MARKET SUMMARY 03-15-2023
The NOPA released February crush data during the trading session, and soybean crush has stayed historically strong. Last month, soybean crushed processed 165.414 million bushels of soybeans. This was slightly below market expectations of 166.06 million bushels. The total was 0.2% above last February, but 0.5% below 2020. The NOPA crush totals haven’t set a new monthly high since May 2022. The strong demand on the export front and the tight overall supplies were likely limiting the availability of soybeans to crusher, despite relatively strong crush margins. The soybean crush and the attached margins have been very supportive in old crop soybean prices during the peak demand export window.
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CORN HIGHLIGHTS: Corn futures finished mixed with bull spread a feature again today. May gained 5-3/4 cents to close at 6.26-1/2 and Dec down 2-1/4 to 5.57. An announced sale of just over 26 mb to China was enough to get a fire under old crop prices despite a decline in the crude oil market of over 5.00 throughout much of the session. Combined, announced sales to China, between yesterday and today, are just over 50 mb.
Today’s Ethanol Production report indicated a grind of 101.92 mb, the highest number in four weeks. Are China’s corn purchases a sign of more to come or otherwise? With anywhere from 20% to 40% of Brazil’s second corn crop planted in what is termed less-than-ideal conditions, weather developments affecting crop production will be watched very closely. It is likely too early to draw conclusions one way or another yet with each passing day crop production prospects will become more important. Besides weaker crude oil, sharp gains in the dollar and another big down day for equities limited corn’s upside. The key focus moving forward will be exports and weather in Brazil. Concerns about a late start for U.S. planting are warranted, yet on March 15, it is too early to commit to the idea corn planting will be “way” behind.
SOYBEAN HIGHLIGHTS: Soybean futures closed lower today, as crude oil saw a massive selloff with prices dropping as low as 65.65 per barrel in the Apr contract. There is concern in the financial sector that has put a bearish tone on most commodities and propped the U.S. Dollar up to a high level. May soybeans lost 4-1/2 cents to end the session at 14.89-1/4, and Nov lost 13-3/4 cents at 13.24-3/4.
Soybeans and most other commodities took a hit today on the heels of more financial sector fears as Europe’s Credit Suisse bank comes under scrutiny. Just as the collapse of Silicon Valley Bank hit crude prices and other commodities hard at the beginning of this week, the new banking news shook futures again today and caused the dollar to rise sharply. The Swiss Credit Suisse bank shares fell by 25% today after Saudi National Bank said that it would not step in to help after Credit Suisse signaled that they had found “material weakness” in its financial reporting. Instances of these potential bank failures have traders very concerned, and the fear has worked into commodities as well. On top of that, China has reported a large increase in cases of African swine fever in northern China which began after their Lunar New Year. This would drastically reduce their pork production and in turn feed needs, which is partially why bean meal fell today. Today, NOPA pegged bean crush at 165.4 mb in February which is less than expected but still higher than a year ago. CFTC data is finally being released timely and showed non-commercials selling 34,839 contracts last week reducing their short position to 158,421 contracts.
WHEAT HIGHLIGHTS: Wheat futures managed modest gains, even though many other commodities were down today. Uncertainty about the Black Sea export corridor, dryness in the U.S. southern plains, and a general correction from being oversold may all be offering support. May Chi gained 6-1.2 cents, closing at 7.02-3/4 and Jul up 6-1/4 at 7.13. May KC gained 2 cents, closing at 8.19-3/4 and Jul up 4-1/4 at 8.09-3/4.
In the face of a sharply higher U.S. Dollar, tumbling stock market, and sharply lower crude oil, wheat still was able to put green on the board today. This is an encouraging sign. Fundamentally, given the recent problems in the banking industry, one might have expected it to take more of a toll on commodities. A Swiss bank’s (Credit Suisse) stock reportedly dropped 24% overnight and they have ties to the U.S. There is also more global concern, with EU bank stocks falling 13% recently, as well as the possibility for the EU to issue a 50 basis point rate increase. With as far as the funds have pushed wheat down, there may not be much more downside risk at this point though. And this could be what is keeping wheat afloat. The CFTC did release another update of the CoT report through February 28, which showed funds were net short 93,804 contracts of Chi wheat. And with a Saturday deadline for an extension of the Black Sea export deal, wheat may have room for a rally (if the deal is not extended). There is still no word on that front, but Russia is said to want just a 60-day extension though Ukraine is asking for more. In any case, a large number of vessels are sitting in Turkey, still awaiting inspection. And on a final note, drought in the U.S. southern plains remains a concern. With the sub-zero temperatures likely to hit some of that region again, it could affect any wheat that has come out of dormancy.
