MARKET SUMMARY 03-10-2023
Equity futures have been under pressure, and this week, Dow futures crossed through a key level of support. This week, Dow futures dropped over 1400 points and closed below the 200-day moving average. This will be the first time since November, as sellers are in control of the market direction. There have been many factors that are pressuring the equity markets, led by the Fed’s raising of interest rates in order to curb inflation. Friday brought the February jobs report, but most of all were the issues with the Califonia bank SVB closing. This pressured the banking sector, leading the market lower. There are a lot of moving pieces in equity markets at this time, but the near-term trend in equity futures is looking to test lower levels.
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CORN HIGHLIGHTS: Corn futures gained back about a nickel today after finding support both technically and fundamentally. May was up 5-3/4 cents at 6.17-1/4 and Dec gained 4-1/2 cents to close at 5.57-1/4.
Corn bounced a bit today but May still finished with a weekly loss of 22-1/2 cents. Corn may be finding support near the 6.00 level and from the lower Argentina crop ratings. With both the Rosario and Buenos Aires Exchanges below that of the USDA in terms of Argentina’s crop production, further cuts could be necessary which would offer support to U.S. futures. And while Brazil is still expected to have record crops, rain delays mean that a portion of the safrinha crop will be planted outside of the ideal time window. This could ultimately affect production, but remains to be seen. With South America basically out of the corn export market at present, and with the reduction in prices, U.S. corn has become much more competitive globally and this may lead to higher export numbers. Uncertainty still surrounds the Black Sea export corridor, however, and if it will be extended or not. Corn may have also rebounded today simply on money flow. There were news reports that a U.S. bank had to sell out of treasuries they had bought and took a $1.8 billion loss. This is likely what led to such pressure on both financial and commodity markets yesterday (at least in part). In other news, China could return to buy U.S. corn, as their internal price for May on the Dalian Exchange remains expensive, around the equivalent of 10.40 per bushel.
SOYBEAN HIGHLIGHTS: Soybeans closed lower today, along with both meal and bean oil, on yesterday’s downward momentum from the Export Sales report that showed net sales cancelations. May soybeans lost 3-3/4 cents to end the session at 15.07, and Nov lost 2-1/2 cents at 13.57-1/2. For the week, May lost 11-3/4 cents while Nov lost 15-1/2 cents.
The soy complex moved lower without much fresh news and just continued to follow yesterday’s trend that set a bearish tone after the USDA reported net sales cancellations. While soybeans did end lower on the week, they are still relatively rangebound with support coming from Argentina’s crop, which is rated worse every week, along with a very strong domestic crush demand that is partially making up for the losses on the export front. The USDA lowered U.S. ending stocks to 210 mb, and both the Rosario Grain Exchange and Buenos Aires Grain Exchange revised their estimates for the Argentinian crop to 27 mmt and 29 mmt respectively, while the USDA estimate still sits at a lofty 33 mmt. Even the 29 mmt estimate would be the lowest production in 22 years. With the recent drop in meal and bean oil prices, crush margins have softened a bit but still remain strong and a good incentive for processors. May beans have dropped below their 50-day moving average and briefly fell below 15 dollars this morning before recovering slightly.
WHEAT HIGHLIGHTS: Wheat futures posted strong gains as they bounced off of yesterday’s low. The sharp losses yesterday may have been overdone and wheat may be seeing the start of a correction from oversold conditions. May Chi gained 13-1/2 cents, closing at 6.79-1/4 and Jul up 13 at 6.90. May KC gained 21 cents, closing at 7.98-1/4 and Jul up 20 at 7.89.
Wheat made a nice recovery to end the session. However, it was not enough to completely erase losses for the week, with May Chi losing 29-1/2 during that timeframe, and May KC down 18. Technically wheat is very oversold on both daily and weekly indicators and due for a correction. Traders may have seen the start of that today. There are legitimate outside market concerns, however. Yesterday’s sharp losses appeared to stem from possible fund selling and money flowing out of commodities. Silicon Valley Bank reportedly took a $1.8 billion loss and has apparently now been shut down by regulators. This sent a shockwave through the equity and commodity markets yesterday, but may be old news at this point in time. Ultimately, the USDA still has U.S. wheat carryout at the lowest level in 15 years – one would think that should lend support (and wheat may be undervalued). In other news, Russia continues to launch missiles into Ukraine and the Zaporizhzhia nuclear power plant was again in the headlines as it was disconnected from the grid again.
