MARKET SUMMARY 4-27-2022
A growing news story in the corn market has been the drier than expected weather conditions, which may be starting to affect the key 2nd crop Brazilian corn. In the top growing state of Mato Grosso, rainfall totals for the main northern growing regions are trending about 40% of normal. The month of April was amongst one of the driest on record, as those needed rainfall events have disappeared. There are still large portions of the corn crop that are in good condition, and production will be overall strong, but some of the top end of yield forecast may be limited. The lack of rainfall is starting to be a crop that is in the key stages of pollination and ear development. The current weather trend resembles 2016. That year, the 2016 season stayed dry, and 2nd crop corn yields fell around 30% into harvest. This will be a trend to follow going into the summer months, and a smaller than expected 2nd crop corn will likely keep the export window open longer for U.S. and provide another reason for supported corn prices.
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CORN HIGHLIGHTS: Corn futures firmed scoring new contract highs with May gaining 12-1/4 cents to close at 8.15.1/2, and July adding 10-3/4 to end the session at 8.12-1/4. December closed at 7.49-1/2, gaining 6 cents as it closed at its highest price for the contract. Strength in soybeans may have provided some support (up over 20 cents), however, a continued cool and wet forecast delaying the planting season for most of the Midwest, dry crop conditions in South America, and rumors of China buying provided support.
Market pressure from another new high in the dollar and a decline in open interest is keeping rally potential in check. Yet, focus on dry weather for the Safrinha crop and the continued war in Ukraine keep buyers active. Russia’s advance on south Ukraine export ports could limit Ukraine corn exports. A bridge in western Ukraine was destroyed, affecting a key rail and truck line for Ukrainian grain exports to EU and military imports to Ukraine. This could suggest corn from the U.S. makes its way to Europe. Russia announced they have stopped shipping gas to Poland and Bulgaria. With so much turmoil, it looks as thought the market is adding premium. The sharp rise in the dollar is a concern. The index has risen from 98 at the end of March to now over 102, or an increase of 4.1% in a month. One way to look at it, corn has increased about 30 cents in value to a buyer in 30 days.
SOYBEAN HIGHLIGHTS: Soybean futures had an impressive close on the heels of sharp gains in soymeal and soybean oil. More clarity from Indonesia indicated they would be limiting or banning export sales of both refined and crude palm oil. Palm oil futures shot into new contract highs bring soybean oil with it. May soybeans gained 21-1/4 cents to end the session at 17.26-1/2 and November added 22 to close at 15.26-3/4.
Limiting gains was another sharp upturn in the U.S. dollar as foreign investors are willing to pay more for dollars anticipating these dollars can then buy bonds (debt instruments), which will reflect higher interest rates and positive returns. Also, in times of turmoil, the U.S. has been a haven for investors. Soymeal gained 3.00 to 6.00 and soybean oil made new contract highs, adding 190 to 250 points. Recent announced export sales have been viewed as supportive, yet the underlying takeaway is sales of new crop. Preemptive buying for new crop is reflective of expectations of shorter South American supplies, perhaps unavailable by late summer, and need to import from the U.S. by early fall. There are a lot of moving parts in the market. Weather, Ukraine, and exports are taking their turn of which is most important. All, to date, are supportive.
WHEAT HIGHLIGHTS: Wheat futures had a mostly lower close with losses in Chi and KC, but gains in MPLS. Some chances for rain in the southern Plains likely contributed to the pressure seen today. May Chi lost 3-1/4 cents, closing at 10.80 and July down 3-3/4 at 10.91-1/4. May KC lost 9-1/2 cents, closing at 11.48-1/4 and July down 10-1/2 at 11.54. May MPLS gained 12-1/4 cents, closing at 11.98-3/4.
As the war continues, there is concern about a bridge in western Ukraine, which has been reportedly destroyed by Russian troops. This specific bridge is apparently significant in terms of moving grains out of Ukraine and into Europe, as well as getting military aid from the West into the country. Additionally, the Russians are pushing to take over the export facilities in the Black Sea. It has also been reported that Russia has cut off gas to Poland, further escalating the conflict. This may help keep prices supported overall. The chances for rain early next week in the Texas panhandle and Oklahoma are welcomed, but also may have put pressure on futures today (especially KC). The moisture is needed there, but probably won’t be significant enough to change HRW yields much. Some areas of North Dakota have the opposite problem with reports of flooding. Conditions there may delay the planting of spring wheat for several weeks, which helped to rally MPLS futures today. Bear spreading was also noted in Chi contracts with selling pressure in nearby months, but buying in deferred. July of 2023 gained 3 cents to close at 10.32. This likely signifies traders’ concerns about supply down the road.
