MARKET SUMMARY 03-17-2023

The soybean market ended the week on a difficult note, and the weakening tone in the soybean meal market may be the indicator of the near-term path for the soybean complex. The poor weather conditions in Argentina have poured money into the soybean meal market this winter. Though Commitment of Traders reports are behind schedule, the latest published report showed, as of March 7, the managed funds were still holding a record-long position in the soybean meal futures and were strong buyers of soybeans that week. The Argentina crop was looking to stabilize in that time window, and another round of hot and dry weather brought further cuts to the crop projections in Argentina, triggering the buying. Brazil’s harvest has been slowed, but those soybeans are not more available, triggering selling this week. The May soybean meal chart looks technically weak, closing below key support to end the week. This will likely keep the selling pressure in front of the market.

 

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CORN HIGHLIGHTS: Corn futures rose again today finishing with small gains. May added 1-1/4 cents to end the session at 6.34-1/4, gaining 17 cents on the week. New crop December gained 2-3/4 cents to end the session at 6.61-1/2, adding 3-1/2 from a week ago. Strength this week came primarily from confirmed export sales to China. Another announced sale today (fourth this week) for near 8 mb puts the total to China this week at close to 90 mb. Plunging energy prices and economic concerns weighed on commodities this week of which corn seemed somewhat immune.

After a rough week last week, this week’s price recovery looks encouraging as does improved demand. Also creeping into the marketplaces continued concerns for the Argentine crop which saw private estimate downgrades again. Argentina will not likely be much of a competitor, if at all, in the year ahead. The same is likely for Ukraine. Therefore, attention will focus on Brazil production and other northern hemisphere crops. Additionally, a week of wet and snowy weather throughout much of the Midwest is suggesting the idea of an early plant is fading. We don’t want to go out on a limb suggesting a late plant season will occur, however, in a window of snug inventory news such as late planting begins, have more impact on traders and end users. The market was technically oversold last week and this week moved back into a more neutral territory. It is probably fair to say the market is neither necessarily bullish nor bearish at this point. Further price direction will come from the crop conditions in South America and the Quarterly Stocks and Acreage report due out at the end of this month. Lastly, this afternoon’s Cattle on Feed report confirmed tighter inventory suggesting feed usage is not likely to rise.

SOYBEAN HIGHLIGHTS: Soybean futures closed lower today breaking below the 100-day moving average in May while bean oil and meal closed lower as well. Crude oil fell sharply to the lowest levels since December 2021 in the Apr contract, as recession fears and worries of a banking collapse continue to shake up the markets. May soybeans lost 15 cents to end the session at 14.76-1/2, and Nov lost 11 cents at 13.13-1/2. For the week, May lost 30-1/2 cents while Nov lost 44 cents.

The soy complex had another sharp move lower today with May beans closing below the 100-day moving average for the first time since October 2022. Fears in the financial sector about a banking collapse seeped into today despite no fresh news. After the Swiss National Bank said they would loan Credit Suisse 54 billion dollars, European Central Bank supervisors said that they saw no contagion for euro zone banks, suggesting that these banking issues are not more widespread. Crude put in new lows for the year anyway as traders are still waiting to see how things unfold, and this attitude has migrated into commodities and the soy complex. Yesterday’s CFTC data showed that non-commercials hold a net long position of 176,990 contracts which could be vulnerable to selling if more bearish outside pressure appears. The USDA reported export sales of 24.4 mb of beans last week with China as the main buyer. On the bullish side, the Buenos Aires Grain Exchange lowered their estimates for the soybean crop to just 25 mmt which is down significantly from the USDA’s recent estimate of 33 mmt. May beans have dropped below their 100-day moving average, while Nov closed at the bottom of its Bollinger Band for the fifth day in a row.

WHEAT HIGHLIGHTS: Wheat futures rallied today as the U.S. Dollar Index was lower. Additionally, traders may be anticipating an end to the Black Sea export corridor with no agreement reached yet. May Chi gained 11-1/2 cents, closing at 7.10-1/2 and Jul up 10-1/2 at 7.19-1/2. May KC 16 cents, closing at 8.35-3/4 and Jul up 14 at 8.22-3/4.

