MARKET SUMMARY 03-23-2022
There are many moving parts to the strength in soybean prices, but one forgotten piece has been the value of the Brazilian real currency. The Brazilian real has moved to its highest level versus the U.S. dollar since 2020. The move in the currency helps to make U.S. soybeans a value versus the freshly harvested Brazilian soybeans. The price move also causes the Brazilian producer to limit cash selling, increasing premiums in the cash market. In addition, a stronger real tightens the buying power of the Brazilian producer overall. The soybean market has many variables from strong demand, tight supply picture, the impact of the edible oil markets that have supported prices, but the final piece, currency value adds to the overall strong price movements. The trend will need to be an outside focus of the soybean market going forward.
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CORN HIGHLIGHTS: Corn futures firmed on the overnight holding gains throughout the session finishing into new contract high closes for both old and new crop. Strong gains in the energy complex and continued talk that U.S. exports will need to be increased to meet world demand due to expected shortfalls of supply from Ukraine provided support today. A rising price trend in corn futures and increasing input costs are both keeping farmer selling on the lighter side.
Attention is on Ukraine, energy prices, Brazil’s second crop corn (virtually all planted), U.S. weather, and next week’s USDA Stocks and Acreage report. The Ag Minister from Ukraine indicated an expectation that plantings will be reduced by 40%. Recent rains in parts of the parched plains and western regions of the Midwest are welcome, yet forecasters appear split on the longer-range outlook. As for Brazil, forecasters seem to be pointing toward drier conditions for the central and northern regions which would be supportive for prices. Maintain a balanced approach. As conditions in the U.S., Brazil, and the rest of the world unfold this spring, the market will focus on longer-range production forecasts. Currently, we’re anticipating smaller U.S. acreage.
SOYBEAN HIGHLIGHTS: Soybean futures firmed, finishing with May gaining 22-1/4 cents to close at 17.18-3/4 and Nov adding 10 to close at 15.08. Strong gains in the energy complex and short-covering provided support today, as did solid gains in both soybean meal and oil.
With new contract high closes again and prices close to their peak from the end of February, it looks like the market is poised to now test 17.50 in May futures and 15.50 in Nov. 17.00 has been acting as strong resistance, with today’s close the highest since 2012, a drought year in the U.S. The war in Ukraine is shifting business to the U.S. as was noted recently with Egypt’s large soybean oil purchase. We stay with a bias that prices are well supported due to the Ukraine war and the significant shortfall of southern hemisphere product. However, if you are light on sales, we suggest you get current with recommendations. Mostly favorable weather in South America for crop maturity and harvest is viewed as a negative.
WHEAT HIGHLIGHTS: Wheat futures traded both sides of neutral as the market tries to figure out direction. The war provides a bullish backdrop but in spite of this, U.S. exports have been poor and wet weather is hitting the drought-stricken U.S. southern plains. May Chi lost 12-1/2 cents, closing at 11.05-3/4 and Jul down 9-3/4 at 10.91-1/4. May KC lost 5 cents, closing at 11.11-1/2 and Jul down 4-1/4 at 11.05-1/2.
Today’s setback was relatively minor considering the wild swings the market has seen recently. Traders might be becoming somewhat complacent with the Ukraine situation as it has been just over a month since the war started; in some ways, it has become old news. That is not to say that its impacts won’t still be dramatic down the road, but rather that its impact to the market right now is certainly not as intense as when the conflict first began. There are still serious concerns about the Ukrainian wheat crop though – it is unlikely that everything will be harvested, and it will likely not be exported. Those farmers who will try to harvest their wheat will also have to contend with the scarcity of fuel and labor, not to mention Russian troops, which have had no problem targeting civilians. All in all, this should help U.S. exports but that has not been the case so far with sales below USDA projections and last year as well. This may have been burdening the wheat market today, but also weighing on wheat is the moisture that the U.S. southern plains have received. It has been the best in several months, but more is needed to avert the drought conditions that have steadily developed.