CATTLE HIGHLIGHTS: Difficult Wednesday in cattle futures as a stronger tone in grain markets renewed selling pressure, as charts broke to the downside, triggering additional long liquidation and technical selling. April cattle lost 1.500 to 138.500, and June cattle fell 1.225 to 135.025. Feeders were sharply lower, with May dropping 3.375 to 157.350.
Despite a firmer open, selling pressure developed quickly in cattle markets on Wednesday. June cattle retested the low established on Monday and have held that point on the close. Prices did close below the 200-day moving average, which could bring additional selling pressure into the end of the week. Trendline support under June cattle is at the $134 level. April Live cattle futures expire on Friday and will try and stay tied to the cash market, which helped support the market on Tuesday. The cash trade was light on Wednesday, with trade steady with yesterday’s trade, with southern deals at $140. Boxed beef prices were lower at midday (Choice 262.58 -1.59, Select 253.16 -3.07) adding to the selling pressure in the market on Wednesday. Movement was light at 93 loads. The feeder market tumbled, falling apart technically as the weak live cattle tone and the higher grain prices triggered additional selling pressure. Most feeder cattle contract broke to new or are challenging nearby contract lows. April feeder futures and options expire on Thursday and will stay tied to the index. The Feeder cash index gained .09 to 156.21 in line with April Feeders at 156.200. Cattle markets are the victim of a larger cattle number picture, and now charts have broken down technically. Additional selling pressure seems likely into the end of the week, as prices are searching for a near-term low.
LEAN HOG HIGHLIGHTS: Hog futures finished mixed on Wednesday, as bear spreading moved the front end of the market lower, removing more market premium over the cash market. May hogs were 1.025 lower to 104.175, and June closed .825 lower to 110.350. Buying strength was in the back end of the market as Oct and later futures finished higher on the day.
June hog futures saw additional technical selling as the market continues to move premium to the sidelines. The 100-day moving average is at $109.400 and could be a support point on the charts. Front end futures are moving into oversold territory and may be starting to look like a value. In the bigger technical picture, June hogs are completing a potential head and shoulders pattern, that could bring a test of trendline support under the market at $97.50 for a potential target. The premium of front-end future to the cash market have stayed as a selling point. The Lean hog cash index has been trending higher, gaining .39 to 102.89 on Wednesday. The premium of the futures to cash has quickly evaporated with the selling pressure in the futures market. May is still holding a 1.2850 premium, and June is 7.460 over the index. The tighter gap between the two may limit some of the selling pressure. Cash markets have been softer, adding to the selling pressure, but did see a tick higher at midday on Wednesday. Midday direct trade was firmer, gaining 3.59 to 99.33 and the five-day average settled to 100.38, as the direct market may be turning higher. Pork retail values were 3.68 higher at midday to 109.23. Product movement was light at 162 loads, helping support the market. Estimated hog slaughter for Wednesday was 482,000 head, steady with last year, and 1,000 behind last week. Lean hog charts look defensive, but the selling pressure did slow on Wednesday. The path of least resistance at this point still looks to be searching for a low, but cash market is trying to firm, and retail values have trended strong this week, which could help be an indicator of a near-term low.
DAIRY HIGHLIGHTS: Class III milk was lower again today with May futures falling 39 cents to $24.31. The second month chart has not strung two lower weekly closes in a row since late January but is on pace to do so with that contract down 24 cents through three days this week. For the 2022 calendar year average, it has not strung two consecutive lower weekly closes together since late July, an impressive stretch, and after closing down 32 cents last week is down another 30 cents through midweek. The spot trade saw cheese drop 3.25 cents to $2.34/lb but after the recent rally has yet to do much for technical damage, while spot whey was unchanged at $0.5750/lb. While some fundamentals are turning over and price action has ebbed, there has not been any major red flags yet for Class III especially with the block/barrel average less than 3% off its recent high and still up 27% on the year.
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Author
John Heinberg