MARKET SUMMARY 08-11-2022
The U.S. Dollar Index is trading at its lowest point in over a month this week, helping support the markets in general. The most recent inflation numbers were released yesterday, and core inflation was down from the June print and slightly below expectation at 8.5% year-over-year. While this is still a concerning number, the decline in the inflation rate made the market optimistic that economic conditions were improving, and the Fed may be able to soften its current monetary policy regarding interest rates. This brought the selling into the U.S. Dollar Index and the charts have turned more negative. The Dollar Index is trading below the 50-day moving average for the first time since February. Currency tends to trade in a direction for a peropd of time, and the current chart is pointed to further downside trade. This will help the commodity and equity markets in the near-term,, making U.S. products more affordable against global competition.
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CORN HIGHLIGHTS: Corn futures closed higher today as anticipation over the report tomorrow and the potential for lower yields are in focus for traders. Net export sales numbers were decent and provided support. Sep corn gained 8 cents to end the session at 6.29-1/4, and Dec gained 9-1/4 cents to 6.27-3/4.
The anticipation of tomorrow’s USDA report and a likely lowering of yields has pushed corn futures higher for over a week. Last month, the USDA pegged yields at 177.0 bpa, and now the average trade guess is 175.9 bpa, with some private estimates as low as 173.2 bpa. Trade tomorrow is clearly looking for a significant drop in yields and if the USDA numbers don’t reflect that, there is a high possibility that prices fall. Producers are encouraged to make some cash sales here and use strategies to protect unpriced bushels ahead of tomorrow’s report. Net export sales were 7.6 mb for 21/22, up noticeably from both the prior week and prior 4-week average, while net export sales for 22/23 were 7.6 mb. Last week’s export shipments of 27.8 mb were below the 34.4 mb needed each week to achieve the USDA’s export estimate of 2.450 bb in 21/22. Shipments now total 2.249 bb and are down 12% from a year ago. The main buyers were Mexico, Japan, and Honduras. Yesterday, weather forecasts came out that included increased chances for rain, but the 7-day forecast for the western Corn Belt remains mostly hot and dry. Dec corn closed above its 200-day moving average for the first time in a month, and there are chart gaps both higher and lower.
SOYBEAN HIGHLIGHTS: Soybean futures closed higher today, along with meal and bean oil, as attention focuses on what tomorrow’s USDA report will bring. Export sales were a mixed bag with support from numbers for the 22/23 marketing year. Aug soybeans gained 20-3/4 cents to end the session at 17.09-1/2, and Nov gained 20-3/4 cents to 14.48-1/2.
The entire soy complex closed higher today with Nov beans coming just a penny shy of taking out yesterday’s high. Sep bean oil closed at its highest level since June 21, and meal posted decent gains as well. The USDA’s average spot price for soybean meal in Illinois closed at 605.00 yesterday, its highest close on record since 2016. Net export sales for the 21/22 marketing year were poor with more net cancellations of 2.5 mb, but an increase of 17.5 mb for the 22/23 marketing year where China was the main buyer, followed by unknown destinations, and Japan. Exports of 32.9 mb were up 70% from the previous week and 92% from the prior 4-week average, and private exporters reported sales of 103,400 mt of soybean cake and meal for delivery to Mexico during the 22/23 marketing year. Tomorrow at 11am central, the USDA report will be released, and trade will be looking for a decline in yields. The USDA pegged yields at 51.5 bpa last month, and now the average trade estimate is 51.1 bpa, with guesses as low as 49.9 bpa. Prices have rallied into this report and if tomorrow’s numbers aren’t overly bullish, prices could easily slide. Producers are encouraged to make cash sales ahead of the report, or put strategies in place to protect unpriced new crop. Nov beans closed above the 50-day moving average for the first time since June 17, and there are gaps both higher and lower on the chart.
WHEAT HIGHLIGHTS: Wheat futures managed another solid day. The market may be starting to correct from an oversold situation, but tomorrow will also feature the August WASDE report. This means there is potential for large price swings. Sep Chi gained 11 cents, closing at 8.10-3/4 and Dec up 10 at 8.26-1/4. Sep KC gained 16-1/2 cents, closing at 8.89-1/4 and Dec up 15-1/4 at 8.92.
