MARKET SUMMARY 03-03-2022
The impact of the Russia-Ukraine war has sent wheat future on a historic rally, and still searching for a top. The KC wheat, or hard red winter wheat, futures closely ties to wheat raised in that region of the world. Since breaking out of the most recent trading range on February 18, the May KC contract has pushed over $3.00 higher and the highest price level since 2008. The contract has finished limit-up two out of the past three sessions, including locking the 75 cent limit higher on Thursday. The concerns regarding trade and the development of the crop are being priced in as the world may be looking at the prospects of that region’s crop being extremely limited. In February 2008, KC wheat rallied to $13.70 bushel, and that mark is still above the market. Wheat prices are in uncharted territory, and the buying under the market only looks to push prices higher in the near term.
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CORN HIGHLIGHTS: Corn futures traded with sharp gains throughout the session as May was locked limit higher, however very late in the session prices slid closing 3 to 22 higher. May closed at 7.47-3/4 up 22-3/4 and Dec closed 2-3/4 firmer at 6.12 after reaching a high of 6.24-3/4, the third time the market has either challenged or traded through 6.25 and failed. Mar scored a new contract high of 7.78-1/2. Announced sales of 337,000 metric tons to unknown destinations along with limit higher wheat prices proved underlying support. Crude oil was sharply higher in the morning session gaining near 5.00 per barrel but weakened trading negative by early afternoon.
The major driving force in higher commodity prices, as well as corn, is the war in Ukraine. There are many variables that are unknown, and we continue to find it difficult to believe that grain not moving out of the country and the likelihood of a late or non-plant season will provide continued underline support. Yet today’s close was not all that impressive. Export sales at 19.1 million bushels old crop we’re on the low end of expectations and termed uneventful or even disappointing. Ethanol margins have been squeezed as of late and some plants idle due to maintenance. While this is important, the market has put price premium for the war ahead of margins for ethanol. There aren’t enough weather developments in the Southern Hemisphere to make an argument one way or the other for the second crop corn in Brazil.
SOYBEAN HIGHLIGHTS: Soybean futures ended mixed with May gaining 4-3/4 cents at 16.67-3/4 after reaching a high of 16.99. Nov gained 1-1/2 cents ending the session at 14.54-0. Aug futures lost 8 cents to end the session at 15.77-1/2 Announced sale of 132,000 mt, half for 2021 delivery and half for the 2022/2023 marketing year was viewed as supportive. Meal prices gained 3.00 to 5.00, but soybean oil lost more than 100 points as futures went from strong gains to negative following a steep drop in crude oil prices, which were trading new contract higher prices 116 dollars/barrel before trading lower losing 2 to 3.00 by early afternoon. Limit higher wheat prices were supportive.
Export sales at 31 mb were termed supportive bringing the year-to-date total to 1.843 bb or 89% of expected sales of 2.050 bb. Considering a drawdown to the Southern Hemisphere crop, it is highly likely the USDA will need to raise expected sales and thereby reducing projected carryout for the current figure of 325 mb. It is likely that the true number could be between 200 and 250 million as additional export activity is likely. High prices may curb demand, yet with the world tight on inventory and now a growing concern that sunflower oil could be limited, coupled with energy prices screaming into new high prices nearly weekly, the big picture continues to suggest tightening supplies.
WHEAT HIGHLIGHTS: Wheat futures were limit-up on several contracts as the war rages on in Ukraine. May Chi gained 75 cents, closing at 11.34 and Jul up 75 at 11.16-1/4. May KC gained 75 cents, closing at 11.50-1/4 and Jul up 75 at 11.33.
The USDA reported an increase of 11.0 mb of wheat export sales for 21/22 but the market did not care a bit. Soaring to new highs seems to be the new norm and uncertainty is driving this trend. There is talk that Russia is trying to ship grain and food out of the Baltics. Black Sea ports have been closed and that is causing rising prices not only for U.S. prices but in Europe as well. Paris milling wheat futures have closed higher for four days in a row. Those buyers who usually source from Russia are looking for alternatives. There is also a lot of concern surrounding Ukraine’s winter wheat harvest. There is talk that farmers are giving up fuel to the military resistance and possibly land as well. Between that, logistics, and the fighting, there are serious doubts as to whether that crop will be harvested (and if other crops will be planted, looking down the road). Here in the United States, HRW wheat areas are worsening in terms of drought. Next week’s USDA report will have supply and demand estimates, but the impact might be minimal given that most are only worried about the war and the possibility that it becomes a much larger global issue than it already is.