Another solid day of gains in the wheat market puts the weekly close for May Chi at 31-1/4 cents higher. With the funds said to be short 103,132 contracts of Chi wheat (as of the newest available data from March 7), there is likely some short covering going on. Likely also affecting the market is the fact that (as of this writing) no deal between Russia and Ukraine has been made regarding the Black Sea Grain Initiative. The deal expires tomorrow and Russia wants just a 60-day extension, while Ukraine is seeking at least 120 days. Whichever way it goes, the market will almost certainly respond in kind. There hasn’t been much other news pertaining to wheat today, however, the problems in the U.S. southern plains are still a concern. Below-freezing temperatures all the way down into the Texas panhandle this weekend could affect the crop. And much of the HRW wheat is still in drought as well. Ultimately, wheat may be undervalued given the still tight supply situation. Argentina for example is said to have exported only 2 mmt of wheat to date, compared with 9 mmt last year.

CATTLE HIGHLIGHTS: Cattle futures saw mixed trade to end the week, as the market consolidated in the most recent trading range, waiting for the March Cattle on Feed report on Friday afternoon. Apr live cattle slipped 0.025 to 162.325, and Jun cattle slipped 0.475 to 156.400. Feeders were mixed as Mar feeders slipped 0.650 to 188.850 and Apr lost 0.500 to 194.650. For the week, Apr live cattle lost 1.950 and Aug cattle were down 2.050. For feeders, Mar feeders lost 2.625 to close the week.

The week in cattle futures was driven by a softer cash tone and selling pressure in the outside markets during the week as prices corrected. Charts are still weak, and this could open the door for some further price correction. The cash market was mostly complete as 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 softer cash tone was disappointing, but packer margins firmed, which could help the cash trade in the near future. Retail values were higher at midday with Choice trading 0.43 higher to 284.38 and Select adding 1.41 to 273.17. The load count was light at 40 loads. Feeder cattle also mixed, 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 Friday slipping 0.84 to 187.87. The focus of the day was the March Cattle on Feed report released after the close. The report was mostly in line with expectations and confirmed the ongoing tight cattle supplies. Total cattle on feed as of March 1 was 96% of last year, just slightly above expectations. At 11.65 million head, there are approximately 548,000 head less than last year in the lots. Placements stayed light at 93% of last year, and marketings were 95% of last year. The light placement number with only 1.734 million head being placed will likely support live cattle prices into the 2nd half of 2023. 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. The USDA Cattle on Feed report confirmed the expectations of a tight cattle supply. That may help the cattle markets to find some footing and turn back higher.

LEAN HOG HIGHLIGHTS: Lean hog futures saw mixed to lower trade. The new discount to cash supported the Apr futures, but deferred futures sank to new near-term lows before finding some buying strength. Apr hogs gained 0.425 to 79.875, but Jun futures traded 0.150 lower to 93.325. It was a tough week in the hog market as Apr hogs lost 7.575 and Jun tumbled 8.150.

Hog futures pushed to new lows on the week as the Jun contract challenged the $85.00 level, and Apr touched at a low of 78.300 before some buyers stepped in. Prices rallied nicely off those session lows, but that may have been end-of-week profit-taking. Apr did move to a discount to cash and looked undervalued. A firmer cash index helped support the Apr contract. The CME Lean Hog Index was 0.02 higher to 79.95 but has slowed its recent climb. The index gained 56 cents on the week overall. Direct cash hog trade was 0.65 lower to 77.81. The afternoon close will be key for the direct hog trade. Retail values were softer with the carcass value losing 1.31 to 83.18 as retail values have trended softer this week. The load count was light at 124 loads. This has been a difficult week in the hog markets. The hog charts broke technically this week 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. The price recovery off of the lows for the week on Friday may have given us that new bottom, but next week’s trade will be key.

DAIRY HIGHLIGHTS: The April Class III contract closed out Friday at $19.71, an impressive $1.47 jump since last week’s close. The rest of Q2 saw May garner $1.01, while June sprung 77 cents. The most tangible help came from a 20.3750 cent rally in spot cheese to push to $1.97875/lb, in which both blocks and barrels got in on the fun. For most of 2023, blocks had pushed to an uncomfortable premium over barrels, but that corrected in a massive reversal last week. This week, blocks jumped 21.75 cents with barrels rallying 19.00 cents, while the spread stayed at a healthy 3.75 cents. A bit more intangibly, due to a cybersecurity issue, has been the recently-delayed Commitment of Traders report, which are now up-to-date through March 7th. Managed Money traders are still flirting with more than a 4,000 contract net short position, second only to the peak position from 2019. Unfortunately, Class IV futures remained on the sidelines amidst the Class III rebound.

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