MARKET SUMMARY 03-21-2022
With the recent price surge, grain markets may be looking at developing a new combined trading range. In combining the prices for the front-month corn, soybeans, and Chicago wheat, this price has broken through to a new all-time high. The grain markets are being supported by an inflationary environment bringing money flow into commodities markets, the breakout of the Russia-Ukraine War, dry weather conditions in South America, and strong global demand have pushed the combined prices in these grains into uncharted territory. Over history, the chart of this price grouping has seen different levels or “stepping stones” into new price trading ranges. The steps were fueled by events. The ethanol boom and wheat rally in 2006-2008, the drought of 2012, and now this series of events in 2021-22. Could the grain markets be looking to move into a new normal, where prices are building new and higher trading ranges? Time will tell, but there are many factors that are still building that can support grain prices in the weeks ahead.
Like what you’re reading?
Sign up for our free daily TFM Market Updates and stay in the know!
CORN HIGHLIGHTS: Corn futures firmed on the overnight session and held those gains during the morning and early afternoon, closing 14-1/4 higher in May at 7.56-1/4 and 18-1/2 firmer in Dec ending the session at 6.64, a new contract high close. Firmer prices for commodities, especially crude oil, provided early support, as did a potentially sobering reality that the war in Ukraine is likely to create a late planting season, if there is one at all. Talk that Ukraine officials are encouraging the planting of small grains for food security has been surfacing which may be why corn prices moved higher.
The focus will continue to be on Ukraine and crop potential which, at this time, is looking bleaker as the war continues. Managed money is likely adding to the latest estimate of long 381,000 contracts. Deferred contracts, trading a significant value to old crop, are likely viewed as undervalued, or a buy, by both end-user and speculator. We would not be surprised to see stronger buying interest, especially from importing countries to secure inventory sooner than later. Remember, they too can manage downside risk through hedging tools once they own the crop. The rationale to lock actual inventory is tied to the idea of bird in hand mentality, that is, it is better to have a contract than hope for the best in a tightening supply scenario. Export inspections at 57.7 mb were termed supportive bringing the year-to-date figure to 1.078 or 43.12% of expected sales of 2.5 bb. Keep in mind, nearly a month of export loadings was delayed in the Gulf due to a hurricane.
SOYBEAN HIGHLIGHTS: Soybean futures followed the energy complex higher gaining 20 plus cents in all contracts. Jul futures led today’s gainers closing at 16.72-1/4 up 26-1/2 cents. May added 23 to close at 16.91, a new contract high close. The contract high is still significantly higher from February 24 at 17.59, but on that session, the market reversed and closed at 16.54. Nov futures closed 23-1/4 firmer at 14.90. The contract high close is 14.92-1/4 from March 10. Solid gains in both the meal and soybean oil contracts were noted today.
The climb higher in the soybean complex continues to reflect a shorter crop in the southern hemisphere, expectations of a lack of export activity for Ukraine soybeans and sunflower oil, and uncertainty with acreage in the year ahead. On March 31 the USDA will release a farmer surveyed estimate for acreage. Our bias is that, due to high input cost and fertilizer availability and cost, farmers will lean toward more soybeans adding perhaps one to three million acres. Yet this is not etched in stone, and it is likely that many producers may not have made up their minds yet. For those who didn’t want to chase the high price of fertilizer nitrogen last fall, it might be an easier choice for them to not plant corn acreage and instead plant soybeans. Volatility remains high with even higher prices projected if the war continues to drag on in Ukraine or energy prices continue to move higher. Expect, however, prices could come under selling pressure rather quickly should these variables change. We remain a friendly bias.
WHEAT HIGHLIGHTS: Wheat futures were sharply higher today. May Chi did touch the 85 cent limit up threshold but closed off that high. War premium appears to have been put back into the marketplace as there has been no peace agreement and Russian troops continue their attacks. May Chi gained 55-1/2 cents, closing at 11.19-1/4 and Jul up 48-1/4 at 10.93. May KC gained 42-3/4 cents, closing at 11.13-1/4 and Jul up 41-1/4 at 11.03-1/4.
