MARKET SUMMARY 04-03-2023
OPEC-Plus nations announced a surprise cut to crude oil production on Sunday, and that sent crude oil prices strongly higher going into Monday’s trade. Saudi Arabia announced it would cut production by 500,000 barrels a day starting next month. Combine that with cutbacks announced by several other OPEC producers, the cut in production will be over 1,000,000 barrels a day, or about 1% of global oil supplies. According to the statement, the production cut will hopefully “bring stabilization to the crude oil market.” The move sent crude oil prices over 6% higher during the session on Monday, and its highest prices since January. A stronger crude oil market will likely help support commodity prices overall, but the markets could be sensitive to the impact on consumer inflation and the potential longer-term trends in the market.
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CORN HIGHLIGHTS: Corn futures ended the session mixed and with little change. Higher energy prices, strength in soybean and wheat, and short covering provided support early in the session. However, prices faded toward the close with May losing 2-3/4 to close at 6.57-3.4 and Dec gaining 1-0 to end the day at 5.67-1/2. Export Inspections at 43.2 mb was termed supportive, yet needed to get on track with expected sales and inspections.
Row crop commodities, in general, found support from a couple of areas today, namely a 6.5% increase in energies as OPEC made a surprise announcement cutting production 1.2 mb per day. This prompted a jump in prices which spilled over into the corn market. May futures traded as high as 6.68-1/2, a gain of over 60 cents off the recent low. Yet, a lack of follow-through buying allowed this contact to slide into the close. Dec ran into overhead resistance at 5.75, a level that has now held prices in check this past week and again today. Friday’s acreage intentions, 1.2 million more than expected, kept upside price potential in check today. The forecast looks challenging for the Dakotas and other parts of the northern Midwest as rain and snow are again expected this week. Yet, the 6–10 day outlook calls for normal or above normal temperatures for most of the western corn belt with below normal precipitation suggesting the outlook for field work is a little more promising than it was just yesterday. Bottomline, it might be just too soon to talk preventative plant acres or a major late start to planting. Despite today’s close in May, this contract looks poised to test the recent high of 6.82-1/2. With more acres, December futures may have a challenging time to close above 5.77, the 50-day moving average.
SOYBEAN HIGHLIGHTS: Soybean futures closed significantly higher again today pulled up by a crude market on fire after OPEC announced a huge production cut. Soybeans have been recovering quickly from their recent lows and are nearly back to the Feb highs in the May contract. May soybeans gained 16-1/2 cents to end the session at 15.22, and Nov was up 13 to 13.32-3/4.
Over the weekend, news broke that OPEC would be cutting their oil production by 1 million barrels in a surprising announcement that sent crude futures skyrocketing higher and pulling bean oil up along with it. The move came after OPEC previously said that they would hold supply steady, and this announcement is a threat to the global economy and inflation. More friendly news was a flash sale of 20,000 metric tons of bean oil to unknown destinations for the 22/23 marketing year, and export inspections that were decent at 18.3 mb putting total inspections up 3% from a year ago. While the surge in crude oil was likely the main driving factor today, there was follow-through buying from Friday’s bullish USDA report. The report had soybean planted acres lower than expected and ending stocks falling by another 30 to 40 mb when they are already tight at 210 mb. The CFTC report showed funds as net sellers last week but maintaining a net long position of 99,522 contracts. May beans closed above all major moving averages while the next target for Nov is the 50-day.
WHEAT HIGHLIGHTS: Wheat futures posted small gains in Chi but finished the session lower in KC and MPLS. This could be tied to Friday’s report results, but is a bit of a head-scratcher given the issues facing the HRW and HRS crops. May Chi gained 1-1/4 cents, closing at 6.93-1/2 and Jul up 2-1/4 at 7.06-3/4. May KC lost 2-1/2 cents, closing at 8.75-1/4 and Jul down 1/2 at 8.61-1/4.
