MARKET SUMMARY 02-22-2023

The USDA will release the February Cattle on Feed Report this Friday, and the trend of tighter cattle supplies looks to continue. Expectations are for total cattle on feed as of February 1 to be down 3.9% from last year to approximately 11.723 million head. For the COF report, the USDA uses feedlots of 1,000+ capacity to compile the numbers. The impact of higher feed costs, feeder cattle availability, and tight profit margins have impacted the smaller producer more than the larger operations. With those factors, total Year-over-Year on feed numbers are likely to be down more than 4%. Expectations are for beef production in the second quarter of the year to decline 6.7% compared to last year. This is reflecting the tighter on feed numbers and the decline in cow slaughter. This will ultimately force packers to pay up for cattle and push those higher costs onto the consumer.

 

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CORN HIGHLIGHTS: Corn futures ended weaker taking back gains of the last two sessions and continuing their sideways trading pattern. Mar lost 6-1/2 cents to end the session at 6.74 and new crop Dec gave up 4-1/2 cents to close at 5.92. A “risk off” day in row crops with wheat leading the way lower with losses for the sixth day in a row may have added pressure to corn losses, as did weaker soybeans finishing close to double-digit losses. Chicago wheat lost 11-1/2 to 14 cents today with Mar futures having lost 61 cents since finding a near-term peak on February 14.

Brazil’s safrinha corn crop is reportedly 40% planted, down 10% from last year’s pace as wet weather had delayed soybean harvest. No technical damage was done to corn charts today. Bulls, however, are again disappointed as buying interest after two days higher dried up. Tomorrow the USDA will release corn fundamental numbers at the Outlook Conference. Expectations are for 90.9 million acres, production at 14.888 bb, and ending stocks at 1.788 bb. The market will likely make little movement if these numbers are close. Attention will continue to focus on South America, expected acres in the U.S., the war in Ukraine, and exports. Sideways price trends can continue for long periods of time. Historically the corn market has a tendency to price in uncertainty through higher prices. With current prices considered high in an environment where ending stocks in the year ahead are expected to climb, rally potential this winter may be limited. At least, that is the way the market has behaved the last several months.

SOYBEAN HIGHLIGHTS: Soybean futures closed lower today led lower by bean meal while bean oil managed a slightly higher close. Today’s losses didn’t wipe out the gains from yesterday, but some pressure likely came from Brazil coming off their Carnival holiday with increased farmer selling. Mar soybeans lost 9-1/4 cents to end the session at 15.39-1/2, and Nov lost 3-1/2 cents at 13.95-1/2.

Trade has been awaiting further information regarding the size of South America’s soybean crop when they will begin majorly shipping it out, and how much longer the U.S. has in its export window. The USDA’s latest estimated production number is 153 mmt, but some private analysts are calling for a slightly lower number despite the better-than-average yields coming out of Mato Grosso, their largest production area. So far, US export demand has remained relatively firm with sales running 5% above a year ago, impressive considering that Brazil has already harvested about 1.47 bb. Brazilian beans are at a dollar or greater discount to U.S. offers, so when they do ramp up their sales it will probably bring futures lower. Bean meal has been a big leader in the soy complex largely because of Argentina’s drought and the fact that they may come up short on meal exports which the U.S. could theoretically pick up. Bean oil has a bullish long-term outlook thanks to all of the biofuel plants scheduled to come online and the increased use of bean oil soon to come. Tomorrow the USDA will begin their Outlook Forum which will go until Friday, and they are expected to show a decline in planted bean acres by 1.1 million to 88.6 ma for 2023.

WHEAT HIGHLIGHTS: Wheat futures sank again today as U.S. exports are slow and funds might be adding selling pressure. Mar Chi lost 14 cents, closing at 7.36-1/2 and Jul down 12-1/4 at 7.56-1/2. Mar KC lost 28-1/4 cents, closing at 8.76 and Jul down 20-1/2 at 8.61.

