MARKET SUMMARY 03-16-2023
The April lean hog futures have been running at a substantial premium to the Lean Hog Cash Index, with that gap between the two peaking in January. With 30 days to go, the lean hog market seems to be interested in flipping that position, as hog futures have sold off aggressively the past couple sessions. Apr futures have dropped nearly $6.00 in the past two sessions and closed the day at a discount to the cash index. This is the first time Apr hogs have traded under the index since early November. The drain of the premium has been across the board as the summer lean hog contract traded limit down on the day, and the Jun contract has lost more than $8.00 in the past two days. With the flip in basis, that may be enough to slow the selling in the Apr contract and front month hogs.
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CORN HIGHLIGHTS: Corn futures gained 1-1/2 cents in Dec to 6-1/4 as May led the way higher for the third day in a row. Another announced sale to China, short covering, good weekly export sales, and traders buying corn and selling wheat were features in today’s market. May closed at 6.32-1/4, its highest close in eight sessions, while Dec closed at 5.58-1/2.
Today’s purchase by China, along with recent announced sales, suggest that China has purchased near the amount being rumored in recent weeks. There is much talk that China is already purchasing new crop corn from Brazil. However, until the Brazil crop is available, U.S. corn is readily available to importing countries. Weather in South America will provide price direction. Argentina remains dry and private estimates are again downsizing the crop. The Buenos Aires Grain Exchange is estimating the corn crop at 36 mmt, down from the current USDA estimate of 40 mmt. Brazil, in spots, remains too wet. The next big reports will be on March 31 when the USDA will estimate quarterly grains stocks and prospective plantings. Export sales at 48.7 mb were also viewed as supportive. On a different note, economic issues are front and center with recent bank failure. African swine fever in China’s hog herd could mean less feed demand.
SOYBEAN HIGHLIGHTS: Soybean futures closed slightly higher in the front months today while ending a bit lower in the Nov contract. Bean oil rallied today while meal moved lower on more talks of African swine fever in China that could affect feed demand. Fears eased a bit in the financial sector after the Swiss National Bank said they would loan money to Credit Suisse bank. May soybeans gained 2-1/4 cents to end the session at 14.91-1/2, and Nov lost 1/4 cent at 13.24-1/2.
The soy complex was mixed today with soybeans following bean oil higher, while meal moved lower as concerns about the depth of ASF in China has stoked concerns over exports to meet their feed demand. In the finance and banking sector, fears seemed to be quelled today after the Swiss National Bank said they would loan money to Credit Suisse bank. This is after the Saudi National bank said yesterday that they would not give any further assistance after Credit Suisse found “material weakness” in their financial reporting. After that announcement, crude oil began working higher, as well as the grain and cattle markets, as recession fears cause volatility in all markets. The fear right now is that more banks start failing and cause a global financial crisis, which has caused serious volatility in commodity and equity markets. Today’s export sales report showed 24.4 mb of old crop sales and 2.4 mb of new crop with China the largest buyer, and shipments totaled at 28.4 mb. Brazil’s harvest is now more than halfway complete, while Argentina’s crop continues to deteriorate. The trend for May beans is sideways and is lower for Nov.
WHEAT HIGHLIGHTS: Wheat futures took a breather today, with small losses that were still well off of daily lows. Outside market pressures are still a concern and may have limited any upside movement today. May Chi lost 3-3/4 cents, closing at 6.99 and Jul down 4 at 7.09. May KC was unchanged at 8.19-3/4 and Jul down 1 at 8.08-3/4.
It was somewhat odd that wheat rallied yesterday alongside the higher U.S. Dollar Index, but today when wheat was lower, the dollar was also a bit lower. Usually, those two share an inverse relationship. There may have been some profit-taking by those who bought on the low last week, but there are other factors at play too. There is still no word on the Black Sea export deal, with only two days remaining before expiration. However, many are thinking that Russia will allow an extension in some form or another because it allows them to export as well. If an extension does go through, the market would likely perceive it as bearish. It is also noted that as of February 28, funds were net short over 90,000 contracts of SRW wheat (this is the most recent available data). This could lead to short covering in the event that a deal between Russia and Ukraine is not reached or there is other friendly news. In general, the grain markets have held up well this week given the fears about the banking industry, increasing interest rates, and chances for recession. In other news, the USDA reported an increase of 12.4 mb of wheat export sales for 22/23 and an increase of 5.7 mb for 23/24.
