MARKET SUMMARY 05-03-2022
New crop corn prices could be on the verge of tipping over. Planting delays, a war, and what should be reduced acres may not be enough to sustain the current uptrend. A private firm also downgraded the Brazil second crop by over 3 million metric tons. Yet, after posting new contract highs on Friday and subsequent lower close on the day (down 0-1/2 cent) followed by a gap lower on Sunday night, the market could be signaling it is running out of gas. This morning’s price recovery to the gap area and the turnaround with a drop of 7 cents by the close is not the most friendly signal. Two weather events are potentially negative for prices. The western Corn Belt received much-needed moisture, which may overshadow planting delays, and expectations for the eastern Corn Belt to see above-normal temperatures in the 6-to-10-day outlook with less than normal rainfall suggests a lot of corn could be planted by-mid May.
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CORN HIGHLIGHTS: Corn futures finished on a weak note, losing 10-1/2 cents in July to close at 7.93. Dec gave up 7 cents to close at 7.35-1/4. After recovering overnight and this morning with gains of 8 to 10 cents only to finish weaker is not a very encouraging sign for bullish traders. Prices this morning filled a gap left from Sunday night’s weaker open price. To fill the gap and then finish as weak as prices did would suggest the market is looking beyond near-term planting delays. Weaker energy, soybeans, and what may have also weighed on the corn market.
The USDA Crop Progress report yesterday afternoon indicated 14% of the crop planted versus a five-year average of 33%. The implication is that the crop is behind schedule which heightens the anxiety of bunching it together for both pollination and crop maturity. Yet, the most recent 6-10 day forecast indicated above normal temperatures for the entire Midwest and below normal precipitation for the eastern half. Warming temperatures and lack of rain in the East could allow for a very fast pick up in planting progress over the next three to ten days. We can’t help but think that many traders believe the rain totals in the western Corn Belt at the end of April and early May overshadow planting delay concerns as this region was critically dry.
SOYBEAN HIGHLIGHTS: Soybean futures lost 10 to 15 cents following corn, wheat, and energy prices lower. Traders were buyers on the overnight and early this morning on continued wet weather for most of the Midwest. Yet by day’s end, expectations that planting progress in the eastern Corn Belt would improve and funds likely trimming positions in front of the Federal Reserve’s expected interest rate hike tomorrow had prices finishing on a weak note. Jul futures gave up 14-3/4 cents to end the session at 16.30-1/2 and Nov lost 12-1/4 cents to close at 14.78-1/4.
The NOPA crush at 192.8 mb was record but failed to ignite much enthusiasm. Planting progress at 8% was in line with the five-year average. In old crap contracts, the close below the 40 and 50-day moving average does not look very supportive. We indicated recently that strong export sales may be reflective of countries buying their needs for the near term which is reflective of smaller supply out of Brazil. Yet, export activity is slowing on old crap which may suggest end users have purchased what they need. Weather will be the most dominant factor for price determinants. As of now, it is too early to argue whether it has a direct or significant bearing on yield potential.
WHEAT HIGHLIGHTS: Wheat futures traded lower as little fresh news was available to drive the market higher and an elevated US dollar provides pressure too. Jul Chi lost 10 cents, closing at 10.45-1/2 and Dec down 7-1/4 at 10.52-3/4. Jul KC lost 5-1/4 cents, closing at 10.92-3/4 and Dec down 3-1/4 at 11.01-1/2.
Monday’s Crop Progress report was expected to show a slight increase in winter wheat conditions but the crop was rated at 27% good to excellent, unchanged from last week. This compares to 48% good to excellent at this time last year. The winter wheat rating is currently the lowest since 1996. In the report, the USDA also said spring wheat is 19% planted vs 28% average and 46% last year. Looking closer, however, Minnesota and North Dakota are still struggling to get the crop in the ground with only 1% and 5% planted respectively. The average for Minnesota at this time is 24% and North Dakota at 18%. In global news, the ag minister of Germany stated that he believes Russia is specifically targeting Ukraine’s grain infrastructure to eliminate them as an export competitor. There are also reports of Russia stealing Ukraine grain to then be sold by Russia. While the export demand out of Ukraine has so far not shifted to the U.S., other countries have been picking up some of the slack – India among them. However, the private estimates of India’s wheat crop are near 105-106 mmt which compares to 109.6 mmt last year and early projections of 111-112 mmt. Ultimately, a recent heatwave there could jeopardize their wheat production and relieve them of picking up Ukraine’s export slack.
CATTLE HIGHLIGHTS: Cattle futures firmed as did feeders as grain prices weakened and demand for product is on the rise. Live futures close 12 to 72 points higher with Dec leading the way closing at 150.775. Aug feeders lead feeder contracts to the positive side, gaining 2.20 to end the session at 176.27, its highest close since April 22. In three sessions the Aug contract has gained over 8.00.
An 11.00 spread between choice and select suggest the feedlots are mostly current. With high-priced feed, this is not a big surprise. Yet with crops falling behind their normal planting schedule, this could be problematic, heavier animals may make their way to market. The bigger concerns in the marketplace, however, are potential slowdowns and demand due to continuous lockdowns in China, as that country tries to keep the spread of COVID in check. The hog market has been in a nosedive as well. Bottom line is there’s not a lot of momentum to carry cattle prices higher. The feeder market, however, could find additional support if corn prices are close to or finding their high level. The corn market in the last two sessions has had plenty of friendly news but has not responded as such. This might tell us that traders are of the belief corn futures are high enough and have room to work lower, especially if the planting of this year’s crop moves forward in the weeks ahead. Currently, the eastern Corn Belt is expected to see above-normal temperatures and below-normal precipitation as noted by the most recent National Weather Service 6-10 day outlook.
LEAN HOG HIGHLIGHTS: Hog futures again succumbed to selling pressure as technical weakness is driving the market lower. May hogs lost 0.100, closing at 99.775, and Jun down 2.775 at 102.200.
Jun hogs gave up a fair amount of ground today as they approached the 200-day moving average, which is acting as support at 101.742. Cutouts, though closing 2.00 higher yesterday, need to continue to show strength in order to give traders the confidence needed to buy back into the market. The National Direct Afternoon report declined 2.58 however, offsetting that gain in cutouts. The CME Lean Hog Index at 101.59, leaving May hogs at a slight discount but Jun at a slight premium. As futures and cash converge further, it may limit the downside potential of futures. Jun hogs did manage to close a small chart gap left in late January. With that gap now closed and the fact that hog futures are well oversold, traders may be given the confidence to buy back into the market, but charts still look weak overall. Until a definite low is established the trend may remain downwards.
DAIRY HIGHLIGHTS: Class III prices fell today with the soon-to-be second month June contract dipping back beneath the $24.00 mark. The calendar year average matched its low from late March at $22.65 but came off the low a bit prior to the close, finishing at $22.83. Spot cheese impressively finished unchanged despite an 8.60% drop in GDT cheddar, bringing it to $2.56/lb vs. the spot price of $2.32375/lb. Liquidity has dried up on the recent milk futures weakness, which has exasperated the down move, and if spot cheese starts to fade it could get uglier in a hurry.
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Author
Brandon Doherty