TFM Daily Market Summary 06-27-2022

MARKET SUMMARY 06-27-2022

Cotton futures have lost nearly 30% off most recent highs since May 17. The recent weakness in the commodity markets has impacted multiple markets as prices have dropped off multi-year highs. On May 17, Dec 22 cotton futures traded as high as $133.79/cwt, only to close today at a multi-month low of $94.05/cwt, trading limit down on Monday. Most of that price drop has occurred in the past week as recession fears have crashed prices with multiple days of limit or near limit down trade. Cotton, like some other commodities, can directly reflect the impact of the consumer and the buying power of consumer goods, which can impact the consumption of cotton. As prices have dropped, the technical sellers have jumped into the market pushing prices quickly lower. The trend in cotton prices still looks lower, and the signs of a low are still in front of the market, but the price drop is another indicator of how quickly prices can move, as money flow can direct the market.

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CORN HIGHLIGHTS: Corn futures were virtually a repeat of last Monday when prices gapping lower after a weekend and finished on a very weak note. Jul futures lost 6 cents closing at 7.44-14, Sep down 21-1/2 at 6.61-1/4, and Dec down 21 at 6.53. Much needed rain fell in parts of the Midwest including large parts of Illinois and eastern Iowa. Additionally, the most recent forecasts continue to suggest mostly above-normal precipitation and no searing heat. By some accounts after triple-digit temperatures last week, the forecasts have been nearly ideal for corn production heading into the Fourth of July weekend. Export inspections at 49 mb were termed supportive, yet the overall pace needs to pick up to meet the USDA projection of 2.5 bb sales.

Strong basis levels continue to suggest tight old crop supplies, yet the market is focused on weather and crop potential. Therefore, as much as it looks like new crop is already priced well below recent highs, the focus on new crop corn supply suggests a crop that meets USDA projections. Brazil is selling corn to China, adding to a somewhat negative tone of the last several sessions. On Thursday, the market will have a lot of new data to digest in the form of quarterly stocks and a new acreage estimate. Longer range forecasts continue to suggest warmer and drier, yet this outlook continues to be trumped by shorter (6-10 day) outlooks that offer generally mild temperatures and what should be adequate rain. With late crops and many more acres than normal headed for the same pollination and maturity window, the weather market may just be starting. Be ready for high volatility.

SOYBEAN HIGHLIGHTS:  Soybean futures managed to close in the green today, despite lower closes in corn and wheat. Demand remains strong and the market may be seeing the beginning of a recovery from an oversold situation. Jul soybeans gained 19-3/4 cents, closing at 16.30-1/2 and Nov ended the session 8-1/2 higher at 14.32-3/4.

Soybeans are trying to claw their way back from the heavy selloff last week. There is not much fresh news to report from over the weekend, however. The fears of last week still loom over the market as talk of recession and how that will affect commodity demand remain a concern. The two-week weather forecast showing closer to normal temperature and precipitation for most of the Midwest is also on the minds of traders. This week Thursday has the potential to be a market mover though, as the USDA will release the planted acreage and grain stocks reports at 11 AM central. Soybeans may have been in part supported today by the increase in bean oil prices, which were in turn supported by higher crude oil. Crush values have recovered with the USDA, showing that in Illinois the combined value of one bushel’s worth of meal and oil exceeded the cost of that bushel by 2.81. In other news, Jul soybeans on China’s Dalian exchange remain expensive, around the equivalent of $19.63 per bushel. As for the U.S. markets, funds remain long about 178,000 contracts after the recent selloff. Additionally, soybean inspections are still 10% below last year with 17.2 mb last week, and total inspections for 21/22 now at 1.888 bb.

WHEAT HIGHLIGHTS: Wheat futures closed lower across the board today with MPLS leading the way down and closing lower for the sixth straight day along with KC. Jul Chi lost 19-3/4 cents, closing at 9.04, and Dec down 19-1/4 at 9.33. Jul KC lost 19-3/4 cents, closing at 9.72-3/4, and Dec down 19-1/4 at 9.88-3/4.

