MARKET SUMMARY 06-28-2022
The USDA is releasing the Quarterly Hogs and Pigs report on June 29th after the market closes – to help provide a snapshot of the trends in the hog supply picture. Total hogs as of June 1st is expected to be 99.3% of last year to approximately 72.641 million head, which would be the lowest June total in four years. The market will be looking for any signs f further contraction of hog numbers or a rotation into expansion. This is measured in the Animal Kept for Breeding category and expectations are for a 1.1% decline, or at 98.9% of last year. Estimates are for the breeding herd to be at 6.125 million head, the lowest June total in five years. The total hogs’ herd has been pressured by the high input costs, the impact of disease, and tight profit margin that have all played in reduced hog herd size. The market will be anticipating these numbers, and those values may already be priced in, but the market may be looking for confirmation that the tighten hog supply trend will continue into the second half of 2022.
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CORN HIGHLIGHTS: Corn futures rebounded today with front month July leading today’s gains, closing 15-1/4 higher. Strong basis levels, a lack of farmer selling, and higher crude oil, wheat, and soybeans were all viewed as supportive. December corn gained 6-1/4 to end the session at 6.59-1/4. The latest 6 to 10-day forecast has most of the Midwest above normal in precipitation and temperature.
If enough rain is to be had, a warm forecast is more conducive to crop growth. Crop ratings indicated a 3% decline in the good and excellent category now at 67%, down 3% from last week. Thursday at 11:00, the USDA Quarterly Grain Stocks and Acreage reports will be released. Our best guess is corn may have picked up a million acres from March intentions, yet due to prevent plant probably gives back a million acres. Therefore, the likely scenario is no appreciable change in acreage. As for quarterly stocks, strong basis levels suggest either a limited supply, a lack of farmer selling, or both. Our bias is to lean toward a lower stocks figure. The markets are closed next week on Monday, July 4th.
SOYBEAN HIGHLIGHTS: Soybean futures led the way higher today on several supportive influences outlined below. July soybeans gained 33-1/4 cents, closing at 16.63-3/4 and Nov ended the session 29-3/4 higher at 14.62-1/2.
Triple digit gains in soybeans were fueled by a few factors. First would be the strength seen in meal and the recovery in oil. Second would be correction from an oversold situation after the recent selloff. Third would be crop ratings yesterday afternoon coming in lower than expectations (65% good to excellent vs 68% last week). Finally, there is talk that China is relaxing some of their covid quarantine restrictions, which should in theory increase their demand for commodities and energies. The July soybean contract is now back above the 100 day moving average and stochastics are showing a buy signal as well. Overall demand for soybeans remains strong, which is a supportive factor too, and after the selloff, traders may be willing to buy back into the market at these lower prices. The big thing to keep an eye on this week will be the Stocks and Acreage reports, due for release at 11 AM on Thursday.
WHEAT HIGHLIGHTS: Wheat futures started the day off strong across the board, but faded into the day with only MPLS closing lower. Jul Chi gained 17-1/4 cents, closing at 9.21-1/4, and Dec gained 17 at 9.50. Jul KC gained 11 cents, closing at 9.83-3/4, and Dec gained 10-3/4 at 9.99-1/2. Jul MPLS lost 6-3/4 at 10.34-3/4
Chicago and KC wheat futures finally got a reprieve from selling today and closed higher, while MPLS was unable to hang on. A relaxation of Covid restrictions in China gave the entire grain complex a boost today and brought wheat along higher. Importers reported sizeable tenders last night, with Egypt, Taiwan, Jordan, and Bangladesh stepping up to buy. Crop progress was released and updated spring wheat conditions to 59% good-to-excellent vs the 60% expected and 59% last week. Winter wheat harvest was marked at 41% complete vs 35% on average with Kansas ahead of the curve at 59%. Wheat export inspections totaled 12.9 mb vs the 13.7 mb needed weekly to hit the USDA forecast. As for weather, most of the US has been hot and dry, while the Canadian prairies have had rain, and Russia, western Europe, and Argentina’s crop are suffering from dryness. Technically, futures have just completed a head and shoulders pattern on the charts, which may incentivize funds to continue the momentum today and continue buying. The 200-day moving average has been key support that has been respected so far for all wheat classes. Futures are nearing pre-war levels and the situation in Ukraine is certainly not improving with Russian attacks continuing and no clear path for grain to leave the country.
CATTLE HIGHLIGHTS: Live cattle futures finished mostly lower as the June contract works closer to expiration. Live cattle futures are watching the development of cash markets and weigh the concerns regarding still heavy front-end supplies of cattle. Jun cattle gained 0.050 to 136.300, but Aug cattle were 0.750 lower to 132.725. In feeders, Aug feeders were 2.300 lower to 171.825.
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 on the contract. The cash market has been slow to develop this week. Early indications are seeing some light trade in the South at $137, but not enough to establish a trend. Northern trade continues to be firmer in price. The cash market is expected to be steady to lower versus last week’s totals. The front-end supply of heavy weight cattle will stay plentiful, limiting potential overall cash. Heavy weight cattle are still totaling 1.1% more than last year in this window and a staggering 5.25 more than the 5-year average. Beef carcass cutout values were mixed at midday, with choice values losing 1.75 to 266.93 and select was .04 higher to 245.28. The load count was moderate at 92 loads. As the retail demand window moves past the 4th of July holiday, demand may be more of a concern going into the heart of summer. Feeder cattle posted triple digit losses after a firmer tone in the corn market. The cash market in feeders has been supportive, reflecting in the cash index. Feeder Cash Index values were 1.11 to 164.20. The cattle market tried is drifting lower overall and may be poised to test the bottom of trading ranges. The heavy supply of front-end cattle will be a limiting factor. The cash market will still be the key for price direction in the near-term.
LEAN HOG HIGHLIGHTS: Hog futures finished lower as choppy range-bound trade continues with the market looking forward to the Quarterly Hogs and Pigs report on June 30. Jul hogs slipped 0.250 to 109.925, and Aug hogs lost 1.050 to 103.825.
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 June 30, which could provide the outlook the market is looking for to break out of this range one way or another. Expectations are for the report to show still tightening hog supplies and limited expansions. Total hogs and pigs as of June 1 is expected to be at 99.3% of last year. If realized, this will be the lowest pig herd in 4 years. Animals kept for breeding at 98.9% of last year, which would be a 5-year low, and kept for marketing at 99.3% of last year. The report will be released after the market closes on Thursday. Cash trade has stayed firm as packers bid up for hog supplies. Direct morning trade was firmer on Tuesday, adding .31 to 114.54, the 5-day average trade to a rolling average price of 117.40. The futures market has been running at a discount to the direct cash trade, supporting prices. The Lean Hog Cash Index traded 0.44 higher to 111.35, reflecting the overall support in the cash market. Demand has been more of a concern, but midday carcass values were higher, gaining 3.30 to 112.33 on moderate demand of 173 loads. 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. After the report, the hog market will go back to the stronger cash tone and tightening supply picture, unless there are some big surprises.
DAIRY HIGHLIGHTS: After threatening a move back beneath $2.10/lb, spot cheese was bid 3.50 cents higher today with a close at $2.15125/lb. This fails to break the downward trend that has been in place for weeks but was good to see after only closing higher six times in the last 26 trading days, exasperated by the negative Cold Storage report last week. The reaction on Class III futures was mixed with July futures closing with the largest gain of 19 cents. After closing down nearly $2.00 in the previous two weeks, that contract has a ways to go in terms of recovery but remains at a great level. The market is sitting 67 cents above our stop currently so the Model Farm will continue to be patient.
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Author
Amanda Brill