Wheat closed off of daily highs, but still managed to post double digit gains in each of the three US futures classes. Paris milling wheat futures had a mixed close with a decline in the September front month contract, but gains in deferred contracts. Dryness in Europe has been a concern this year, and new reports suggest that there are navigation problems on Germany’s Rhine River due to critically low water levels. On a bearish note, Ukraine has been able to ship some grain and this is adding to resistance in the market. These opposing ideas may be in part why Paris futures have stagnated – traders are looking for direction and tomorrow they may get it. The USDA’s report is due for release at 11AM central and while there are not a lot of expected changes to the domestic numbers, global numbers could tell a different story. Recent estimates have raised Russian wheat production – the USDA is currently using a crop of 81.5 mmt, but private estimates are anywhere from 90-95 mmt. This could, however, be offset by reductions to crops in India and Argentina where heat and drought have reduced their crops. In other news, export sales data today showed an increase of 13.2 mb of wheat export sales for 22/23. Ultimately, all eyes will be on tomorrow’s report and there is always room for surprises. Be prepared for volatility tomorrow.
CATTLE HIGHLIGHTS: Cattle markets saw buying support in the live cattle trade with a strong cash tone, but feeder cattle were held in check with a firmer tone in the grain markets. Aug live cattle closed 1.400 higher to 140.600, and Oct added .625 to 145.100. Feeders were weaker as August slipped .725 to 179.950 and September traded .400 lower to 184.600.
With good money flow, October cattle have pushed in the gap at 145.100 and are challenging the top of the most recent price channel. A further push into the gap may have Oct poised to challenge the contract high at 147.500. The cattle market looks current, and packers are pulling animals forward to meet the cash demand. The choice/select spread is still trading at a wide $25.03 at midday, further reflecting the current feedlot conditions and the demand for quality beef. Cash trade was still building with light trade reported in the South at $140, roughly $3.50 to $4.50 higher than last week and $232 in the North, $2 plus higher than last week. Asking prices remain firm at $142 in the South, but most of the business is likely wrapped up for the week. The tighter cattle supply and the search for quality has packers staying active in the cash market. Retail values at midday were firmer as choice carcasses gained .49 to 263.72 and select was 1.61 higher to 238.69 The load count was light at 62 midday loads. USDA reported weekly export sales on Thursday morning and posted new sales of 14,600 MT for 2022 were up 22% from the previous week, but down 17% from the prior 4-week average. Japan, South Korea, and Taiwan were the top buyers of U.S. beef last week. Feeder cattle softened on Thursday, pressure by the strong grain markets. Cash feeder prices in the countryside remain strong as producers struggle to secure cattle. The Feeder Cattle Index added 1.53 to 178.06. and is trading at its highest points since February 2015. With August Feeder expiation at the end of the month, the August contract was limited by its premium over the index. The overall market is still trending higher, and fundamentals stay supportive. The strong cash tone helped bring that money back into the cattle market. Open interest is growing and there is still room for money to flow into the cattle market as it is still looking for a near-term top.
LEAN HOG HIGHLIGHTS: Hog futures saw buying support again on Thursday as the discount of October to the cash market helped support the hog futures, pushing Oct and Dec hogs to new contract highs. Front month August hogs stayed tied to the Cash Index with expiration tomorrow. Aug hogs gained 0.150 to 122.400 and Oct added .225 to 101.075.
The October and December futures saw good buying support as the contracts established a new contract highs and high closes on the trading session. With August expiration tomorrow (Friday), the large spread between the August and October contracts is still wide at 21.325 on the close. This is still supportive of the October futures. In addition, the Lean Hog Cash Index is trading at a strong premium to the October futures, closing at 21.015 premium over the futures on the close. The index was slightly lower on the day losing .16 to 122.09. With August expiration on Friday, the August futures are tied to the index. Midday direct hogs trade gave back most of yesterday’s morning gain, dropping 11.58 to 118.77 and the 5-day rolling average at 124.82. The retail market saw midday pork carcasses higher, gaining 2.18 to 125.85. The load count was moderate at 126 loads. Weekly export sales announce this morning posted new sales last week of 21,500 MT for 2022 were down 31% from the previous week and 6% from the prior 4-week average. Top buyer of U.S. pork last week were Mexico, Japan, and China. The hog market is strong and money flow supports the market. The retail values may have started to roll over, so demand will be key as hog numbers are still less than anticipated, and packer are still looking for product. Still in the short term, the cash market will be king with August expiration on Friday.
DAIRY HIGHLIGHTS: You name it, and that dairy product found a buyer today. With the US Dollar Index falling for the fourth straight day, the dairy sector was able to find gains on butter, cheese, powder, and whey. Class III prices were mixed but up overall, with $20 prices holding all the way through February of ’23. Front month August closed up 10 cents to $20.13, while the second month gave up 11 cents to settle at $20.10. Class IV pricing continued a trend of higher values for three days with front month August unchanged at $24.55 but second month futures 35 cents higher to $23.20. Butter was up up slightly to $2.97/lb on 2 loads traded, the block/barrel average 3 cents higher to $1.88/lb on 5 loads traded, powder up 2.25 cents to $1.51/lb on 4 loads traded, and powder up slightly to just over $0.44/lb on one load traded.
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Author
Brandon Doherty