CATTLE HIGHLIGHTS: Cattle futures saw some price recovery on Thursday as the market focused on cash trade, and squaring positions before Friday’s Cattle on Feed report. Apr live cattle added 0.800 to 162.350, and Jun cattle gained 0.300 to 156.875. Mar feeders gained 1.300 to 189.500 and Apr added 1.900 to 195.150.
Apr futures traded within the trading range from yesterday as prices consolidated on Thursday. The cattle market digested the correction in prices over the past few days and the start of cash trade on the week. 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. The cash market is looking like most business is done for the week. Southern live deals are being completed at $163-164, $1-2 lower than last week. In Northern dressed sales, prices were settling at $264 to $264.50, 0.50 to 1.00 lower than last week as well. The Apr futures dropped below the level of cash trade with the weakness, which likely aided in the price recovery. Today’s slaughter totaled 123,000 head, 1,000 below last week, but even with a year ago. Retail values were higher at midday with Choice trading 1.01 higher to 285.028 and Select adding 0.10 to 272.73. The load count was light at 88 loads. Feeder cattle also reversed course, but like live cattle prices, consolidated at the bottom of the recent push lower. The Feeder Cash Index has been trending higher, as the cash market stays supportive. The index was softer on Thursday, slipping 0.68 to 188.71. The index is still at a discount to the front-end futures and that may limit gains. Tomorrow brings the March Cattle on Feed report, and that likely helped square up positions before the numbers. The report is expecting the overall tight cattle supply picture to be maintained. The analysts are looking for total cattle on feed in lots as of March 1, at 95.5% of last year or 11.620 million head. Placements are to remain light at 94% of last year, and Marketings at 95.6% of last year. If realized, the light placement number will likely support cattle into the 2nd half of 2023. It has been a difficult week in the cattle markets as prices have corrected off recent highs, but today brought price recovery. Charts are still vulnerable, and the outside markets may be the key. USDA Cattle on Feed report to be released tomorrow may bring the news for the cattle markets to find some footing and turn back higher.
LEAN HOG HIGHLIGHTS: Lean hog futures saw strong selling pressure fueled by a technical break in the market as the hog market pulled out the premium of the futures to the cash market. Apr hogs lost 4.300 to 79.450 and Jun finished limit down losing 4.750 to 93.475.
The money flow stayed aggressive pressuring the hog market into strong triple-digit losses. Jun and Jul contracts closed the day the 4.750 limit lower, which means expanded limits of $7.000 for the lean hog complex on Friday. This will keep volatility extremely high and the market on edge for the session on Friday. Apr hogs broke the short-term uptrend and closed at their lowest levels since the beginning of the contract life in November 2021. 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 0.04 higher to 79.93 but has slowed its recent climb. Direct cash hog trade was 0.31 lower to 78.46. The afternoon close will be key for the direct hog trade. Retail values were softer with the carcass value losing 0.49 to 85.19 as retail values have trended softer this week. The load count was light at 149 loads. Weekly export sales jumped stronger over the last week, as the USDA reported new sales of 35,600 MT, up 62% from last week but down 5% from the 4-week average. Mexico, Japan, and China were the top buyers of U.S. pork last week. This has been a difficult week in the hog markets. The hog charts broke technically 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 as the market is searching for a new bottom.
DAIRY HIGHLIGHTS: Class III futures were two-sided in today’s trade, with spot cheese down less than half a cent on zero loads traded. After a crazy start to the week, both buyers and sellers stepped to the sidelines on both blocks and barrels today, although spot whey closed up a penny to move back to $0.46/lb. Class IV action saw the front two months hold gains, while May and June gave a little back. This week has seen the second month Class III contract push to a premium over second month Class IV futures for basically the third time since the spring of last year, although the deferred months are running more in line.
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Author
Amanda Brill