Another sour day for wheat as May Chi futures fell below the 50-day moving average. In addition to Chi and KC contracts, MPLS futures were down as well, and Paris milling wheat lost roughly another 6 euros. As for the why? Funds may be adding to short positions again, and U.S. exports are still lagging. Russia’s offers to the world are significantly below that of the U.S. Reportedly both Egypt and Turkey have recently purchased from them. On the bright side, however, with the continuation of the war, Russia’s wheat supplies are due to slow down which could lead to longer-term support. In regard to the war, the Black Sea grain export deal’s deadline is March 19; Ukraine is said to be seeking a one-year extension of the deal with the addition of more ports. It will be interesting to see how Russia responds, given the fact that they have said sanctions need to be lifted before they will allow an extension. Here in the United States, cold temperatures are expected to reach as far as the Texas panhandle this week which could affect their crop. As a reminder, Mar wheat options expire on Friday, and first notice day for Mar futures is February 28.

CATTLE HIGHLIGHTS: Live cattle futures are mixed to mostly higher as the market is still waiting for cash trade to develop a true trend on the week, but a strong retail tone keeps the buyers active. Feeders finished moderately higher on the firm tone in live cattle and weaker grain trade. Feb cattle were 0.150 higher to 164.900, and Apr cattle slipped 0.025 to 165.075. Mar feeders added 1.100 to 187.975.

Another day and another new contract high in Feb live cattle, and some light trade was beginning to develop. Late on Tuesday afternoon, some northern cash trade triggered at $160-161, which was $1 higher than last week. On Wednesday, additional bids were available at $162, firmer than yesterday. The asking prices were still firm at $164 in those regions, and more trade will look to develop as the week progresses. Today’s slaughter totaled 126,000 head, 1,000 more than both a week and a year ago. Retail values have been the backbone of cash trade as prices have climbed with tight overall supplies. Choice carcasses traded 1.42 higher at midday to 288.62 and Select beef added 2.05 to 272.89. The load count was light at 56 midday loads. The feeder cattle market was supported by the firm live cattle tone and weak grain markets. The Feeder Cash Index was unchanged on the day to 182.59. Mar feeders are holding a premium to the cash index which could be a limiting factor. The grain market may be the biggest driver in feeder prices in the near future. Cattle futures overall look strong, fueled by the cash market being the driver, as front-month futures moved to new contract highs again on the day. Be cautious, the market is getting overbought, and may be due for some correction if the fundamentals were to cool.

LEAN HOG HIGHLIGHTS: Lean hog futures stayed extremely volatile, and prices gave back a large portion of Tuesday’s gains. A sharp drop in Tuesday afternoon retail values weighed on the market, questioning the strength the hog market saw to start the week. Apr hogs lost 2.550 to 86.550, and Jun hogs fell 1.475 to 103.800.

The Apr hog contract broke back to test support at 86.500. The price action on the day was disappointing after such a strong day on Tuesday to start the week. The retail market traded well below midday values on Tuesday afternoon’s close. Pork carcasses were 4.71 lower on the close to 83.01, well off of the midday price value of 87.99 on Tuesday midday. Retail prices did find their footing again at midday today, trading back 3.18 higher to 86.19. The load count was light at 135 loads. The cash market has been building an improving base and the market may be starting to recognize this move. The Lean Hog Index added 0.35 to 76.76, but is at a significant discount to the futures, which could be a limiting factor and aided in the selling pressure on the day. The direct cash hog trade was unreported due to confidentiality on Tuesday. Estimated slaughter on Wednesday was 428,000 head, down 45,000 from last week as the winter storm may be impacting animal movement. The premium of the market to the cash market is still a factor, and today aided in the selling pressure. Even though, Apr futures have looked to turn the corner higher but the trade will likely stay extremely volatile.

DAIRY HIGHLIGHTS: Strong bidding in the cheese trade during yesterday’s session jumpstarted buying in milk futures and took contracts up double digits. The market didn’t fare as well today, even though cheese was bid higher once again. Nearby Class III futures were softer with March down 4c to $17.80 and April down 17c to $17.90. In the cheese trade, barrels traded up to a high of $1.6075/lb, but finished off the high to $1.60/lb. This may have kept a weaker tone in the trade the rest of the day. The market may have also been quiet ahead of the release of the January Milk Production report. In the report, the USDA said that milk production in January was up 1.30% from the same month last year. Cow numbers are back on the rise, as the US added 9,000 cows from December to January. The market now awaits the release of the Cold Storage report on Friday to see where cheese and butter inventories are.

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