MARKET SUMMARY 03-24-2022
The May corn contract is holding a tight trading range as prices are consolidating. For the last 16 trading sessions, May corn futures have touched the $7.50/bushel level, as prices have consolidated in this area since the first of March. This type of trade could be “winding the spring” as prices could be looking for a breakout one way or another. There are a lot of variables in play that are acting on the corn market. The price action of the wheat market, the ongoing conflict in Ukraine, the demand and supply picture globally are just a few of the daily talking points for corn news. The market may stay in this consolidation pattern until the USDA Grain Stocks and Planting Intentions report next week. May being old crop corn, the level of grain stocks may be the key. If supplies are tighter and larger than expected, that could provide the news the market needs to break out of this pattern.
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CORN HIGHLIGHTS: Corn futures softened today closing 9-1/2 cents lower in May at 7.48, and 4-3/4 lower in Dec at 6.67-1/2. A lack of new positive news, rain in parts of the Midwest, and a lackluster export sales figure weighed on corn futures today. Supporting prices was the Buenos Aires Grain Exchange dropping Argentine production to 49 mmt. The last USDA estimate was 53. Bear spreading was a noted feature today as traders may be trimming nearby positions in favor of discounted deferred months.
Although prices were off today, as we compare the current world status of corn supply and the must-have crops for Brazil and the northern hemisphere, there just isn’t much room for error. Today’s export figure was well below the last couple of weeks, perhaps a reflection of mostly sideways trade for May futures. The difficulties in Ukraine for delivery and growing crops suggests the world will need to use less or grow more. The grow-more scenario is potentially possible with record yields, should they occur, yet with less fertilizer usage, we doubt it. That leaves use less. If prices are high enough to cure high prices, then there is some merit to this argument. Yet, there is no sign of less usage. New high prices in dairy and hogs this week, along with premium in deferred live cattle, suggest feed usage is not likely to decline. Gas usage could decline some, but a major downturn is not expected, so ethanol usage remains firm. Black swans could be an abrupt change in Ukraine or ethanol mandates, both of which today seem remote.
SOYBEAN HIGHLIGHTS: Soybean futures ended the session lower, with May dropping 18 cents to close at 17.00-3/4 and Nov down 15 at 14.93. Export sales at 15.1 mb old crop and -0.05 new crop were a disappointment, perhaps suggesting high prices are beginning to cut into demand. However, an announced daily sale of 318,000 mt to unknown destinations during the 2021/2022 marketing year was supportive.
The close above 17.00 in May futures yesterday was impressive and perhaps today’s close was equally unimpressive. Still, the big picture is supportive as limited near-term supplies of vegetable oils and concern that production of sunflowers could be dramatically reduced in Ukraine provides longer-term support. Export sales year-to-date are now 1.985.5 mb and 94.5 % of expected sales of 2.090 bb. An up-trending Brazilian real is also supportive to U.S. prices. Crush margins in the U.S. and China are positive, suggesting demand will continue to underpin prices. Expectations for smaller crops in Ukraine would also include reductions in soybeans. Ukraine is the ninth-largest producer of soybeans in the world and a net exporter.
WHEAT HIGHLIGHTS: Wheat futures had another down day. Though the Ukraine war remains a bullish factor, setbacks are inevitable. Poor U.S. exports and improving weather in the U.S. southern plains are putting pressure on futures. May Chi lost 20 cents, closing at 10.85-3/4 and Jul down 16-3/4 at 10.74-1/2. May KC lost 16-1/2 cents, closing at 10.95 and Jul down 15-1/4 at 10.90-1/4.
The invasion of Ukraine began roughly a month ago but the impacts are still being felt (and it will probably remain that way for some time to come). The wild swings and limit moves seem to have calmed down, but volatility still remains high. Though somewhat of a David and Goliath situation, Ukraine has held its own and Russia so far has failed to capture or control any majorly important areas. That is not to say that they haven’t done significant damage though. For some, the fear is that Putin may resort to more dramatic means such as chemical or nuclear weapons. While we certainly hope this is not the case, we are also aware that it is a possibility. With all that has happened in that region, analysts are still trying to produce estimates of their grain production, but that seems like an impossible task. As we have stated previously, at this time Ukrainian exports seem unlikely, even if some production does occur. In other news, Oklahoma, Kansas, and Nebraska received helpful moisture this week which may be weighing on the market a bit. Most of Texas remains dry, however. On today’s export sales report, the USDA said there was an increase of 5.7 mb of wheat export sales for 2021/2022 and an increase of 13.5 mb for 2022/2023.