Wheat futures plunged again today with not much bearish news to back up the selling. World importers have ramped up purchases with Saudi Arabia, Pakistan, and Bangladesh all stepping up with sizeable tenders, although Saudi Arabia likely sourced from the European Union rather than the U.S. Ukraine has been mostly unable to export anything as Russian attacks grow more severe with latest targets over the weekend being Kyiv and the port city of Odesa. World supplies of wheat remain very tight for such an oversold U.S. market and the feeling is that wheat is due for a run higher. World wheat supplies at the top eight exporters are estimated by the USDA to be at their lowest levels in 22-23. In the U.S., trade will look to Thursday’s estimate of spring wheat plantings as both the northern U.S. Plains and the Canadian side of the border have had planting difficulties. The HRW wheat harvest is expected to come in 7% smaller than last year, and little rain is forecast over the northwestern U.S. Plains this week. Technically, Jul wheat closed just 3 cents above the 200-day moving average which should act as major support. All wheat contracts are in oversold territory which may pique buying interest from funds as prices are now near pre-war levels.

CATTLE HIGHLIGHTS: Live cattle futures finished with gains to start the week, as Friday’s Cattle on Feed report brought no major surprises, and the weak corn market supported feeders. Jun cattle gained 0.900 to 136.250, and Aug cattle were 0.100 higher to 133.475. In feeders, Aug feeders were 1.625 higher to 174.125.

Jun live cattle are in their last week of trade with expiration on June 30. The Jun contract is trading at a discount to the cash market, which helped bring buying support to start the week. The cash market will be a big key to cattle prices this week on the front end of the market. Cash trade was undeveloped to start the week, and expectations are for cash trade to stay steady with last week. The Cattle on Feed report continues to reflect a large supply of cattle available, as the total on feed in June was a record for the month. Supplies are expected to tighten in the longer term, which allowed the deferred contract to trade over the front-end contracts in a bear spread market on Monday. In daily fundamentals, beef carcass cutout values were firmer at midday with good buying support in the choice grade. Choice values added 4.11 to 269.09 and Select was 1.13 higher to 246.15. The load count was light at 46 loads. The strong choice values helped pull cattle futures off the lows of the day. Feeder cattle posted triple-digit gains after the light placement numbers from Friday’s report and the weak tone in the corn market. The tighter feeder number may start reflecting the tighter cattle supply picture and the impact of the large placement number from earlier in the year. The cash market in feeders has been supportive, but on Monday, Feeder Cash Index values slipped 0.62 to 163.09. The cattle market tried to drift lower during the session on Monday, but buyers stepped in, supported by the strong choice carcass values. The current trend is overall higher, but front-month cattle prices may be limited due to the heavy supply picture in the near term.

LEAN HOG HIGHLIGHTS: Hog futures choppy range-bound trade continues as the market is looking toward the Quarterly Hogs and Pigs report on June 29. Jul hogs slipped 0.750 to 110.175, and Aug hogs lost 1.900 to 104.875.

The hog market stays in a consolidative pattern, trading between the 100-day and 200-day moving averages on both the July and August charts. This pattern has held since early May, as the market may be looking for a longer-term direction. The USDA will release the Quarterly Hogs and Pigs report on Friday, June 30, which could provide the outlook the market is looking for to break out of this range one way or another. Cash trade has stayed firm as packers bid up for hog supplies. Direct morning trade was soft on Monday, down 5.70 to 114.23, the 5-day average trade to a rolling average price of 117.39. The futures market has been running at a discount to the direct cash trade, supporting prices. The Lean Hog Cash Index traded 0.22 higher to 110.91, reflecting the overall support in the cash market. Demand has been more of a concern, and midday carcass values were softer, dropping 0.67 to 111.53 on moderate demand of 150 loads. Estimated slaughter last week was 2.304 million head, down 2.95 from last week, and 2.1% from last year. Despite tighter slaughter numbers, total pork production was 499.4 million ponds, slightly under last week, but higher than last year due to carcass weights remaining heavy, still trending 7 lbs above last year. The hog market will likely stay choppy this week reacting to outside markets and squaring positions before the hogs and pigs numbers, as traders will be unwilling to align themselves one way or another before the report is released.

DAIRY HIGHLIGHTS: Since hitting a new high on June 9, the July to December 2022 Class III milk average has now fallen lower 10 out of 11 sessions. The market is going through a correction here and looks to be set to retest the important May low support level. A pullback in the feed market and other commodities pressures the market lower, but cheese prices aren’t helping. The U.S. cheese block/barrel average closed today at $2.11625/lb, which is down 0.25c from Friday’s close. This puts cheese down about 30c off of this year’s high. Talk of weakening demand domestically and rising cheese inventories are keeping buyers away. Just last week, the USDA said that cheese inventories at the end of May were at an all-time high.

Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of the National Futures Association. Stewart-Peterson Inc. is a publishing company. SP Risk Services LLC is an insurance agency. A customer may have relationships with all three companies. TFM Market Updates is a service of Stewart-Peterson Inc. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.

Author

Brandon Doherty

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