MARKET SUMMARY 04-04-2022
Jun lean hog futures have been in a steady uptrend since fall, in line with numerous other commodities. Higher feed costs, inflation, increased demand, higher energy prices, and disease issues have all provided support. There have been price setbacks, however, they usually have been in line with normal price fluctuations. On March 31, however, the market received a potentially ominous signal that a near, if not longer-term price top may be in place. A bearish key reversal was posted at the very top of a price peak. A bearish key reversal is when price in a period (in this case daily trade) exceeds the previous day’s high and low price and closes lower than the previous session. A reversal itself may not mean much; it is usually how the trade acts in a subsequent session. In other words, was the reversal merely a one-day event, or was there follow though? On the June lean hog chart, follow-through selling is suggesting traders are, for whatever reason, exiting longs, establishing new sell positions, or both. Bottom line, if June lean hog prices have topped, it should not be a surprise.
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CORN HIGHLIGHTS: Corn futures climbed higher today gaining 17-1/2 cents in Jul and 11 in Dec. Jul closed at 7.39-1/4, with its recent trading range, while Dec ended the session with another new contract high close at 6.99. Strength in row crops, as well as continued fallout from a positive acreage and stocks report last week, provided support as did a large announced export sales of 1,084 mmt to China, 676 mmt for 2021/2022 marketing year, and 408 for the 2022/2023 year. Export inspections at 60.2 mb were termed as supportive, bringing the year-to-date total to 1.204 bb or 48.2% or an expected total sales figure of 2.5 bb.
The Dec corn futures contract traded to a new contract high of 7.00-1/2. We recently contended that Dec corn could reach 7.00 and now that this objective is hit, we believe that the market will begin to consolidate. It is easier to make a bullish argument based on multiple factors, yet the reality is that 7.00 corn and the current ratio of Nov soybeans divided by the price of Dec corn is near 2.06 which would suggest corn is buying acres. Supporting corn is talk of planting delays, although this probably does not have as much impact in April due to the ability of farmers to plant aggressively. Yet, from a planting perspective, there are some who are behind already. The 90-day forecast suggests above normal temperatures, so despite some delays now it is hard to argue with conviction on April 4, that it is a late start and major concern. Yet, it might be argued that it is not an ideal start. Ukraine is still likely the biggest issue with less conviction today than a month ago that crops will be shipped and planted on time.
SOYBEAN HIGHLIGHTS: Soybean futures recovered today finishing firmer by 20 to 33 cents. Jul gained 22-1/4 cents to end the session at 15.89 and Nov added 33 to close at 14.39-3/4. The 50-day moving average acted as resistance. Export inspections at 27 mb were termed neutral bringing the year-to-date total to 1.621 bb or 79% of expected sales of 2.090 bb. Firmer meal and oil prices, along with strength in corn and wheat, gave prices a boost. Suddenly the Nov soybean price divided by Dec corn futures price is 2.06, favoring corn acres. Ideas that acres could swing back to corn may have caught some traction today with Nov leading the charge higher.
The war in Ukraine continues to be a hotspot with reported damage to export facilities. This could mean little to no grain leaving the country for some time including sunflower oil. This could be a big deal as it might imply the world will have to look elsewhere, particularly the U.S. and Latin America. The potential fight for acres is again heating up. In February the ratio was near 2.45 which favored soybean acres, which is what the acreage report just last week indicated. Fertilizer availability and cost are big issues this year, but as spring approaches we are hearing more stories that fertilizer is available, but price is a challenge. Now that Dec corn futures are near 7.00 and Nov soybeans have just lost 1.00 in recent sessions, soybean prices may have to rally anticipating farmers will go to more corn unless there is an economic incentive.
WHEAT HIGHLIGHTS: Wheat futures closed with decent gains as war concerns are rallying the market. Russia seems to have disregarded the peace talks as they continue to strike cities and infrastructure. May Chi gained 25-3/4 cents, closing at 10.10-1/4, and Jul up 25-3/4 at 10.10. May KC gained 24-3/4 cents, closing at 10.37-3/4, and Jul up 25-1/2 at 10.39-1/4.
It appears that some war premium is being put back into the marketplace, as Russian troops continue their assault on the southern parts of Ukraine, and hopes of a ceasefire are dashed. Attacks on Odessa ports are significant as they could further slow and delay any exports out of the Black Sea. Damage to this infrastructure could delay export activity into the summer and beyond. Reportedly, Ukraine grain exports were four times less in March vs February. In Russia, they raised their wheat export tax from $87 to $96.10 per metric ton. Today’s export inspections data pegged the wheat number at 10.9 mb and total exports are down 19% from last year. Slow demand for wheat exports (as well as corn and soybeans) have weighed on basis levels and may offer ultimately some resistance to nearby markets. From a weather standpoint, it remains dry across the U.S. southern plains; the outlook suggests it will remain that way for early spring. There are chances for light showers in this region next week, but most of that will probably be in the east. Winter wheat crop ratings this afternoon will likely show stress in the HRW areas.
CATTLE HIGHLIGHTS: Cattle futures, as well as feeders, were on the defensive today on a lack of favorable cash news and higher corn and energy prices. Feeders lost 3.20 in the Apr contract to close at 158.37 while May gave up 3.65 to end the session at 162.47. Apr lives lost 65 cents to close at 138. After trying to break the 200-day moving average in recent sessions and failing, the market may have lost patience and buyers may have headed to the sidelines both Friday and today.
From a big picture perspective, it is challenging not to expect both live and feeder prices to move higher. Although the most recent Cattle on Feed report had a bit of a negative slant, a lack of wheat pasture conditions, and expectations that dry conditions in the West will limit future supplies, it’s ultimately friendly. The market is most likely concerned with surging fuel prices and high inflation, which will pull consumer dollars in various directions and potentially lead to fewer beef purchases in the retail and restaurant sectors. We don’t disagree that this is a concern, but we believe that most consumers saved significantly during the pandemic and are ready for a grilling season. Estimated slaughter is 121,000 and compares to 119,000 last week and 105,000 last year.
LEAN HOG HIGHLIGHTS: Hog futures settled sharply lower as long liquidation continues and weak-looking charts may cause technical selling. Apr hogs lost 1.850, closing at 99.450 and Jun was down 4.300 at 116.150.
Despite a bullish hogs and pigs report last week, futures have had a tough go of things recently and today was no exception. With both cash and cutouts lower on Friday, there was not much support for futures to start the week. The National Direct Afternoon report was down 1.45 and cutouts were 4.12 lower. The weakness in cash might indicate that packers have enough supply for now and are not willing to bid up. Hog slaughter in 2022 is running 6.6% behind last year. Looking at the technical side of things, charts are looking weak with downward momentum in both stochastics and the RSI. If you choose to view the glass as half full, one might argue that hogs are at or near oversold levels and are due for a correction to the upside. With the lower close today, several of the chart gaps have been filled which may also make traders more willing to buy back into the market.
DAIRY HIGHLIGHTS: Milk futures ran into heavy selling pressure to start the week, but buyers supported the market higher on Thursday and Friday to limit losses. Spot cheese buyers bid up blocks 11.50c in total on Thursday and Friday, while barrels rose 9.25c. This brought buying interest back into Class III futures late in the week. The Class IV trade got support from a three-day stretch of higher prices for powder, while butter added back a penny on Friday. The U.S. whey price is really struggling, falling 8% on Friday alone. There will be a Global Dairy Trade auction next week Tuesday that will help give the market an idea of where global demand is. The last event was down 0.90%, so this one will be watched closely. Prior to that down auction, the GDT hadn’t posted a single down auction since December 21.
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Author
Bryan Doherty