July crude oil reached a new contract high today at 120.99. Expectations for stronger demand from China now that Covid-19 lockdowns are easing, the summer driving season, increased air traffic and of course the continued war in Ukraine are all contributing to higher prices. As nearby supplies tighten, they are growing expectations that the next target in the $140/barrel level. The all time high of $147.27 from 2008 is on the radar as well.
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CORN HIGHLIGHTS: Corn futures gathered strength on the heels of sharp gains in soybeans, new contract highs in crude oil, continued cool weather limiting fast growth, and Russia reportedly shelling to grain facilities/ports. July corn gained 15-1/2, closing at 7.42-1/2 and December added 12-1/2 to close at 7.02-1/2.
Export inspections at 56.5 mb were termed supportive, bringing the year-to-date total to 1.722 bb or 68.9% of total expected sales of 2.5 bb. Is today’s trade nothing more than a bounce in a market that is starting to trend lower or the beginning of new buying on a market that was overdue for a healthy correction? June is a finicky month for price direction. Typically, the market moves lower unless there is a hot and dry forecast. We currently don’t see a hot and dry forecast. On the contrary, much of the Midwest looks to stay at or below normal and temperature at or above normal and precipitation over the next 10 days. or, is the market merely marking time until near the middle of the month when forecast into July will likely guide price direction. We believe it is likely the third scenario. There just isn’t enough weather at present to have a tight supply market sell off or enough concern for prices to substantially rally.
SOYBEAN HIGHLIGHTS: Soybean futures closed slightly higher after a day of very mixed trade. Soybeans got no boost from higher corn and wheat following Russia’s attack on Ukrainian grain export facilities, but seemed to fluctuate along with crude oil, soybean oil, and meal. The lack of any major soybean related news left trade relatively unchanged. Jul soybeans gained 1-1/2 cents, closing at 16.99-1/4, and Nov gained 6-1/2 cents at 15.33-1/2.
Today, we finally started to see the spread between July soybeans and Nov begin to tighten, with July still at a 63-1/2 cent premium to August, down from the 70-cent spread last week. Crush premiums remain high, but lack of supply is expected to reduce crush activity this summer. Export inspections for the previous week came in at 12.9 mb and 1.832 bb so far this year, with the USDA’s yearly estimate at 2.140 bb. China has said that they would begin to ease Covid restrictions for major cities currently in lockdown, which should increase demand there, as China is already thought to be severely underbought for the August-September time frame. More rain is headed to Brazil, and there is a possible frost-freeze event after June 10 in southern Brazil. Friday’s CFTC report showed non-commercials lightening their long positions slightly down to 186,078 contracts. July beans appear to be forming into an ascending triangle chart pattern, with a close above 17.50 likely to lead to another leg higher.
WHEAT HIGHLIGHTS: Wheat futures shot higher today after Russia increased their attacks on Ukraine over the weekend and damaged crucial shipping ports. July Chi gained 53 cents, closing at 10.93 and Dec up 52-1/4 at 11.15-1/4. July KC gained 49 cents, closing at 11.70 and Dec up 48-1/4 at 11.86-1/2.
Last week, there was a lot of talk surrounding the idea that Russia would allow Ukrainian exports of grain. That talk came to an abrupt halt after this weekend Russia attacked two key Ukrainian ports. The thought that Putin would have allowed exports was always a bit suspect, but this attack seems to confirm Russia’s true intentions. With damage to the ports and grain elevators, shipping would be a logistical problem, even if exports were allowed. Russia also attacked Kyiv again with long range missiles and have issued new threats due to weapons being supplied to Ukraine by the West. There is still supposed to be a meeting between Russia and Turkey on June 8th to discuss opening export corridors, but at this point, those talks are expected to not be very successful. All of this news pushed wheat futures sharply higher today, including Paris milling futures (up the equivalent of about 50-60 cents). On that note, French wheat conditions have declined yet again, to 57% good to excellent. This compares to 80% GTE a year ago.
CATTLE HIGHLIGHTS: Both live and feeder cattle futures closed lower today, with feeders leading the way down in a characteristically inverse movement to higher corn. June cattle finished 0.775 lower to 132.825, and Dec live cattle were 0.775 to 145.45. In feeders, Aug dropped 1.90 to 171.975.
Higher corn thanks to Russia’s attack on Ukrainian grain export facilities were behind the move lower in the cattle complex. The move down was not too severe, even with cash being 2.00 lower last week, and not much juice coming from boxed beef, which shows that there is still strength in these markets. No levels of support were broken today and both live and feeder cattle remain in uptrends. Much of the trade this week will be determined by how aggressive the packer needs to be. The uptrend in boxed beef shows that demand is still strong, but with rising weights, the number of head that the packer needs may not be high enough to keep cash steady. Cash is projected to trade steady to slightly lower this week, with June live at a 2-dollar discount to last week’s 135 cash trade. Feeder cattle will likely look to the trend in corn, as it seems very unlikely that any grain will get exported out of Ukraine, but there is also increased demand from buyers in the US, and the tight supply of feeders gives optimism for higher priced cattle later in the year.
LEAN HOG HIGHLIGHTS: Hog futures slipped today as the technical picture looks negative. Prices are consolidating and according to some metrics are overbought. June hogs lost 0.975, closing at 109.225 and July was down 1.775 at 108.975.
Hogs started the week on a sour note, posting losses all the way out to February of 2023. There seems to be a fight going on between technicals and fundamentals, with support in the former, but a more negative picture in the latter. Hog supplies are tightening, which is supportive, but stochastics show that the market is overbought and is starting to show sell signals with downward momentum. In other words, the market may be due for a correction to the downside. Additionally, if packers are able to attain the necessary supply without being aggressive, tightening hog numbers won’t play as important of a role. There is always a silver lining however; China is reducing some of their covid restrictions. This may increase their commodity and energy imports. Last week China was listed as the second largest buyer on the export sales report, and as their economy recovers, so too may their demand for meat.
DAIRY HIGHLIGHTS: Class III futures started the week with a big move higher as the second month pushed back above $25.00 after nearly six weeks beneath that mark. While the second month chart still sits beneath the all-time high posted in April at $25.79, the 2022 average and July-December average all hit new highs today. Spot cheese was only a half cent higher with a close at $2.2650/lb as Class III futures continue to outpace the block/barrel average. Class IV futures were higher as well with the second month chart hitting a new high at $26.15, thanks in large part to spot butter jumping 4.25 cents to $2.9575/lb today for a new 2022 high.
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Author
Bryan Doherty