MARKET SUMMARY 3-27-2023
The lean hog market has been under heavy selling pressure over the past couple of weeks as money has flowed to the short side of the hog markets. Last week’s Commitment of Traders report showed that Managed funds were short 16,575 net positions in the lean hog market, one of the largest short positions in history. During the sell-off, June hogs dropped nearly $18.00 since posting a high in February. March has seen aggressive selling as the pressure accelerated until coming to a pause on Thursday last week. The hog market may be showing signs of a bottom. The market was strongly oversold and has now traded higher for the third straight session as short covering has triggered some value buying in the market. The length of the recovery will be based on the market fundamentals, but for at least a couple sessions, the hog market may have found a floor.
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CORN HIGHLIGHTS: Corn futures posted strong gains at or near the daily highs. Spillover support came from soybeans and wheat, but the recent export announcements have become almost a daily occurrence and are also helping futures to rally. May closed 5-1/4 cents higher at 6.48-1/4, and July added 6-3/4 to end the session at 6.29-3/4. December gained 9-1/2 cents, closing at 5.69-3/4.
Another sale of US corn was announced this morning, this time to unknown destinations in the amount of 112,800 metric tons. While it is not known if this is China once again, their recent purchases have breathed some new life into the export market. This may have helped corn to rally alongside soybeans and wheat. Today, the market also received export inspections data, in which the USDA pegged corn inspections at 26.2 mb. This brings the total 22/23 number to 716 mb. There wasn’t much other news in the headlines to report, but there is chatter regarding delayed planting in the northern Corn Belt due to snow and cold weather and there is also still talk about just how low the final Argentina crop numbers will be. The latest rating from the Buenos Aires Grain Exchange put Argentina’s corn crop at only 6% good to excellent. Likely to be the biggest news of the week, however, will be Friday’s Prospective Acreage and quarterly Stocks reports. At the outlook forum in February, the USDA projected 91 million corn acres. While this remains to be seen, the number will likely be higher than last year. It is also worth noting that the commitments of traders report is finally up to date, and the funds are still short roughly 42,000 contracts of corn. As a final item of note, the outbreak of African Swine Fever in China could become a bearish anchor if it begins to affect their demand.
SOYBEAN HIGHLIGHTS: Soybean futures closed higher today and appear to be reversing on the charts as traders gain more confidence in an absence of further banking crisis news. Bean meal managed a slightly higher close, while bean oil moved higher, along with crude and other veg oils. May soybeans gained 14 cents to end the session at 14.42-1/4, Nov was up 15-1/4 to 12.88-1/2.
The soy complex moved higher today as traders appear to feel more comfortable owning commodities with the banking scare seemingly in the past and over. That, along with the extremely oversold technicals, particularly in the Nov contract, prompted buying today. On Friday, the USDA will release their Acreage and Stocks report where calls for soybean stocks to be unchanged to slightly lower and acreage estimated at 87.5 million acres. Brazil’s soybean harvest is now estimated at 70% complete with cash offers significantly below those in the US. Despite Brazil’s record harvest, export inspections for beans were active last week at 32.7 mb, which brings total inspections up 3% in 22/23. Friday’s CFTC report was up to date and showed funds as sellers for the week prior selling 16,875 contracts, which reduced their net long position to 110,786 contracts, still a large position. Both July and Nov beans have posted buy signal crossovers in their stochastics and may get some support from Friday’s report if acres come out lower than expected.
WHEAT HIGHLIGHTS: Wheat futures saw decent gains today. Support came from uncertainty over the Russia/Ukraine situation as well generally higher grains. The US Dollar Index was also a bit lower today, which may have given wheat some headroom to move up. May Chi gained 9-1/2 cents, closing at 6.98 and Jul up 9-1/2 at 7.09-1/2. May KC gained 12-1/4 cents, closing at 8.60-1/4 and Jul up 13-1/4 at 8.47-1/2.
