MARKET SUMMARY 07-27-2022
With the Fed meeting and the announcement of interest rate changes on Wednesday afternoon, the action of the U.S. Dollar Index will be a key to commodity markets. The markets are expecting the Fed to raise interest rates again at their July meeting, which should keep supporting the U.S. Dollar Index. The index seemed to peak a couple weeks ago and softened off those recent highs. As the dollar has softened, some money flow has moved back into the commodity sector as the risk of the strong dollar can trim demand. The Fed rate hike and their commentary should lift the dollar value if they proceed with their tighter monetary policy theory to help fight inflation. A lack of response from the U.S. Dollar Index, despite that news, could be a sign the dollar has posted a top in the near term and be a more friendly environment for commodity values and allowing money flow back into the market.
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CORN HIGHLIGHTS: Corn futures closed firmer for the third session in a row, finding support from warm and dry weather forecasts, as well as strength in soybeans. Sep ended the session adding 3-1/4 cents to close at 6.00-3/4. Dec gained 2-1/4 to close at 6.03, the second day in a row above 6.00 and above the 21-day moving average.
The good news, if you are bullish, is that prices held together. The bad news is a mostly hot and dry forecast did not give prices much of a boost. With 14% of the crop rated as poor or very poor, a less than ideal forecast for a crop that is about 7 to 10 days behind normal is concerning. While the trade found buyers today, it appears it did so with caution. Perhaps traders want to ensure that conditions are going to continue to slide or that pollination for some of the crop could be problematic. We are not so sure pollination will be a concern, however, lack of moisture during key weeks of mid-summer may have an impact on corn yield. The soybean market may be reflecting yield concerns gaining 25 cents, as soybean meal continues to surge higher this week. A lack of near-term bean products available for a crush could likely mirror the same issue in the corn market. Farmers just don’t have much old crop inventory. The big problem for corn, however, is that exports remain slow, and the market is dismissing the continuing mess in Ukraine. Still, prices are at a high level historically, and end users may not be ready to jump as they want more confirmation that weather could hinder production before paying a higher price.
SOYBEAN HIGHLIGHTS: Soybean futures rallied sharply yet again as weather remains supportive and demand for beans remains strong. Aug soybeans gained 46 cents to end the session at 15.78-3/4 and Nov was up 26-1/4 to 14.10.
It was another strong day for soybeans as soymeal jumped higher again to a new contract high of 488.90 in Aug. Crude oil up about three dollars per barrel didn’t hurt either. While the commercial demand for soybean meal remains instrumental in this rally, August weather has also been influential. The forecast looks to remain warm and dry next week across most of the Midwest, especially in northwestern areas. The soybean crop is probably the most vulnerable right now if weather goes into a warm and dry pattern that lowers yields. Globally, Europe may have to import more soybean meal due to potential shutdowns of soybean crushing facilities. Argentina would be the first place Europe seeks beans from, but could also result in more U.S. demand. Additionally, a recent surge in natural gas prices could make world fertilizer production more expensive (this would likely impact the market as a whole – not just soybeans).
WHEAT HIGHLIGHTS: Wheat futures gave up some ground today. Fundamentally nothing has changed but there were some incorrect reports surrounding the shipments of Ukrainian grain that may have pressured the market. Sep Chi lost 13-1/2 cents, closing at 7.90-1/4 and Dec down 13-1/2 at 8.08-1/2.
After a couple days of higher trade, the wheat market took a breather. Part of the negativity perhaps stemmed from news reports that “80 vessels carrying 20 million tons of grain are ready to leave Ukrainian ports”. These reports are simply inaccurate. There are perhaps 20 boats sitting there, and the goal is to ship 5 mmt per month. On that note, some of these ships have been unable to leave since the beginning of the war, and there are still many obstacles and challenges to overcome. Of utmost concern is that the quality of the grain in the boats has probably deteriorated. It is also unclear if all of the elevators are functioning. At least one company stated that they are not going to staff their elevator in Odessa for the safety of their workers. And none of this is to mention that ship owners and insurers are still leery and are wondering how to keep their crew and cargo safe. Ultimately, the USDA will have to address the fact that Black Sea wheat exports will probably be lower than their estimate. In other news, there is also still concern about European wheat quality due to heat and dryness. Here at home, the Wheat Quality Council’s spring wheat tour in North Dakota found a yield of 49 bushels per acre; this compares with 29 bpa in 2021.
CATTLE HIGHLIGHTS: Live cattle futures were lower in the front months due to lower cash trade, while feeders closed higher. Aug live cattle closed 0.075 lower to 136.800, and Oct lost 0.050 to 142.325. Aug feeders gained 1.675 to 179.100 and Sep gained 1.425 to 181.850.
Front-month live cattle were only slightly lower today while feeder cattle rallied. Cash trade has been reported in the South at 135, steady with yesterday but a dollar lower than last week’s weighted average, and Northern dressed deals at 225, 2 dollars lower than last week’s average. Boxed beef was lower this morning with choice down 0.65 and select down 0.61, but the overall trend remains higher pointing to strong beef demand. Cattle weights have been declining in the extreme heat causing packers to purchase more animals which is keeping slaughter pace brisk. Feeder cattle are trending higher as interest in feeders and calves at sale barns is growing, while supplies remain tight. We may be in a time frame where higher grains don’t necessarily mean lower feeder cattle due to the limited supply. Aug live cattle are sitting below resistance, which is near 138.42, the top of their Bollinger Band, and Aug feeders are over 3 dollars below their resistance level at 182.70.
LEAN HOG HIGHLIGHTS: Hog futures rallied today with cash showing a massive jump from the previous day. Aug gained 1.625 to 118.600 and Oct gained 2.800 to 96.450.
Cash surged higher yesterday afternoon and this morning, with the gains from yesterday at 7.56 on top of gains this morning of 13.01 bringing the cash average to 129.06, a huge premium to Aug futures. Aug futures and cash had previously been well in sync, and now with Aug at nearly an 11-dollar discount to cash, the upside has significantly more potential as the contract nears first notice. The cutout was 1.19 lower which had little effect on futures following the cash news. The gap between Aug and Oct seems to be in the process of getting smaller as Oct began to gain on the front month today. Oct futures have plenty of upside potential as they are at nearly a 33-dollar discount to cash. The jump in cash is likely linked to the extreme heat as the animals struggle to keep weight on and packers decide they need to buy them now before weights fall any further. Aug hogs are hovering right below resistance at the top of their Bollinger Band near 120.73, and the trend continues higher.
DAIRY HIGHLIGHTS: Class III milk futures saw a continuation of yesterday’s strong up session in the early going today, with contracts bid up double digits before the spot trade. Dairy product sellers were active in four out of the five spot product sessions, however, and early gains quickly turned red. With cheese blocks offered 6c lower and cheese barrels down 3.25c, Class III quickly turned lower. Losses across the board include August down 50c to $20.67 and September down 42c to $20.32. The Class IV trade had a strong session, as buyers supported with the butter trade up 3.50c to $2.9925/lb. It looks like butter might take another crack at pushing through the elusive $3.00/lb level. Butter inventories are still bullish, down about 20% from last year’s levels.
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Author
Bryan Doherty