MARKET SUMMARY 03-25-2022
The summer lean hogs break out to new highs to end the week, as Jun, Jul, and Aug lean hog futures posted strong triple-digit gains. The demand tone and the cash market have been the strength behind the hog futures recently, as pork carcass values are trading at multi-year highs. This strong retail value has pushed into the cash market, as prices have stayed strong and firming this spring. The pork demand is supported by the consumer and the prospects of an inflationary food market and a tighter consumer dollar, shifting into a cheaper protein like pork versus beef. In addition, hog slaughter is trending approximately 8% lower than last year, and those tighter hog supplies are adding value into the market. Next week, the USDA will report the Quarterly Hogs and Pigs report on Wednesday, which will likely confirm the overall tight hog numbers.
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CORN HIGHLIGHTS: Corn futures firmed late in the session gaining back yesterday’s losses and finishing the week on a firm note. May futures closed 5-1/4 cents higher at 7.54 and Dec added 1-1/2 to close at 6.69. For the week, May gained 12-1/4 and Dec 23-1/2. New news of consequence was lacking, yet the bigger picture concerns of tightening world supply due to problems with movement and production in Ukraine is still the biggest factor supporting prices. Intense observation of South American weather to predict yield is underway but at week’s end, it is still too early to draw a conclusion other than an average yield. The Exchange is again raising margin requirements on corn which could limit participation.
Depending on how much crop Ukraine can plant, there is still the dilemma of moving grain/corn. Today, Ukraine indicated it has lifted the requirement for export licenses for corn and sunflower oil, indicating it has high stocks of both and therefore no limit to exports. We are not sure how to read this. On the surface, this makes sense as they are not sending product through the waterways of the Black Sea. One does have to wonder though if their action suggests selling to raise capital or gain currency before Russia takes it? These are merely questions anyone may ask at a time of utter and complete uncertainty and understanding. Next week looms large from a report perspective as the market on Thursday will have new data in the form of quarterly stocks and a first look at a farmer-surveyed planting estimate.
SOYBEAN HIGHLIGHTS: Soybean futures finished the week on a firm note gaining 9-1/2 cents in May to end the session at 17.10-1/4 and gaining 42-1/4 for the week. Nov added 3-3/4 cents to end the session and week at 14.96-3/4. For the week, Nov gained 30 cents. A positive turnaround in crude oil prices today and export activity continues to provide support for soybeans. Expectations for next week’s acreage and stocks reports are mixed, yet it wouldn’t surprise us if the stocks figure reflects increased demand and a possible decline due to a crop yield that may not be as high as the USDA forecasted. The big picture continues to suggest further downgrades to Brazil’s crop from the most recent USDA estimate, coupled with tight world vegetable oil supplies on a lack of sunflower exports out of the Black Sea.
New high close prices were scored for both the old and new crop bean contracts this week underpinning the idea that supplies are tight and that it will take big acres in the northern hemisphere to help alleviate smaller world supplies. China has indicated it will focus on planting more soybeans and it is likely the U.S. will also plant more soybeans not only because new crop beans near 15.00 offer strong value but also because of high-priced fertilizer products for corn producers. The unknown is whether corn producers aggressively bought fertilizer last fall so that their intentions to plant corn are already solidified. Producers were likely approached by co-ops and vendors in a somewhat aggressive, but informative fashion as expectations for tightening supplies and higher prices were already expected. This may have worked to the corn producers’ advantage, in particular since the war between Russia and Ukraine has since ensured creating further disruptions and price increases. Margin requirements are increasing on Monday at the Chicago Board of Trade.
WHEAT HIGHLIGHTS: Wheat futures, despite a weak start, ended the session with strong gains as volatility remains at historically high levels. May Chi gained 16-1/2 cents, closing at 11.02-1/4 and Jul up 18 at 10.92-1/2. May KC gained 15-3/4 cents, closing at 11.10-3/4 and Jul up 16-3/4 at 11.07.
