TFM Daily Market Summary 04-08-2022


For the third consecutive month, the USDA reduced the soybean carry-out projection for U.S. soybeans. As the demand for soybeans has increased globally, the USDA has adjusted its target for soybean exports. With Friday’s 25 mb addition to export demand, the USDA is expecting total soybean exports from the U.S. this marketing year to reach 2.115 billion bushels, which is still lower than the 2.261 billion bushels exported last marketing year. Carryout was lowered from 285 mb to 260 mb.  The important stocks-to-use ratio for 2021/22 is down to 5.85% vs 6.45% last month and 8% in January. The trend is forecasted to see soybean supplies continue to tighten going into the summer months, as the demand should remain strong and global supplies are tighter due to the limited South American production.

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CORN HIGHLIGHTS: Corn futures firmed despite what at best would be termed a neutral WASDE report. Jul corn gained 10-1/2 to close at a new contract high of 7.60-3/4. Dec also closed at a new contract high adding 7-0 cents to end the session and week at 7.16. Compared to last Friday’s close, Jul futures added 39 cents and Dec 28 cents. Bull spreading was noted this week whereas bear spreaders were in charge last week. Rumors of China in the market for commodities (corn and soybeans), short covering, and a likelihood of a shortfall of acres in Ukraine looking more likely, added support to prices this week.

Today’s report indicated no change to projected carryout at 1.440 bb. The market was expecting 1.400 bb. Exports were left unchanged at 2.5 bb. Feed was dropped 25 mb and ethanol added 25 mb. The big picture focus is on inflation, the war, and prospects for adverse/dry weather in the western U.S. to migrate eastward. World carryout did add 4.5 mmt. It will be interesting to see if, next month, this figure declines as Ukraine’s importance to the world market is in the spotlight. Increased area in Brazil is why expected production rose 2 mmt. What will be closely watched is if fertilizer costs and/or shortfalls eventually pull from yield.

SOYBEAN HIGHLIGHTS: Soybean futures finished with sharp gains on the day and week. Support came from a slightly friendly USDA report, spillover strength from sharply higher wheat and corn prices, inflation, and continued talk of China in the market. Brazil’s soybean crop was reduced 2 mmt in today’s WASDE report and is now forecasted at 125 mmt. May soybeans added 43-1/2 cents to close at 16.89 and Nov picked up 29-1/4 cents to end the day at 14.95-1/2, its highest close since March 25. For the week, May futures added 1.06-00 for the week and Nov gained 43-1/2 after adding 26 cents the week before.

Today’s report indicated carryout at 260 mb, below last month’s 285 mb but above the pre-report estimate of 254 mb. World projected carryout was reduced from 90 mmt to 89.6. How does smaller world production lead to only a slight reduction in smaller carryout? Higher prices usually imply smaller usage. The interesting development this year, with Ukraine and the Black Sea area in question for production and shipping, do the current estimates really matter that much? Probably not. Priority to the market will be weather and availability of products. Both are becoming more important and critical for the northern hemisphere. Lockdowns in China and growing concerns that China may have economic difficulties may also weigh on the big picture perspective, yet for now, inflation and availability in the short run are supportive for price.

WHEAT HIGHLIGHTS: Wheat futures had strong gains today – though U.S. carryout was higher than expected, the market did not react too strongly, perhaps because the world number was reduced by 113 mb. The longer-term concerns about the war, U.S. weather, and the tightening supply seemed to be more on the forefront of traders’ minds. May Chi gained 31-1/2 cents, closing at 10.51-1/2, and Jul up 33 at 10.58-1/4. May KC gained 36 cents, closing at 11.06-3/4, and Jul up 36-3/4 at 11.10.

All eyes were on today’s WASDE report, which turned out to be fairly neutral overall. Looking at wheat specifically, U.S. ending stocks were increased to 678 mb from 653 mb in March. The average pre-report estimate was 654 mb so the actual result was on the higher end of analyst estimates. U.S. exports were reduced by 15 mb to 785 mb – this was somewhat anticipated due to poor export performance to date. The world wheat carryout was pegged at 278.4 mmt vs 281.5 mmt in March (the pre-report average estimate was unchanged from the March number). The decline is attributed to a 3.8 mmt increase in global consumption. As for Russia and Ukraine, the USDA may have kicked the can down the road to some extent. They decreased Ukraine exports by only 1 mmt to 19 mmt and increased Russian exports by 1 mmt to 33 mmt. The wheat market’s reaction to the report seemed to be one of indifference as traders shrugged off the results and prices returned to similar levels as before the report came out. Fundamentally, not much has changed. The war will likely cause further disruptions, and North African countries which typically buy from Russia are looking for other sources of wheat. As we stated yesterday, India may pick up some slack with their Ag Minister estimating their wheat exports at 11 mmt compared to the USDA’s 8.5 mmt. Paris milling wheat futures were also up today, with several contracts closing at new highs. Here in the U.S., many HRW areas remain under stress due to dry conditions, and recent high winds are also a concern.