CATTLE HIGHLIGHTS: Cattle futures fought off early selling strength, led by strong grain markets to push to mixed, mostly higher on Wednesday. The development of cash trade also helped anchor live cattle futures. Apr live cattle were unchanged at 13.425, and Jun gained 0.275 to 135.975. Feeders also finished mostly higher with Apr feeders gaining 1.200 to 161.775.
Cattle futures saw good price action overall, as Apr live cattle rallied off support and closed back above the 10 and 20-day moving averages, building a “bull flag” potential pattern. A breakout to the upside could have the market testing the 100-day moving average at $142 level. A move out of this pattern will likely take some improved fundamentals. The USDA Cattle on Feed report is this Friday, and the market could see some position squaring and short-covering into those numbers. Cash trade started to develop on Wednesday, with mostly steady trade with last week, as $138 seemed to be the price across the South. Northern dress trade was running $221-223, steady to weaker with last week. Cash trade will likely continue to develop into the end of the week. Midday beef retail prices traded firmer, with choice carcasses gaining 1.39 to $261.36, and select was 1.20 firmer to $253.09. Load count was light at 52 midday loads, but the firmer tone helped support cattle futures. The choice/select spread moved wider at midday to $8.27, reflecting the improved demand tone. The USDA will release weekly export sales on Thursday morning, and that could help provide direction for the day. A strong start in grains pressured feeders, but as grain prices softened, feeder cattle found some buying support. Apr feeders closed above the 10 and 20-day moving averages, opening the door for additional technical strength. The price action today with top of the range closes open the door for some additional buying support going into the start of the day tomorrow.
LEAN HOG HIGHLIGHTS: Hog futures saw strong buying supports as a strong retail market helped push prices through the top of the range or, in summer months, new contract highs. Apr hogs gained 2.300 to 102.550, and Jun hogs closed with a new contract high, gaining 2.900 to 122.975.
Apr hogs opened with a gap higher and closed above the 20-day moving average with strong price action and posted its highest close since March 8. Follow-through gains will likely see Apr challenge the March 16 price spike at 104.700. Summer hogs look strong, but Jun prices failed at trendline resistance over top of the charts at $124.500, but still finished in the top of the trading range for the day. Prices may consolidate here, but strong fundamentals could push the market even higher in the near term. The demand for pork has been supportive. A strong move in crude oil prices weighs on cattle but supports hogs, as the consumer dollar could shift to the overall cheaper pork products. Pork retail values closed $5.10 higher on Tuesday afternoon, and that fueled the strength to start the day. Midday pork values stayed strong, trading 3.96 higher to $110.97 on a load count of 191 midday loads. The USDA will release export sales numbers for last week on Thursday morning, and that could also add to the tone for the day. Cash markets have stayed firm in response to the strong retail values. National direct trade at midday was 5.59 higher to $107.68, with the 5-day average lifting to $106.29. The Lean Hog Cash Index was slightly lower, losing 0.03 to 101.77. The Apr contract will likely stay tied to the cash market with only 3 weeks of life left in the front-month contract. Things are pointing higher in the hog market as the technical picture and fundamental picture are staying supportive in the near term. Prices are likely going to be looking to establish a new near-term top.
DAIRY HIGHLIGHTS: A strong spot session propelled Class IV milk futures up into new contract highs on Wednesday. US spot butter added 0.50c and closed up at $2.8025/lb, which is a new high for the month. The butter price is curling back higher and could make a charge for the high of the year up at $2.9350/lb in the coming sessions if this demand continues. The USDA reported after the market closed that US butter inventories in February were down 26% from a year ago. However, inventories did rise 20% from January. The powder market also saw bidding on Wednesday, gaining 0.75c and closing back to $1.87/lb. Today’s close puts each Class IV contract from April through September over the $25.00 mark.
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Author
Brandon Doherty