CATTLE HIGHLIGHTS: Cattle futures had a difficult day as both live cattle and feeder cattle saw triple-digit losses pressured by long liquidation and outside market pressure. Apr live cattle lost 1.500 to 161.550, and Jun cattle dropped 1.175 to 156.575. Mar feeders lost 1.725 to 188.200 and Apr fell 2.500 to 193.250.
Apr futures are now trading nearly $5.00 off the most recent contract high as cattle prices are in corrective trade. This price move is driven more by technical signals versus fundamental factors. Apr cattle closed at its lowest levels since January. Charts are still weak, and this could open the door for some further price correction, but prices did hold key support levels at the 100-day moving average. This moving average has held the trend under the Apr contract in the past. The cash market saw some light business on the day. Southern live deals are being completed at $164, $1 lower than last week. In Northern dressed sales, prices were settling at $264 to $264.50, $0.50 to $1 lower than last week as well. The overall weaker cash tone helped pressure the live cattle market as well. Today’s slaughter totaled 126,000 head, steady with last week, but 3,000 more than a year ago. Retail values were lower at midday with Choice losing 0.88 to 285.03 and Select dropping 1.05 to 273.51. The load count was light at 86 loads. Feeder cattle saw profit-taking and long liquidation again on Wednesday. Feeder charts were overbought and poised for some correction. Now that the correction is occurring, the price action is weak, leaving room for additional selling pressure. The Feeder Cash Index has been trending higher, as the cash market stays supportive. The index was softer on Wednesday, losing 0.12 to 189.39. The index is still at a discount to the front-end futures and that may limit gains. It has been a difficult week in the cattle markets as prices have corrected off recent highs. Charts are still vulnerable, and the outside markets may be the key. Friday will bring the next USDA Cattle on Feed report, which may bring the news for the cattle markets to find some footing.
LEAN HOG HIGHLIGHTS: Lean hog futures saw strong selling pressure as outside markets triggered selling on recession fears as the hog market pulled the premium of the futures to cash market out of the market. Apr hogs lost 1.650 to 83.750 and Jun dropped 3.350 to 98.225.
Risk off trade and money flow pressured the hog market into strong triple-digit losses. Outside markets struggled on the day and selling pressure in equity markets and crude oil markets spilled into the lean hog market. The hog market was susceptible given the strong premium in the deferred futures to the cash market. This triggered bull spreading as the front month Apr closed the gap on the deferred futures. Apr hogs are still in an uptrend, but challenging support at the bottom of the range. The price action was weak and could leave the market open to additional selling pressure if support doesn’t hold. The fundamentals for the hog market have cooled recently. The CME Lean Hog Index was 0.03 higher to 79.89. Direct cash hog trade was working lower the past couple sessions and found good strength at midday, gaining 4.15 to 78.77. The afternoon close will be key on the direct hog trade. Retail values were softer with the carcass value losing 2.18 to 86.19. The load count was light at 159 loads. Export demand will be a focus tomorrow with the USDA releasing weekly export sales, which were disappointing last week. New headlines of China’s struggles with African swine fever again this winter may be a potential long-term story and needs to be monitored. An event like this could provide a spark to an already tight hog supply picture. Summer hog charts broke technically today as the market moved the premium of futures to cash to the sideline. The money flow and technical trade will likely outweigh the fundamentals in the short term.
DAIRY HIGHLIGHTS: Despite extremely high volume in second month Class III milk, with over 1,300 contracts trading, the dairy market ended fairly neutral on Wednesday. On one hand, it can be viewed as a positive that the market was able to mostly hold onto the strong up move from Tuesday. On the other hand, it may be viewed as disappointing that the market couldn’t push higher despite another strong day of bidding in the spot trade. Spot cheese blocks were bid up another 3.50c to $1.96/lb, nearly closing in on the $2.00/lb mark once again. The barrel trade added 4.75c to $1.8875/lb. The cheese market has clearly turned around and buyers have changed their tone. With the block/barrel average back up to $1.92375/lb, this is the best cheese price since early January. The Class IV market was quiet, however. Butter held steady at $2.38/lb and powder lost a half cent to $1.18/lb. This may have kept a lid on the rally today. At close of day, second month Class III added 7c to $18.60, while second month class IV held steady at $18.05.
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Author
Brandon Doherty