imminent next week. Commodities wasted little time moving sharply higher, particularly wheat and crude oil. The stock market quickly dropped with the Dow losing near 500 points. Approximately 30% of the world’s wheat is derived from Russia and Ukraine.
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CORN HIGHLIGHTS: Corn futures traded both sides of steady, finishing the session on a firm note with a late session rally on wire service reports that Russia will invade Ukraine next week. Mar futures gained 9-1/4 cents to close at 6.51 and Dec added 10 cents on the session closing at 5.94-3/4. For the week, Mar futures gained 30-1/2 cents and Dec added 21. The week was highlighted with lower than anticipated downgrades to both the Argentine and Brazil crops on the WASDE report Wednesday. Yet, private analysts suggest smaller corn crops for Argentina and Brazil first crop will be noted on subsequent reports.
Brazil’s second corn crop (Safrinha) is still forecasted to be record large. Critical weather in the weeks ahead will determine progress and likely price movement. Futures continue to trade upward with expectations that old crop may reach 7.00 in the weeks ahead if South American weather is less than ideal. New highs posted this week in the energy complex as well cattle, hogs, and milk futures also suggest no let-up in feed demand. Rumors continue to circulate that China is in the market for large amounts of U.S. corn (perhaps 2 mmt or near 80 mb), as tightening world supplies and high internal prices keep the expectation for stronger U.S. exports on the front burner of reasons why corn futures may continue higher. Currently, however, it is too early to draw any conclusions to Brazil’s second crop.
SOYBEAN HIGHLIGHTS: Soybean futures rallied shortly after the 8:30 central pause session, gaining 20 plus cents only to give it all back and turn negative. However, late in the session wire service reports indicated that Russia will invade Ukraine next week. This had prices in positive territory, ending the session higher with Mar gaining 8-3/4 cents to close at 15.83. Nov added 12 finishing the session at 14.44. Despite a somewhat sluggish end to the week, Mar futures added 28-1/2 cents and Nov 48-1/4.
It was another solid week for soybean futures with much of the same story supporting prices as it has the last several weeks. Higher energy, weather concerns, and strong speculative buying interest all propelled prices higher. We believe farmers are rewarding higher prices this week, yet prices still moved higher because the Southern Hemisphere continues to experience less than ideal growing conditions. Announced export sales on nearly a daily basis are evidence that the world has turned to the U.S. to shore up near-term supply needs.
WHEAT HIGHLIGHTS: Wheat futures closed sharply higher on new reports that Putin does intend to invade Ukraine. Mar Chi gained 26-1/4 cents, closing at 7.97-3/4 and Jul up 23-1/2 cents at 7.98-1/2. Mar KC gained 23-1/4 cents, closing at 8.24-1/4 and Jul up 22-1/4 at 8.27-3/4.
What started as a relatively boring day, turned into an explosion before the close. Wheat rocketed higher on renewed concerns of a Russian invasion of Ukraine. Though unconfirmed at this time, there were reports today that Putin does plan to invade Ukraine and communicated as such to the Russian military. The invasion is believed to begin sometime next week. Again, these are unconfirmed reports at this time, but it is noted that President Biden did suggest any U.S. citizens in Ukraine should leave. Paris milling wheat futures also closed sharply higher, around the equivalent of 22 cents. The U.S. Southern Plains look to remain dry for the next seven to ten days. There is some precipitation in the forecast with a front moving through, but the outlook suggests that the moisture will only hit the very eastern HRW wheat areas.
CATTLE HIGHLIGHTS: Live cattle futures finished mixed and feeders lower. Feb live cattle settled 141.875, down 0.475 on the session and 0.0175 for the week. Mar feeders closed at 166.225, down 50 cents on the day and up 0.125 for the week. In essence, futures finished unchanged for the week. Most futures contracts scored new contract high prices this week but also finished in negative territory compared to last Friday’s close. This is not necessarily the best sign so hedges were added today.
Estimated slaughter was 120,000 and this compares to 114,000 a week ago. Cutout values were steady to weaker with choice down 10 cents and select down 1.11. As far as market-moving news, there wasn’t much on the fundamental front. However, wild swings in many commodity markets, including the livestock sector yesterday where prices reversed after strong gains, suggest that commodities as a whole may be overvalued. Yet, we like the idea of tighter inventory into the later winter months and staying supportive to price. Next week we take another look at potential defensive postures. These will likely come in the form of put options or fence strategies.
LEAN HOG HIGHLIGHTS: Hog futures had a lower close again, with the Feb contract as the only exception. Feb expiration is on Monday – lighter volume can have unanticipated effects. Technical selling seems to have followed through from yesterday, with more reason to believe that the top is in. Apr hogs lost 1.200, closing at 102.225, and Jun down 1.325 at 112.20.
It appears that follow-through selling is what occurred today. After being overbought for quite some time, some technical indicators did show sell signals yesterday and are now dipping back below the overbought line. This could trigger further long liquidation. Weekly export sales 40% behind last week and down 71% from the four-week average did not help the situation. In theory, increasing slaughter pace and good demand should keep packers aggressive, but this remains to be seen. Cash was not supportive yesterday with the National Direct Afternoon report down 1.87, but the morning report was up 0.67 today. The CME Lean Hog Index is up 0.52 at 87.74.
DAIRY HIGHLIGHTS: The Class III milk market put together a solid Friday with the second month March contract closing up 57 cents at $22.68, totaling 77 cents in gains for the week and trading within a nickel of last month’s high. A close above the $22.95 level would open up the topside again and bring the 2020 highs into focus. The block/barrel average closed the week up just over a penny at $1.90875/lb and will be watched on another approach near $2.00. Spot whey was 3.25 cents high today, but still down 3.50 cents on the week, posting just its second negative weekly close since the end of August. With the complex approaching the January highs, Class III milk and the spot markets are setting themselves up for an interesting week coming up.
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Author
Brandon Doherty