War premium is being put back into the marketplace with Ukraine still under siege by Russian troops and continued major concerns about farmers being able to harvest their winter wheat. Ukraine did apparently refuse to surrender Mariupol, which is an important port city. Reportedly, Ukraine’s Ag Minister has recommended less corn to be planted, and for more cereals instead. This will be in an effort to meet the food needs of the country. Given the current situation and bans on exports, it is unlikely that Ukraine will export wheat in 2022. In other news, missiles from Yemen have hit a Saudi Arabian oil refinery. There were no casualties and damage was apparently minor, but did cause a temporary reduction in output. This was supportive to the crude oil market which saw the May contract trade over $110 today. With the rise in fuel, food, and general inflation, there are also concerns about world economies; there is some talk that China has already entered a recession. Looking at weather, here in the U.S. southern plains drought remains a concern, although that region could see rains over the next 10-15 days. While this moisture will be helpful, the forecast does return to a drier pattern after that. Today’s weekly export inspections report pegged wheat inspections at 12.1 mb, with total inspections now at 608 mb. Paris milling wheat futures were also sharply higher today, gaining roughly the equivalent of 45 cents.
CATTLE HIGHLIGHTS: Cattle markets saw mixed to lower trade as the grain market outweighed the strength in retail values during the trading session on Monday. Live cattle finished mixed with pressure in the front-end of the market. Apr cattle lost 0.450 to 104.050, and Jun cattle slipped 0.725 to 136.350. Feeders were lower with Apr feeders down 1.125 to 156.100.
Apr cattle stay resilient to start the week, despite the selling pressure in the cattle complex. Prices held above the 200-day moving average on the close, and consolidated off Friday’s trade, as it feels like prices want to work higher. Cash trade was typically quiet to start the week as bids and asking prices were undefined. Expectations are for some support in the cash market this week, supported by the strong retail values. The retail market showed strength again today, helping support prices. At midday, boxed beef was higher, (Choice: +1.26 to 259.42, Select: +1.94 to 252.59) with demand light at 42 midday loads. The stronger demand tone could be the support the cattle market needs to build cash trade. Strong grain markets pressure the feeder market into triple-digit losses, even though prices did try and hold some support under the market. A concern in the feeders is the premium of the futures market to the cash index, which will limit gains. The Feeder Cattle Cash Index was 0.08 higher to 154.93. The index is trading at a $1.17 discount to futures and that likely limited the gains in the front-month contract, as Mar feeders were 0.900 lower to 156.100. The cash market will still be the key as cattle markets are trying to build a path higher. Gains may be limited with overall demand concerns and available consumer dollars. Crude oil prices rallied strongly to start the week, and the concerns of the consumer dollar likely added to the cattle selling pressure.
LEAN HOG HIGHLIGHTS: Hog futures saw the buyer pour back into the market aggressively after the market closed with strong triple-digit gains. Strong demand and firm cash markets are what bring the buying strength. Apr hogs were 1.225 higher to 100.625, and Jun hogs were 3.750 to 119.825.
The Apr hogs bounced off support of the 50-day moving average and trended higher during the trading session, but still have resistance over top. The Apr chart still looks concerning for further downside, even with the strength today. Failure here opens the door for additional downside, with a possible test to the 92.000 level. The summer months saw the buying strength, and are poised to retest last week’s high, and possibly back to challenge the contract highs. Cash has been supportive but traded lower on Monday. National Direct morning direct trade was 2.35 lower to 101.36, and the 5-day moving average is at 102.38. The Lean Hog Cash Index was 0.59 higher to 101.36. The Apr futures have dropped to a discount to the index, which could support the front month. Pork cutouts were softer at midday, with cutouts trading 1.72 lower to 103.23, and load count was light at 185 loads. The price move on Monday was technical, and prices saw some recovery off last week’s break lower. There is a possibility that sideways trade may be starting to develop. The fundamentals will be the key.
DAIRY HIGHLIGHTS: A strong day of bidding in spot cheese supported higher Class III milk futures on Monday. Each Class III contract from June through December 2022 was bid up into new contract highs as the market keeps putting premium out into future months. Cheese blocks added 0.75c and closed up at $2.1375/lb, while barrels added 4c to $2.07/lb on 1 load traded. This bidding brought the block/barrel average up to $2.10375/lb. The Class IV market experienced a steady day of bidding as well, with most contracts up double digits. The US butter price gained 5.25c on 4 loads traded, which helped support Class IV futures. Both Class III and IV milk remain in steady uptrends.
Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of the National Futures Association. Stewart-Peterson Inc. is a publishing company. SP Risk Services LLC is an insurance agency. A customer may have relationships with all three companies. TFM Market Updates is a service of Stewart-Peterson Inc. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.
Author
John Heinberg