CATTLE HIGHLIGHTS: Cattle futures saw additional profit-taking on Friday as upward momentum is slowing in the cattle markets. Steady cash was disappointing, and outside market pressures limited cattle futures. Apr live cattle lost 0.525 to 164.275, and Jun cattle dropped 1.025 to 158.650. Feeders saw profit-taking again after a good start to the week. Mar feeders lost 1.600 to 191.475 and Apr fell 1.550 to 197.650. For the week, Apr live cattle was 1.150 lower, and Mar feeders dropped well off the week’s high, but still traded 1.475 higher on the week.
The cattle market rally is looking tired and recent price action has the market setting up for some correction. Apr live cattle price action to end the week was extremely weak as prices closed on the lows of the week. This could open the door for some further price correction, technically, next week. The cash market trade was disappointing this week and prices were steady to slightly higher. Business was relatively light this week, but most trade was reached at $164-165 in the south and $265 in northern dress trade. These levels were fully steady with last week, disappointing the market. Retail values were mixed at midday with Choice gaining 1.31 to 285.91, but Select dropped 3.58 to 272.47. The load count was light at 59 loads. Both Choice and Select values were trending softer on the week, limiting the gains. Feeder cattle saw profit-taking and long liquidation again on Friday. Feeder charts were overbought and poised for some correction. Daily charts posted a topping signal with yesterday’s reversal lower and got follow-through today. This leaves the technical picture looking weak, and a potential turn higher in the grain market could limit the gains. The Feeder Cash Index was up 0.11 at 188.83 continuing its climb, gaining 3.40 on the week. The index is still at a discount to the front-end futures but talk on strong countryside cash markets has been lifting the index to the futures market. Cash trade developing steady is a disappointment to the market. Outside markets triggered some profit-taking in both live cattle and feeder cattle this week. Markets are overbought, and some correction may be needed for prices to work higher in the future. The overall trend in cattle is still higher.
LEAN HOG HIGHLIGHTS: Lean hog futures finished with strong triple-digit gains on short covering as futures broke out of the consolidation range. Apr hogs jumped 2.375 to 87.450, and Jun gained 2.325 to 102.775. For the week, Apr hogs were 2.900 higher and Jun added 2.150.
The volatility in the hog markets has definitely shown aggressive price swings in recent sessions. With the closes today, the turn higher looks to be established as holders of short positions in the hog market got “caught” on the wrong side. Even though Commitment of Traders reports are delayed, as recently as February 14 managed funds were holding short positions in the lean hog market, and those are likely getting moved to the sidelines. The question is, will the short positions become long positions? The CME Lean Hog Index gained 0.30 to 79.39. On the week, the index gained 0.74, making it the 6th consecutive week of gains. Midday direct trade was softer on the day down 0.44 to 77.83, and the 5-day rolling average was also higher to 78.10. The higher trend in the cash market and the tightened premium of Apr to the cash has helped the buying strength in the past couple sessions, but that spread widened again to 8.000+ and could be a limiting factor. Pork retail values were softer at midday, losing 0.50 to 87.89, after a firm close on Thursday afternoon. The load count was light at 165 midday loads. For the week, pork retail values have trended higher. The CME pork cutout index has also trended higher and gained 0.61 to 87.29 and closed the week 1.89 higher. Hog slaughter could still be a limiting value. Daily slaughter is estimated at 480,000 head, trending 13,000 over last week and 4,000 higher than last year. The hog market is looking to work higher in the near term, supported by the cash and retail trend, as the market is finding some balance between front and deferred futures. The chart technical picture is improved with today’s strong close to end the week.
DAIRY HIGHLIGHTS: The second month Class III contract failed to add onto yesterday’s gains but was overall higher on the week. The contract bounced 15 cents higher for the week and stayed above a trendline dating back to 2020. The Class IV second month contract worked in the opposite direction and has traded even or lower over the last four weeks, losing 36 cents this week and over a dollar during the last four weeks. The Class III and IV prices are not the only dairy products converging recently, the spread between spot cheese blocks and barrels has collided this week, leaving only a one-cent premium on blocks, that premium was 37.5 cents to start the week. That collision can be associated with regional cheese reports showing barrel inventories getting back to healthy levels as demand for cheese, despite strong production, is fair in the US. Cheese demand in Europe is being reported as strong, with their domestic producers keeping busy production schedules and not growing inventories, while total cheese exports reported for January up over 15%YoY. Butter exports were the only dairy product to show YoY reductions in exports, a 13% drop from 2022, pressuring nearby butter futures to new lows for the month and for the current move to the downside.
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Author
Brandon Doherty