MARKET SUMMARY 04-04-2023
Gold futures have pushed back above the $2000/ounce level, as money has flowed into owning the precious metal. This is the second time in the past couple weeks that gold prices have challenged closing above the $2000 market, but with prices pushing nearly 2% higher on the day as money has moved into gold as a safe haven against other markets. Gold futures have posted nearly a $350 rally since November as weakness in the dollar index, U.S. treasuries, and concerning economic data has triggered the buying. Prices at these levels are historically high, but the current market situation and concerns regarding the global economy will likely stay supportive of gold futures.
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CORN HIGHLIGHTS: Corn futures lost 4 to 9 cents with Jul leading today’s drop closing at 6.28. May lost 4 cents to end the session at 6.53-3/4 and Dec gave up 7-1/2 to close at 5.60. Despite a near-term forecast for wet and cold weather, especially in the northwestern regions of the corn belt, the extended outlook calls for warmer and drier conditions on extended weather models. Farmer selling has picked up in recent sessions, rewarding the rally. Traders were likely quick to exit long positions today either using sell stop orders, or liquidation once prices started to fall, confirming overhead resistance held prices in check.
Outside markets, namely crude oil and soybeans, have been supportive in recent sessions. It is no surprise today that when these markets failed to rally it didn’t take long for traders to liquidate out of corn. New positive news has been lacking. There were no additional export sales to report. Farmers are gearing up for a busy planting season, and a likely reason recent sales increased as the wet weather is providing an opportunity to make deliveries. The macro picture looks challenging for a price recovery. Supplies are snug as confirmed by tight basis levels, but there really isn’t much new in the news for corn adding premium. The overhead chart resistance on May futures is 6.75 and for Dec 5.75. For the most part, news out of Brazil has been lacking, a sign the growing season is not experiencing many difficulties up to this point. Some private estimates are adding an extra million metric tons. 2% of the corn crop is planted, mostly in Texas.
SOYBEAN HIGHLIGHTS: Soybean futures closed lower with losses primarily in the deferred contracts. The lower close may have partially been due to profit-taking after the recent gains, but declining crush margins have been a bearish factor as well. May soybeans lost 4-1/2 cents to end the session at 15.17-1/2, and Nov fell 12-3/4 to 13.20.
Soybeans and both soy products moved lower today following a sharp recovery over the past two weeks from this year’s low. The downward momentum may have been slightly driven by overbought technicals, but the bigger bearish force is likely Brazil’s harvest which some analysts are now saying may be as large as 157 mmt, up from the previous estimates of 153 mmt. In addition to the increased production estimates, Brazil’s exports for March were a record 3.3 mmt. With Brazil’s cheaper beans, US bean exports have dropped off significantly and there have been no Chinese purchases of US beans so far this week. Brazil’s harvest is over 76% complete with yields coming in higher than expected. Declining crush margins have been adding pressure to the markets despite increasing production capacity for renewable diesel, and the value of crushed beans exceeded the value of uncrushed by 2.04 based on May futures, the least profitable incentive since October 2021. May beans remain above all major moving averages while Nov is sitting right at its 21-day moving average and both contracts are near overbought.
WHEAT HIGHLIGHTS: Wheat futures closed lower after trading both sides of steady. There are still factors that should provide support to the market, but traders may be more focused on Friday’s data showing more acres. May Chi lost 2 cents, closing at 6.91-1/2 and Jul down 2-3/4 at 7.04. May KC lost 2-3/4 cents, closing at 8.72-1/2 and Jul down 3-1/2 at 8.57-3/4.
Yesterday afternoon the market received the first Crop Progress report of the season. The data showed that winter wheat was rated only 28% good to excellent; that is the lowest rating for this time of year since 1989. Nevertheless, wheat traded lower today, giving the indication that traders are not too concerned. Additionally, 48% of US winter wheat is said to be experiencing drought conditions. While this is down a little bit from last week’s 51%, it is still quite a large number. The thing that may be weighing on US wheat futures are rumors of a few cargoes of wheat coming into the US yesterday. Fundamentally though, wheat stock remains tight and there are issues facing the US crop; there is drought affecting the HRW crop, and blizzard conditions in the north that could cause issues for planting of the HRS crop. There is also still uncertainty surrounding Russian exports with several commercials stating that they will be halting operations in that country. Globally, conditions look mostly favorable in the EU but western Canada and the northern China plains are both dry.
CATTLE HIGHLIGHTS: Cattle futures followed up on Monday’s weakness, as additional long liquidation and profit-taking pushed cattle futures lower. Commodity markets in general saw negative money flow and a “risk-off” trade pushing the majority of commodity prices lower. Apr live cattle traded 0.525 lower to 167.600, and Jun lost 1.000 to 160.225. In feeders, Apr dropped 1.000 to 197.950 and May was 0.875 lower to 202.275.
The weakness in the cattle markets was tied directly to money flow and technical selling, as the weakened technical signal from Monday’s close saw additional selling pressure. Despite the strong cash market tone and expectation for cash to hold those levels, sellers were still in charge on the day. With Jun trading nearly $8-10 under last week’s cash total, the market looks undervalued, but until the market sees some confirmation of this week’s cash trade, it may be difficult to rally. Cash trade was quiet for the week and will likely develop later in the week overall. Southern asking prices are starting out at $170, but the north is still quiet. Retail values were strong at midday as choice carcasses gained 3.60 to 288.69 and select was 3.70 higher to 277.88. The load count stayed light at 55 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. The Feeder Cattle Index was up 1.26 at 192.94, but at a discount to the futures, which helped pressure the front end of the market. Price action was again difficult today in the cattle complex as both markets saw some profit-taking and technical selling. The fundamentals stay supportive and could limit the downside, but the market was overbought and due for some technical correction. In the near term, prices are still looking to work lower.
LEAN HOG HIGHLIGHTS: Lean hog futures saw heavy selling pressure when prices broke to the downside, as a risk-off mentality across the markets in general kept the money flow moving out of the hog market. Apr hogs lost 2.300 to 72.225 and Jun futures traded 1.850 lower to 89.575.
The money flow stays negative in the hog markets as fund traders are willing to push the large short position in the hog market even larger this week. Last week’s commitment of traders saw funds short 16,000+ lean hog contracts, which was a historically large, short position. The recent pressure in the market only helped that position grow over those numbers from last week. The cash market saw direct trade was 0.65 lower to 72.01, adding to the Apr selling pressure. The Lean Hog Cash Index lost another 0.25 to 75.20. The index is trading at a premium to the Apr futures but is still currently $14.00 under the Jun futures, which keeps the deferred contracts limited. Estimated slaughter on Tuesday was 481,000 head, slightly above last week, but steady with last year. Slaughter runs have stayed heavy, and the large supply picture keeps the cash market limited and weighs on the futures prices. Hog retail values were soft at midday as carcasses were 0.57 lower to 77.75. The load count was light at 156 loads. The afternoon retail close on Monday was disappointing, and that helped trigger selling pressure as well on the day. 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: The dairy trade struggled during Tuesday’s session with double-digit losses in some of the nearby Class III and Class IV contracts. Spot cheese overall was up slightly with higher blocks and lower barrels, but selling continued on milk futures. Class IV was again either unchanged or lower with May and June dropping 12 and 19 cents, respectively. Spot butter is down 7 cents through two days this week, which does cause some alarm bells to go off on what Class IV futures may do if butter pushes to a longer-term low like powder has. This morning saw the release of the first of two April Global Dairy Trade Auctions, and the results were not helpful. The index pushed to a 2-1/2 year low with another break in butter and powder prices, while cheese was slightly higher.
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Author
Bryan Doherty