CATTLE HIGHLIGHTS: Cattle futures saw good price action again on Thursday as prices finished higher overall, supported by strong export sales report, and position squaring before Friday’s USDA Cattle on Feed Report. Apr live cattle were 0.250 higher to 139.675, and Jun gained 0.975 to 136.950. Feeders also finished higher with Apr feeders gaining 0.950 to 162.725.
Cattle futures saw good price action, as Apr live cattle rallied off support but traded between the 20 and 40-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 is likely seeing some position squaring and short-covering into those numbers. Expectations for the report are total cattle on feed as of March 1 at 101.6%, placements at 106.5%, and marketings at 103.4%. Cash trade started to develop on Wednesday, and saw some light clean-up trade on Thursday, 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 is likely done for the week, except for some possible light clean-up trade. Midday beef retail prices traded mixed, with choice carcasses gaining 1.45 to 263.05 but select was 0.77 lower to 252.47. Load count was light at 62 midday loads. The choice/select spread moved wider at midday to 10.58, reflecting the improved demand tone. The USDA released weekly export sales on Thursday morning, and new sales last week totaled 27,500 MT, a marketing-year high and up 40% from last week and that helped provide direction for the day. South Korea, China, and Japan were the top buyers of U.S. beef last week. On the export front, Japan and the U.S. announced the framework agreement to allow more U.S. beef imports. More details regarding this agreement will be available in the upcoming days, but still a longer-term positive for the cattle markets. Like live cattle, feeder cattle had a positive price action in trade as prices closed at the top of the range on the day. This opens the door for additional technical strength. The price action today with top of the range closes also opens the door for some additional buying support, but the market may stay choppy going into the USDA Cattle on Feed report released tomorrow afternoon.
LEAN HOG HIGHLIGHTS: Hog futures saw some long liquidation as prices consolidated off yesterday’s strength. USDA cold storage showed a buildup of pork supplies, and light technical weakness off yesterday’s close allowed for some money flow out of the market. Apr hogs gained 0.225 to 102.775, and Jun hogs closed lower losing 0.900 to 122.075.
Apr hogs opened firmer and closed above the 20-day moving average, improving the technical picture. Follow-through gains will likely see Apr challenge the March 16 price spike at 104.700. Summer hogs faded into the opening gap from yesterday’s open as prices may consolidate here, but strong fundamentals could push the market even higher in the near term. Pork retail values closed softer on Wednesday afternoon, but buyers stepped back into midday pork values, trading 2.23 higher to 108.62 on a load count of 151 midday loads. The USDA released export sales numbers for last week on Thursday morning, and new sales on the books for last week totaled 23,200 MT, down 39% from last week. Mexico, South Korea, and Japan were the top buyers of U.S. pork last week. USDA Cold Storage report cooled pork prices as pork supplies in freezers is light from a historical point of view but showed robust gains from February. Cash markets have stayed firm in response to the strong retail values. National Direct trade at midday was 0.57 lower to 106.57, with the 5-day average was at 106.22. The Lean Hog Cash Index was slightly lower, losing 0.56 to 101.21. 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: Class III milk futures continued higher on Thursday following a sixth consecutive up session for spot cheese. The cheese market has received an influx of strong demand in recent weeks and the market has gone higher despite increasing inventories. The USDA reported yesterday that February US cheese in inventory was up 2% from the same month last year and was 2% higher than January 2022. The US spot cheese block/barrel average settled today at $2.2250/lb, which is its highest level since November 2020. The market is now approaching the 2019 high of $2.26875/lb which could act as resistance. The all-time high for US block/barrel average cheese is $2.7050/lb, which was hit in mid-2020 during the Farmers to Families Food Box program government purchasing.
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Author
John Heinberg