TFM Daily Market Summary 05-23-2022


While drought conditions are more of a story in grain markets, those dry conditions are building some possible impacts in cattle markets as well. The USDA released the most recent drought monitor data, and cattle areas experiencing drought conditions have climbed to 54% nationally. These dry conditions have impacted cattle in different ways. Cattle placements have been higher than expected. On Friday’s Cattle on Feed report, April placements were 99% of last year, but above analyst expectations again. Poor pasture conditions are forcing cattle to move into feedlots sooner, elevating the placement numbers. Secondly, those same poor pasture conditions and high feed costs are encouraging the raid culling of beef cows and moving replacement animals into the feedlots versus going to pasture. Beef cow slaughter in the first quarter of 2022 has approached levels not seen in decades. This factor will be reflected in longer-term cattle prices as overall supplies will tighten. The lower cow number will bring the calf crops in 2022 and 2023 into question, as the market’s cattle supplies will show the longer-term impacts of the current tone of the cattle market and the effects of the long-term drought conditions.


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CORN HIGHLIGHTS: Corn futures closed higher today after last week’s disappointing trade. Export inspections exceeded analyst expectations, the value of ethanol and distiller’s grains are above the cost of corn in Iowa, and the CFTC showed that non-commercials were increasing their net long position last week. Jul corn gained 7-1/2 cents, closing at 7.86-1/4, and Dec gained 3/4 cents at 6.47.

U.S. weekly inspections were bullish in corn at 66.9 mb for the week ending Thursday, May 19. Total inspections in 21/22 are now at 1.610 bb, down 17% from last year. The USDA is estimating corn exports at 2.500 bb for 21/22, down 9% from last year. In addition to good inspection numbers in corn, the value of ethanol and distiller’s grain are 2.10 above the cost of corn in Iowa, according to the USDA’s Friday report, showing strong demand. Non-commercials took advantage of last week’s lower prices and were buyers, increasing their net long position to 473,743 contracts as of May 17, a large position that shouldn’t be challenged if corn remains above support at 7.66. With dry weather harming Brazil and Argentina’s crops, and Ukraine at war, exports are likely to remain active in the U.S. China should continue to be a large buyer, with corn closing on the Dalian exchange at the equivalent of $11.42 a bushel. Analyst expectations for plantings are at 68% for corn, up from 49% last week.

SOYBEAN HIGHLIGHTS: Soybean futures closed lower today after showing strength all through last week’s commodity and equity sell-off. Bearish influences come from President Biden announcing that the U.S. would intervene militarily if China invaded Taiwan, and traders buying wheat and selling soybeans. Jul soybeans lost 18-1/4 cents, closing at 16.87, and Nov lost 3 cents at 15.18-3/4.

Soybeans seemed immune last week to bearish outside influences, but President Biden’s remark today spooked the soybean market. With wheat finally having a positive day, it would appear as though traders were exiting soybean positions in favor of wheat, especially as Jul beans have bounced off resistance at the top of the Bollinger Band. Non-commercials were net buyers last week, increasing their net long position to 183,647 contracts, and export inspections this morning pegged beans at 21.2 mb for the week ending Thursday, May 17. Soybean inspections for 21/22 are running below the USDA’s estimated pace at a time when the soybean supply estimate is bullish for soybean prices. Private exporters reported to the USDA today export sales of 130,000 metric tons of soybeans for delivery to Egypt during the 21/22 marketing year. Jul beans on the Dalian exchange closed up 1.1% at the equivalent of $22.21 a bushel, a new high for this year, which should incentivize more Chinese purchases.

WHEAT HIGHLIGHTS: Wheat futures corrected upwards after three days of liquidation. Fundamentals remain supportive and wheat may be turning around after following the lower stock market last week. Jul Chi gained 21-1/4 cents, closing at 11.90, and Dec up 24-1/2 at 12.03-3/4. Jul KC gained 23-3/4 cents, closing at 12.76-1/2, and Dec up 23-3/4 at 12.84-3/4.

After recent losses in the wheat market, today the bleeding stopped. Double-digit gains across the board as well as gains in Paris milling wheat futures may indicate that wheat is due for another run higher. Last week a lot of markets seemed to follow the sharp selloff in stocks – with the DOW up about 600 points at the time of writing, combined with a weaker U.S. dollar, wheat may have had an easier time rallying today. Rains in parts of Texas, Kansas, and Oklahoma may be too late to help the overall crop, and ultimately the market will need to figure out how global wheat demand will be satisfied. Export reductions out of Ukraine, Russia, and Europe are a problem, and rains returning to both U.S. and Canadian spring wheat areas could be a problem as well. Efforts to restore Ukraine’s grain exports have failed so far and with many ports out of commission and mines in the water, re-establishing shipping would be a major undertaking. It has also been reported that Ukraine is short on diesel fuel which could hinder any fieldwork. In other news, China’s wheat areas look to remain dry through June 1. Weekly data has wheat inspections pegged at 11.4 mb with total inspections now at 723 mb.

