MARKET SUMMARY 3-14-2022
The strong rally in soybean meal is helping pull DDG prices higher and supporting the corn market. The limited crop in South America has led to a strong rally in soybean meal prices, as a tighter global supply in the face of strong demand has pushed prices strongly higher. A close substitute to soybean meal in feed rations is the use of DDG. As soybean meal has nearly doubled in value compared to DDG prices, the prices of the b-product from the ethanol industry has stepped up its climb, indirectly providing additional strength in the corn market. Over the weekend, Argentina announce export restrictions on soybean meal and oil, which should only help push prices higher as global supplies tighten more. Watch for the spillover effect to continue into the corn market if that trend continues.
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CORN HIGHLIGHTS: Corn futures followed the crude oil market lower, finishing with losses of 2-1/2 to 14-1/4 cents as May lead today’s drop, closing at 7.48-1/4. December lost 2-3/4 cents, closing at 6.52-1/2. Crude oil traded 5.00 to 8.00 lower throughout the session as China is closing a city/region on a resurgence of covid. Expectations that OPEC countries will help fill the void from a ban on Russia oil may be also added to the woes of the energy complex today. Export inspections at 45 mb were termed supportive with the yearly total at 1.021 bb, or 40.8% of expected sales.
Support for corn prices will continue to come from the war in Ukraine, which suggests there is little chance the crop will be planted in timely fashion or for that matter, export sales that need to be delivered will find a home anytime soon. Attention will now focus directly on the southern hemisphere crop, US weather, and of course developments in the war. Some believe the market may have already factored in worst case scenarios. We do not believe that to be the case as corn once touched 8.00 for the March futures. Historically, corn has reached over 8.00 two other times, in 2012 during a drought season and 2008. We believe the world picture is more dire for corn production and available supplies than it was in those two seasons.
SOYBEAN HIGHLIGHTS: Soybean futures edged lower today, giving up 5-1/2 in May to close at 16.70-1/2 and 10 lower in November, ending the session at 14.81-0. Export inspections at 28 mb were supportive, but not overwhelming. A sharp drop in crude oil prices was the likely cause for pressure in soybean prices, which traded both sides of steady throughout the session. Year-to-date inspections are now 1.549 bb of a new expected 2.090 bb, from last week’s USDA forecast. Last month’s estimate was 2.050 bb.
Traders were unwinding soymeal/soybean oil spreads today, with meal gaining 3 to just over 7.00, while soybean oil lost 99 to near 200 points. The likelihood of significant losses to the Brazil crop from this point forward is low, suggesting supply declines are already in the market. What the market will likely focus on is energy prices, production capability of Ukraine, particularly with sunflower oil, and outside markets. The US dollar continues to climb and is a bit of an anchor on price. Exports should, however, remain strong and price volatility high. End user buying will continue to be steady, but strong filling needs depleted by small southern hemisphere crops. 17.00 continues to act as overhead resistance.
WHEAT HIGHLIGHTS: Wheat futures had a mixed close after a two-sided trade. Not a lot has changed in terms of the war, however, some Black Sea exports may be resuming. May Chi lost 10-1/4 cents, closing at 10.96-1/4 and July down 7-1/4 at 10.70. May KC gained 10-3/4 cents, closing at 11.00 and July up 4-1/2 at 10.85-1/2.
Today was certainly a rollercoaster ride with wheat trading both sides of neutral several times during the session. There were a number of recent headlines affecting the market. First, there were again reports of Russia discussing a ceasefire, however, they continue to advance their positions and attacks on Ukraine in contradiction to these reports. There was also the news that, according to US officials, Russia is asking China for military aid. It should be noted that both of those countries are denying these claims though. Regarding China, there was also a recent headline stating that they have locked down the city of Shenzhen due to a covid outbreak. This is an active port city of 18 million people, and a key technology production area. With concern about a drop in China import demand, several commodities took a hit today. On a final note about Russia, it was reported that some wheat exports have started to resume of the Black Sea (though the Azov sea remains closed). Here in the US, the southern Plains are expected to have chances for light showers over the next few days, bringing some minor relief to the area. In other news, wheat inspections were pegged at 10.4 mb, bringing total inspections now to 595 mb.
CATTLE HIGHLIGHTS: Strong money flow moved into the cattle markets as prices broke through resistance levels , improving the technical picture and bringing value buying into the markets. April cattle gained 3.025 to 140.325, and June cattle added 2.750 to 135.700. April feeders surged 4.425 to 162.400.
We’re encouraged by the positive weekly close on the cattle market last week, and softer price tone in grain markets,. April futures pushed through resistance at the 10-day moving average, triggering a round of short covering. The close at the top of the range will likely leave additional buying support for Tuesday, with the next resistance at the $142 area over the April contract. Typical Monday cash trade today, with bids and asks not defined. Last week trade at $138 was disappointing, and the futures now trading a premium to cash, lower or steady cash bids could be limiting to the April futures. Warmer weather forecast may start boosting spring demand for beef retail values. The retail market was mixed on Monday, (Choice: +.33 to 255.04, Select: -.04 to 249.07) with demand light at 42 midday loads. Retail strength could be a key going into next week and possible support in cash trade. Retail values are trading at historical value and that is supportive price. The 90% beef trim value is trade $284/cwt on Monday, nearly $50.00/cwt over the last two years. This helps build some support under the market as we expect to see spring demand pick up. Feeder cattle futures saw strong gain as grain markets were softer to start the week. Like live cattle, prices broke out to the top side technically, and prices saw short covering. The Feeder Cattle Cash Index was 0.25 lower to 152.31., limited the gains in the front month contracts. Prices were a value, and the money jumped into the market, setting up the strong gains. The strong close leave the upside open to continue the rally in the short-term.
LEAN HOG HIGHLIGHTS: Hog futures saw mixed trade as the summer contract resumed buying strength, but front month futures are struggling with a premium to the cash market. Apr hogs were .525 lower to 102.200, but June hogs were 1.175 higher to 11.350.
The April hog contract stayed range bound between the 10-day and 40-day moving averages. Prices are consolidating and looking for a break out. A likely move could be based on the cash market with a couple dollar move higher or lower based on cash trend. Summer month posted that technical break to end last week, and saw follow through strength on Monday. Cash has been supportive, the National Direct morning direct trade was 1.72 higher to 100.65 compared to Friday. Lean Hog Cash Index was 0.85 higher to 100.76, posting its highest close since August and back above the 100 point level. The April futures are trading at a 1.440 premium to the index, and that could limit gains. Pork cutout values were stronger at midday, supporting the futures market. Cutouts were 5.84 higher to 108.39, and load count was moderate at 176 loads. Total hog production maintains its trend below last year, with estimated pork production down 7.5% for the year over year, supporting prices. The tighter supply picture, and strength in retails values have helped support the cash markets. The price action on Friday may be the start of another run higher for the summer months, fueled by those fundamental factors.
DAIRY HIGHLIGHTS: Class III prices saw their calendar year average push to a new high of $23.26 thanks in large part to a strong day in the deferred contracts. Front month movement was a bit more muted with April up 8 cents at $23.90. Spot cheese climbed a penny to start the week with an unchanged block trade and a 2 cent gain in barrels, dropping the premium held by blocks to 16 cents. This puts the average at $2.11/lb vs. last week’s high of $2.15875/lb with the 2019 peak a good upside target to watch for now. We like taking some action in Q4 this week which saw its quarterly average breach $23.00 for the first time today, and will watch how the second month contract does on an approach to all-time highs before taking action with Q2 in mind.
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Author
Bryan Doherty