Wheat posted double digit gains in all three US futures classes and was sharply higher in Paris milling wheat futures too. While it was a relatively quiet news day, there is some concern about what Russia’s next move will be. Recent headlines suggest that they will put nuclear weapons in Belarus. This would be the first time since 1990 that they have put these types of weapons outside of Russia. Wheat may have seen some follow through buying today on last week’s confusion about Russian exports. While it was originally rumored that they would halt exports, this was later said to be false. In either case, it may have been enough to act as a catalyst for those wanting to buy into the market. With the funds still said to be short about 86,000 contracts, some short covering may have played a part today, as did support from higher corn and soybean markets. Fundamentally, much of the HRW crop is still facing drought and the HRS crop could see late planting with snow and cold weather still affecting the northern states. As a final note, the USDA said that 14.4 mb of wheat were inspected, bringing total 22/23 inspections to 613 mb.
CATTLE HIGHLIGHTS: Cattle futures saw strong buying strength to start the week as the commodity sector in general saw good money flow, triggering some short covering in the cattle markets. Apr live cattle gained 1.900 to 164.900, and Jun added 2.275 to 158.575. March feeder cattle gained 2.700, closing at 192.350, and the April contract gained 2.825 to 197.625.
The cattle market saw a round of short covering to start the week, supported by strong money flow into the commodity markets in general. Managed Money has aggressively sold cattle futures positions, as the weekly Commitment of Traders report revealed. Last week, fund net length was 63,000 contracts of live cattle, down significantly from recent total length and down a net 28,000 contracts last week. With the cattle market fundamentals still supportive, this set the cattle market up for price recovery, which we saw Friday and today. In fundamentals, cash trade was undeveloped to start the week as bids and offers are undefined. Expectations are for steady trade this week. Retail values were softer last week with choice losing $.57 and select trading $3.55 lower. At midday, prices were slightly higher as choice carcasses were .28 higher to 280.16 and select gained .61 to 269.36. The load count was light at 33 loads. Feeder cattle saw good buying strength supported by the strong live cattle market and short covering. Feeder cattle caught a good bid on Monday, even with a strong grain market to start the week. The Feeder Cash Index was up 2.39 at 191.24, and that supports the March futures. The expiration of March feeder futures and options are this week on March 30. The price action in the cattle markets was very supportive today that a short-term low is in place and prices have made a turn higher. Cash trade this week will be key. The longer-term fundamentals are still friendly in the cattle markets.
LEAN HOG HIGHLIGHTS: Lean hog futures are completing the turn higher as short covering and good money flow into the commodity markets help lift hog futures higher. Apr hogs gained 1.450 to 78.625, and Jun futures traded 1.650 higher to 93.075.
Lean hog futures looked to have put in a near-term low and possibly building the V-bottom type recovery after posting strong triple digit gains on Monday. Late in the day price action was disappointing as prices still held good daily gains, but fell off the session highs. This still keeps the picture a bit cloudy whether a low is truly in place, or this move is a bear market bounce. Manage Money has sold the hog market aggressively. Last Friday’s Commitment of Traders report saw managed funds short over 16,000 net contracts, one of the largest positions on record in recent years. The fundamentals will be very key for the strength of the recovery in prices. The cash market saw direct trade 0.15 lower to 76.03. The Lean Hog Index lost 0.40 to 76.99 as the index trend is slowing or rolling over. Hog retail values were sharply higher at midday, gaining 4.42 to 85.47. The load count was light at 156 loads. With such a strong midday move, the afternoon retail close will be key on Monday. Traders will likely need to see a trend of higher cash and cutouts firm back up before buying into this market. The price action to end the week is looking to put that low in, and additional strength today helps firm up that potential low. The overall price action this week will be a key.
DAIRY HIGHLIGHTS: Monday’s spot dairy trade was an extremely quiet session with no price changes to any of the products available and no loads traded. This kept the spot cheese price elevated at $2.03125/lb, which has been the leading cause for supporting higher Class III futures. The Class III trade did cool off a bit today likely due to profit taking or farmer selling after the recent rally. However, April Class III still sits up at $19.76 after trading at a low of $17.38 earlier this month. There were a total of 1,059 Class III milk contracts traded in the 2023 strip, whereas just 5 Class IV contracts traded. Class IV has remained under pressure from a falling powder market while butter remains stuck in the mud near $2.40/lb. In this week’s trade, the spot market will likely dictate the day-to-day price fluctuations in futures. There are no dairy reports expected, although Friday’s Quarterly Grain Stocks and Planting Intentions report is expected to drive volatility in the feed market. Heading into the report, both corn and soybean meal had been in downtrends.
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Author
Amanda Brill