CATTLE HIGHLIGHTS: Live cattle futures saw higher trade as the market had priced in the cattle on feed numbers and tried to build a potential seasonal low. Jun cattle finished 1.200 higher to 132.775 and Aug live cattle were 1.425 higher to 132.975. Feeders saw buying support as well, with the Aug feeders gaining 1.700 to 165.625.

Jun cattle futures opened with a small price gap lower, influenced by the negative Cattle on Feed report, but the lower open saw the sellers dry up, and prices posted bullish reversals higher, with closing trades near the top of the day’s trading range. Jun cattle also pushed back above the 10-day moving average and is set up for additional technical buying and short-covering going into Tuesday’s session. The May Cattle on Feed report continues to show overall heavy supplies of available cattle, and larger than expected placement totals, but seasonality may be in play as prices could be looking to build a seasonal low. With prices trying to turn, cattle market fundamentals will be key to maintaining a price rally.  Cash trade was undeveloped to start the week, typical of Monday. There was talk of some regional cash trade at $138, which would be steady with last week, and helped support Jun futures. The market will be targeting steady trade, but most business will hold off until the end of the week. Retail beef prices were firmer during last week, and midday prices were firmer on Monday, with Choice gaining 1.53 to 263.70 and Select was 2.16 higher to 245.18. Load count was light at 67 midday loads. The USDA announced the Cold Storage report after the market closed and total pounds of beef in freezers were down 1% from the previous month but up 18% from last year. The tighter month-over-month stockpiles are likely reflecting good overall demand and carcass weight is trending lighter. Feeders saw moderate gains as prices recovered from recent losses. The premium of front month contracts to the Feeder Cash Index is still concerning, with Aug trading at nearly a $13 premium to the index. The Feeder Cash Index was 0.33 lower to 152.72. The May feeder contract expires this week, on 5/26. The cattle market is not out of the woods, but the price action to start the week was very friendly. The positive reaction to a neutral to negative Cattle on Feed report can sometimes be a key for prices to turn a corner, but one day doesn’t mean a turn. The key will be money flow, the cash market, and potential follow-through trade higher over the next few sessions.

LEAN HOG HIGHLIGHTS: Hog futures finished higher as the buying strength continues, supported by strong cash markets and improving retail markets as prices posted triple-digit gains to start the week. Jun hogs finished 1.500 higher to 110.375, and Aug hogs rallied 1.850 to 100.850.

June hogs traded higher for the 6th time in 7 days and prices closed back above the 110.000 level. The Jun market is testing the 100-day moving average at 110.600, which could be a key barrier of resistance. If prices could push through, the 50-day moving average is at 113.500 and could be the next target. The strength in the hog market has been tied to money flow backed by the improved direct cash hog trade. The midday cash market was unreported due to “confidentiality” on Monday, but the 5-day average moved higher to 109.06. The CME Lean Hog Index started to reflect the higher trend gaining 0.80 to 101.17. Hog weights have begun to soften, but there are still ample hogs available with an estimated slaughter at 473,000 head on Monday, 3,000 more than last week. The USDA Cold Storage report on Monday reflected a slower demand pace and those larger slaughter numbers as frozen pork supplies were up 9% from the previous month and up 16% from last year. Stocks of pork bellies were up 3% from last month and up 67% from last year. Retail values trended higher last week on good product movement, helping support prices overall. Midday carcass values were 0.71 higher to 107.82. Movement was good at 158 loads. The CME Pork Cutout Index worked higher and reflected the recent strength. On Monday, the index gained 0.96 to 103.22. The hog market continues to see some buying strength, being supported by a firmer retail market, and strengthening direct cash tone. Price strength was reflected across the entire hog complex again today. The question is now, how high can this market climb on this recovery.

DAIRY HIGHLIGHTS: While commodities overall had a mixed start to the week, milk futures were also two-sided with only a handful of contracts closing more than a few cents away from last week’s finish. The Class III 2022 average was just a couple cents higher with a $23.33 close while the Class IV calendar year average jumped 3 cents to $24.53. While spot whey fell 2.25 cents to match its 2022 low of $0.4850/lb, the block/barrel average was unchanged at $2.36375/lb for a quiet Class III spot trade. Spot butter and powder traded 1.50 and 0.50 cents higher, respectively, which continues the recent uptrend in those markets. Milk futures overall are testing their recent long-term highs and may need some new bullish information to get over the hill.

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John Heinberg

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