Despite early strength, the wheat market closed mixed to lower with MPLS futures leading the way down. May MPLS had a daily high of 9.13 but ended up closing with a loss of 4 cents at 8.91-3/4. This is somewhat surprising given the fact that the northern plains look to see delays to planting of the HRS crop. Much of that region still has snow on the ground, and storms this week are forecast to bring quite a bit more. And with next week supposed to be warmer, flooding could become a concern. Another thing that makes this lower close surprising is the fact that spring wheat acres on last week’s report are said to be the lowest since 1972 at 10.57 million. HRW contracts also closed mostly lower today, as the market seems relatively unconcerned with drought in the southern plains. It is possible that the lower close in Paris milling wheat acted as a drag on U.S. futures today. But that is not necessarily a surprise, with wheat conditions in Europe mostly favorable. UK and French wheat conditions are said to be 90% or above in the good to excellent category. Adding to bearishness today were poor export inspections for wheat, with only 6.2 mb inspected. That brings total 22/23 inspections to 620 mb. So, what kept Chi futures afloat today? That answer could be tied to news that alongside Cargill, now ADM and Viterra will also stop exporting grain from Russia. In addition, Louis Dreyfus made a similar announcement. These headlines suggest that Russia may have more difficulty exporting wheat going forward, but that remains to be seen.
CATTLE HIGHLIGHTS: Cattle futures rotated off early strength on profit-taking and concerns regarding consumer demand, as energy prices jumped higher to start the week. Apr live cattle traded 0.225 lower to 168.125, and Jun lost 0.900 to 161.225. In feeders, Apr dropped 1.875 to 198.950 and May was 2.100 lower to 203.150.
Despite last week’s strong cash market tone, cattle futures reversed off early session highs and finished with negative price action on the day. Proft-taking was likely triggered by a concern regarding the consumer dollar and beef consumption. With retail prices still trading at multi-year highs, the jump in energy prices on Monday caused some profit-taking in the cattle market after last week’s run higher. The keys for the week will be follow-through selling tomorrow, and the development of cash trade later in the week. Cash trade was quiet for the week and will likely develop later in the week overall. Retail values added to the strength at midday, as choice carcasses gained 1.89 to 283.96 and select was 1.48 higher to 272.20. The load count stayed light at 32 loads. The stronger retail market will stay supportive of the cash market as bids develop this week. The feeder market followed suit and saw profit-taking as prices followed through from Friday’s weaker close. The Feeder Cattle Index was down 1.68 at 191.68, but at a discount to the futures, which helped pressure the front end of the market. Price action was difficult today in the cattle complex as both markets saw some profit-taking and technical selling. The fundamentals stay supported and could limit the downside, but the market was overbought and due for some technical correction. The key over the next couple of days will be the depth and aggressiveness of the technical selling pressure.
LEAN HOG HIGHLIGHTS: Lean hog futures saw additional bear spreading as the front end of the market is impacted by the cash market, but deferred futures are watching longer-term hog supplies. Apr hogs lost 0.725 to 74.525 and Jun futures traded 0.200 lower to 91.425. Third and fourth-quarter hog futures traded higher on the day.
The Apr contract closed at a new contract low as the cash market and the front-end hog supplies weighed on the market. The selling pressure weighed throughout the front end of the market as the premium of the futures over cash limits upside potential. The cash market saw direct trade was 0.49 lower to 72.66, adding to the Apr selling pressure. The Lean Hog Cash Index lost 0.31 to 75.46. The index is trading fairly flat with the Apr futures but is currently $16.00 under the Jun futures, which keeps the market limited. Hog slaughter last week was 2.497 million head, up 40,000 over last week and 2.4% over last year. The large supply picture keeps the cash market limited and weighs on the futures prices. Hog retail values were strong at midday, carcasses were 2.90 higher to 80.18. The load count was light at 156 loads. Retail values are trying to work back over the $80 level for carcasses. The afternoon retail close will be key for Tuesday’s price open. The cash market is still acting as a limiting factor as the futures market holds the premium to cash. That will still act as a wet blanket over the entire market until prices can turn higher. Traders will likely need to see a trend of higher cash and cutouts firm back up before buying into this market.
DAIRY HIGHLIGHTS: Cheddar blocks dropped a nickel to start the week, while barrels fell 0.75 cents to bring both markets to exactly $1.80/lb, down 23.1250 cents in five sessions. Nearby Class III futures were under pressure with the news as April futures fell 31 cents to $18.79 after breaching $20.00 intraday just a week ago. Spot cheese spent mid-January through mid-March between $1.70/lb and $1.80/lb, so hopefully that market can find some renewed buying as it enters that old range. With April Class IV futures closing up a penny at $18.07, the premium in the second month Class III chart over its Class IV counterpart has fallen from around $2.00 to 77 cents over the last week, and will narrow even more by the looks of it with the roll to May this week.
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Author
John Heinberg