CATTLE HIGHLIGHTS: The live cattle futures saw selling pressure as long liquidation and technical selling pushed the markets to near-term lows, backed by a turn lower in cash trade and strong grain markets. Apr cattle lost 1.750 to 138.350, and Jun live cattle were 1.350 lower to 135.150.
Apr cattle futures failed to hold support levels at the 200-day moving average and the trendline under the market prices, and the technical weakness will keep the selling pressure in the market. Apr futures are now challenging the uptrend in the market overall, leaving the technical picture very cautious. Cash trade was quiet today, with a good portion of business done for the week. The majority of trade was at $140, down $2 from last week, helping pressure the market. Trade is likely done for the week, with the exception of light clean-up trade. Retail values have been trending lower, and that has limited cash bids. At midday, boxed beef prices were lower, (choice: -0.98 to 254.74, select: -1.90 to 249.44) with demand light at 73 midday loads. Weekly export sales were improved with new sales of 23,800 MT, up 64% over last week and 23% above the 4-week average. South Korea, China, and Japan were the top buyers of U.S. beef last week. The grain markets were sharply higher most of the trading day, and that pushed feeder markets to triple-digit losses. Mar feeders were 1.950 lower to 156.350, while Apr fell 2.475 to 160.525. The Feeder Cattle Cash Index was 1.47 lower to 157.78 and trading at a small premium to the futures market. The direction of the grain markets will have a large impact on feeder cattle going into the end of the week. The near-term trend is still lower in cattle markets, but markets overall are still in an uptrend, but now challenging that trend. The market is in a long-term uptrend but is searching for a near-term low.
LEAN HOG HIGHLIGHTS: Hog futures saw mixed to lower trade pressured by triple-digit losses in the Apr contract. Prices are still consolidating off the most recent moves. Apr hogs were 1.100 lower to 105.200 and Jun hogs finished 0.050 higher to 116.500.
Apr hogs traded between the 10 and 20-day moving average, bounce back and forth within that range. The Apr chart is building a “bear flag” pattern with a series of higher highs and higher lows, setting up a potential break to the downside, and a test of the $100.00 level. The market fundamentals have remained strong, limiting downside potential. Pork cutout values maintained their strong value. At midday on Thursday, pork carcasses were higher, gaining 6.76 to 115.18. Load count was moderate at 174 loads. Weekly export sales saw a jump higher last week with new sales at 42,200MT, up 59% from last week and 80% from the 4-week average. Mexico, China, and Japan were the top buyers of U.S. pork last week. Cash was supportive with the National Direct morning trade, marking a base price of 94.48, up 4.75 from Wednesday, and the Cash Lean Hog Index was 0.18 higher to 99.84. The Apr futures is still holding a 5.360 premium to the index, which could pressure the market. Technically, the hog market may have found some support in the near term, holding the 20-day moving average, but a further break lower is possible with the premium of futures to cash in the market. The fundamentals stay supportive overall, and the hog market is supported by strong retail and improving cash values. The market is still in a strong uptrend, but more downside pressure is possible.
DAIRY HIGHLIGHTS: While yesterday was an uneventful day for milk futures amidst an unhinged commodity world, today saw prices joining the fun with solidly higher closes. Class III futures witnessed their second month hit a new high for the move with April trading up to $23.64 and closing at $23.44, breaking above the short-term resistance point around $23.00 which plagued its predecessors. The block/barrel average also bested short-term resistance at $2.00/lb with a finish at $2.03625/lb, a mark not seen since the 2020 rallies surrounding the Food Box Program. Blocks and barrels were 4.75 cents and 5.00 cents higher, respectively. Lastly, spot whey managed to close up 1.50 cents after its recent downturn to aid in the optimism.
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