CATTLE HIGHLIGHTS: Cattle futures finished mixed to end the week, as a strong close in grain markets rippled across the cattle complex. Apr live cattle slipped 0.175 to 137.825, and Jun was 0.275 lower to 133.825. For feeders, May lost 0.100 to 159.375. For the week, Jun live cattle traded 2.025 lower, and in feeders, the May contract lost 6.750 in a difficult week.

The Jun contract saw two-sided trade on the day, as prices are consolidating at the bottom of the range. The weak price actions could keep the Jun contract in this consolidation pattern. The price action on Friday was disappointing, opening the door for further downside break and a test of recent lows. The cash market has stayed light this week. On the week, the market has marked most trade at $138 and $222 dress trade, fully steady with last week. Weekly cattle slaughter is expected to be 676,000 head. This is a huge number and demonstrates packer demand. This could promote stronger cash trade next week, which will be key in a defensive market. Boxed beef values have been trading firmer on the week, but were softer at midday with Choice slipping 0.33 to 271.07 and Select down 0.84 to 260.38 on movement of 61 loads. The feeder market faded off early session strength as grain markets had a positive response to the USDA Supply & Demand report on Friday. Prices finished mixed on the Feeder board and showed some resiliency despite the strong grain price moves. May feeders are likely tied to the index, which gained 0.05 to 155.59, but is running at a discount to front-month futures. The feeder market will likely remain cautious next week, with a close eye on the Sunday open in the grain market. Cattle prices are trying to battle, but a difficult week could pressure early next week. Cash will be king, and the market needs to see those prices firm. Charts are still weak overall and are still very susceptible to a test of the recent low.

LEAN HOG HIGHLIGHTS: Hog futures finished mostly higher, as an overall quiet trading session saw some end of the week profit-taking and position squaring. Apr hogs slipped 0.025 closing at 99.025, but Jun hogs gained 0.425 to 114.575. For the week, Apr hogs finished 2.275 lower, and Jun hogs dropped 5.875.

Jun hogs stayed in a consolidation pattern, building a “bear flag”, as the Jun hogs have stayed below the 50-day moving average. This keeps the door open for a test of the 100-day and trendline support as low as $104. Jun is holding a strong premium to the cash market, and the market is content to possibly take that premium out. The cash market trade was softer in midday trade. National Direct midday values were 3.70 lower at 96.53, and the 5-day average is at 99.91, breaking back under the $100 barrier. The Lean Hog Index was lower, losing 0.48 to 100.68. On the week, the index traded 2.68 lower. The Apr contract expires on the 14th and was supported by its discount of 1.650 to the cash index. Pork carcass values were firmer again at midday, after a positive close on Thursday.  Carcasses gained 3.53 to 106.64 on a load count of 168 loads. Based on the Friday close, pork values trended softer in general during the week, further limiting hog prices. Weekly slaughter is estimated at 2.334 million head, down slightly from last week, but up strongly from last year as front-end supplies are available, and packers are in demand. Technically, hog charts looked challenged and could be poised to test lower levels. The trend lower in cash prices and a softening retail market only add to the concern going into next week.

DAIRY HIGHLIGHTS: Class III futures closed the week with gains as the second month May contract finished Friday at $24.85, up 23 cents overall. The reaction to the losses from the end of March has been positive with a nice snap back to the topside, and credit is largely due to the higher feed prices and a push to multi-year highs in cheese. The block/barrel average finished the week 7.00 cents higher at $2.34375/lb, its highest level since November 2020 as the market was able to breach the 2019 peak. Spot whey also posted its second higher weekly close within the last nine, pushing 2.50 cents higher with a close at $0.6350/lb. Class III prices and the 2022 calendar year average are positioned just beneath the highs from a few weeks ago while the second month chart still sits beneath the 2014 apex, making for what could be an interesting upcoming week.

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Bryan Doherty

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