After a two-sided trade, all three classes of wheat settled with double-digit gains. Paris milling wheat futures were also in the green, up 4.75 to 5.25 euros per metric ton. An item of note – some news outlets were reporting today that Ukraine is ending the restriction on exports of corn and sun oil. Agriculture officials stated that stocks of those commodities are high, and restrictions are unnecessary. Interestingly, this comes only a day after Ukraine’s Ag Minister resigned. Export licenses are apparently still required for wheat, but with Russians controlling the Black Sea, Ukrainian ships have been unable to leave. It was also recently reported that the Ukrainians destroyed a Russian warship at the city of Berdyansk. This is an important port city located on the Sea of Azov (which is connected to the Black Sea). At this time Ukrainian exports of wheat still seem unlikely, despite the fact that they have been able to withstand a total Russian takeover so far. Some reports suggest that Ukraine has even managed to recapture eastern parts of Kyiv. Here in the U.S., the southern plains have received recent beneficial moisture, but these HRW wheat areas are expected to be dry for about the next five days. Drought remains more of a concern in Texas where only 6% of the crop is rated good to excellent. As a reminder, next week on March 31 the USDA will release both the Grain Stocks and Prospective Plantings reports.
CATTLE HIGHLIGHTS: Cattle futures saw mixed trade in live cattle and pressure in feeder cattle to end the week. The market was influenced by the strong move in the hog markets and saw position squaring before the USDA Cattle on Feed Report was released on Friday afternoon. Apr live cattle were 0.800 higher to 140.475, and Jun gained 0.425 to 137.375. Feeders finished lower with Apr feeders losing 1.150 to 161.575. For the week, Apr cattle were 0.025 lower, while Jun gained 0.300. Feeders saw weakness with Apr down 0.750 on the week.
USDA released the March cattle on feed numbers after the market close on Friday. Total cattle on feed as of March 1 was at 12.2 million head or 101% of last year, in line with expectations. Feeder placements were at 109%, at the top end of the range, and above the expectations of 106.5% compared to last year. Cattle marketed in February were at 105% of last year, slightly above the expectations of 104.3%. The placement number is the most concerning and could pressure the market on Monday. Technically, Apr cattle finished strong with good price action and could be poised to move higher, but the Cattle on Feed report could limit those gains. Cash trade was quiet and essentially done for the week. Trade this week was 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. Midday beef retail prices traded softer on Friday, with choice carcasses losing 0.32 to 262.09 and select was 1.55 lower to 251.04. Load count was light at 50 midday loads. Despite softness on Friday, retail values trended mostly firmer on the week. Feeder cattle had a disappointing day overall, as grain markets were quiet. The market may have been anticipating the heavier placement numbers on the USDA report. Prices posted weak price action and could be poised for further pressure to start the week. The Cattle on Feed report will likely pressure prices next week, as supplies were firm, and placements were heavier than expected.
LEAN HOG HIGHLIGHTS: Hog futures strong buying strength to end the week as money flowed into the hog market. The buying strength triggered strong technical buying, as demand strength and cash market support supported the rally. Apr hogs traded 4.700 higher to 107.475, and Jun hogs closed with new contract highs, gaining 3.775 to 125.850. For the week, Apr hogs were 8.075 higher and Jun hogs jumped 9.775.
Apr hog futures broke out of the most recent downtrend with strong gains to end the week. The price move was set up by the firm close yesterday, and with the strong open, triggered short-covering and technical buying. Apr futures are looking to challenge the recent Feb high at 112.850 as a possible near-term target. Summer hogs broke out to new contract highs and the strong fundamentals could push the market even higher in the near term. Summer hogs are looking at challenging historical highs established over those contracts from the 2014 year, established by the breakout of PEDV. Next week, the USDA will release the Quarterly Hogs and Pigs report on Wednesday. Pork retail values surged higher at midday providing buying support as pork values jumped 8.31 higher to 116.32 on a load count of 172 midday loads. Cash markets have stayed firm in response to the strong retail values. National Direct trade at midday was 1.07 lower to 106.07, with the 5-day average was at 106.21. The Lean Hog Cash Index was slightly higher, gaining 0.29 to 101.50. The Apr contract surged to 5.9750 over the index, which could be limiting on the front month with only 3 weeks of life left in the Apr 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 saw prices trade down on Friday, with the April contract falling 20 cents to $24.30, but was still 87 cents higher for the week. The calendar year average hit a new high at $23.67 on Tuesday this week and settled at $23.34 by Friday’s close. Milk prices remain at historically great levels and this week’s February Milk Production report helped, showing a 1.00% drop year-over-year. Cow numbers did see their first month-over-month increase since May 2021, so that will be a trend to watch in coming months. Spot cheese was a big winner this week, closing at $2.2625/lb, which was up 18.25 cents overall and is sitting just beneath the 2019 high of $2.26875/lb. Demand remains strong, but prices have hit levels that are traditionally short-lived, so it is worthwhile being on the defensive.
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Author
Bryan Doherty