MARKET SUMMARY 03-01-2022
One of the results of the Russian invasion of Ukraine is that it has helped send soybean oil prices to all-time highs. The bean oil market has been tied to the demand for edible oils and the movements of the crude oil market. Crude oil futures traded strongly higher to new multi-year highs on Tuesday, supporting the soybean oil market. The shut down of sunflower oil exports from the region due to the Russia-Ukraine war has added to the demand for new sources of edible oils, and soybean oil is on the list. Global edible oil prices have taken off since the invasion, and the drought issues in South America have only tightened the global soybean oil supplies. This combination of factors has helped soybean oil prices surge, and looking for a top.
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CORN HIGHLIGHTS: Corn futures surged again today on growing concerns the Russia and Ukraine conflict is averse to agriculture shipments and could delay the upcoming planting season where farmers are generally seeding corn by late March in southern Ukraine. Mar futures gained 42-1/4 cents closing at 7.39-3/4, (no limit as this contract is in the delivery period), May added 35 cents to close at 7.25-3/4 and Dec finished 17-1/2 higher at 6.28. All corn contracts posted new contract high closes.
With shipping potential problems, rumors continue to circulate that China is in the market to buy U.S. corn. We have not seen a confirmation, but talk has them purchasing as much as 20 million bushels. The corn market is beginning an acceleration phase on charts after a steady and almost predictable/reliable uptrend. Corn has generally been a follower of sharp gains in the soybean and wheat markets, both of which also finished with strong gains today. However, it is becoming more of a complicated scenario in Ukraine as it is highly likely the planting season could be disrupted or perhaps not even occur. Each day is changing wildly so expect high volatility, yet it continues to look as though the market may be trying to ration supply because of the war and putting weather premium into price in case the second corn crop out of Brazil is less than expected.
SOYBEAN HIGHLIGHTS: Soybean futures finished in the range of 40 to 60 cents as prices continue to surge on supply concerns and export sales. An announced sale of 264,000 mt to China for 2022/2023 was another signal that China and others are securing needs despite higher futures prices. This reflects concern supplies will tighten. The Brazilian farmer is said to be a slow seller. Some private estimates suggest the Brazilian crop is near 122 mt, even lower than the 125 recently from Conab. Soybean oil continues to skyrocket posting new contract highs on the heels of sharply higher energy and halted shipments of sunflower oil from Ukraine.
Today’s announced sale of nearly 10 million bushels to China is another sign that a shortfall of production in South America is being replaced by U.S. beans for the upcoming growing season. What could be interesting is what the soybean oil market looks like in the days and weeks ahead as palm oil, as well as other vegetable oils, continue to push into new highs. Is the world rationing demand? Probably, but to ration one also has to expect that end-users will buy it at nearly any cost to secure near-term if not longer-term needs. We believe that is more likely what is happening in the oil markets.
WHEAT HIGHLIGHTS: Wheat futures were up strongly again, with limit-up moves observed in several contracts. It is all war-related at this point. May Chi gained 50 cents, closing at 9.84 and Jul up 50 at 9.67. May KC gained 50 cents, closing at 10.03 and Jul up 50 at 9.90-3/4.
Ukrainian ports have been shut down and will remain closed until the invasion ends. This information comes from Ukraine’s Maritime Administration; in addition, the port in Mariupol was damaged by Russian artillery (this is one of the Ukrainian cities along the Azov Sea, which is connected to the Black Sea). With these ports shut down, a lot of grain will be left unshipped which will have a major impact on global prices and availability. With Ukrainians putting up strong resistance, it is not known if these ports will reopen days, months, or even years from now. Because of this volatility, May KC wheat closed at the highest level in 10 years and Paris milling wheat futures had all-time high closes. President Biden is expected to speak on the war in tonight’s State of the Union Address. Providing an additional bullish backdrop is the fact that yesterday the Climate Prediction Center issued their seasonal drought outlook through the end of May – it keeps both KC and MPLS wheat areas dry. Next week’s USDA Supply and Demand report will be an interesting one for all of the grains, as it is unclear whether or not they will factor in the war situation.
CATTLE HIGHLIGHTS: The live cattle futures saw mixed trade on Tuesday, as front-month futures are struggling to find footing overall. Weaker retail beef prices and the lack of cash development allowed the technical selling to keep pressure on the front end. Apr cattle is the new lead month, lost 0.900 to 140.525, and Jun live cattle were 0.650 lower to 137.050.
The weak technical picture keeps the selling pressure in the front end of the live cattle market. Apr live cattle closed under the 100-day moving average for the 2nd consecutive day but traded within yesterday’s trading range as prices consolidated. The Apr contract pulled in line with the expiration price of Feb cattle from yesterday and is waiting for cash trade to develop. Fundamentally, cash trade was typically quiet to start the week with bids and asking prices undefined. The cash trade trend will be closely watched this week, as a larger supply of heavy-weight cattle may still act as a limit on the cash market. Retail values have been trending lower, also limiting cash bids. At midday, boxed beef prices were lower, (choice: -0.37 to 257.14, select: -1.39 to 252.02) with demand light at 66 midday loads. The strong price movement again on Tuesday in the grain markets keeps the pressure on the feeder market. The Mar feeders were 1.450 lower to 156.275. The Feeder Cattle Cash Index was 0.24 lower to 159.67 and trading at a discount to the futures market. The trend is still lower, fueled by the strong move in grain markets and poor price direction. Cattle markets overall are still in an uptrend, the market is experiencing a pullback, and searching for a near-term low.
LEAN HOG HIGHLIGHTS: Hog futures saw a sharp recovery off recent lows as the fundamental in the market have outweighed the technical selling. Apr hogs were 2.700 higher to 106.200 and Jun hogs finished 3.350 higher to 116.775.
Apr hogs tested the 20-day moving average near $103 and held this point again today as it triggered some short-covering and price recovery. Prices pushed toward the 10-day moving average but were held in check on the close. This move may be signaling some price recovery, but follow-through will be key going into the end of the week. Overall, the market fundamentals have remained strong despite the drop in prices. Pork cutout values have been trending higher overall. At midday on Tuesday, pork carcasses were slightly lower, losing 0.97 to 111.30. Load count was moderate at 178 loads. Cash was supportive with the National Direct morning trade, marking a base price of 88.59, up 0.22 from Monday and the Cash Lean Hog Index was 0.69 higher to 99.09. The Apr futures is still holding a 7.110 premium to the index, but feels more manageable given the strength in the cash market. Technically, the hog market may have found some support in the near term. The fundamentals stay supportive overall on a tighter hog supply overall, supported by strong retail and improving cash values. The market is still in a strong uptrend. The key will be follow-through on today’s strong price action.
DAIRY HIGHLIGHTS: Milk futures joined the rest of the commodity markets with higher trade today. The Class III 2022 average was 31 cents higher to trade to a new high of $22.08, while its Class IV counterpart jumped 25 cents with a close at $24.02. The February contracts look like they will come off the board with more than a $3.00 premium in the Class IV contract, up from the $2.71 premium seen in January. Spot cheese was 2 cents higher today to push back up just under $2.00/lb and will try to breach that point this week for the first time since November 2020. Not to be outdone, spot butter was 6.25 cents higher to finish at $2.6925/lb and is already 10.50 cents higher in two trading days this week, erasing last week’s 10.25 cent loss.
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Author
Brandon Doherty