TFM Daily Market Summary 08-16-2022

MARKET SUMMARY 08-16-2022

The crude oil futures slide continues, closing Tuesday under a key support level. The Sep crude oil futures traded over 3% lower during the day as prices have touched their lowest levels since February, taking out the premium added since the Russian invasion of Ukraine. Since the highs in June, the oil market has lost nearly 30% of its value. The reasons for this recent push lower are tied to demand concerns. Over the weekend, China released concerning economic numbers that the Chinese economy is seeing a slow down in growth. This has the oil market concerned, regarding demand going into the near future, that this trend of Chinese industry growth continues. In addition, the impact of higher energy prices has started to be reflected in demand as energy consumption has been reduced overall. On Tuesday, oil futures are closing well below the 200-day moving average, which could turn charts more negative from the technical view, adding to the selling pressure. The weak crude oil market has had ripple effects across the commodity sectors, especially the grain markets.

 

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CORN HIGHLIGHTS: Corn futures closed lower today as yesterday’s selling pressure bled into today. Weather forecasts continue to look better and ethanol margins fall as crude oil continues to slip. Sep closed at 6.11 down 15-3/4 cents, while Dec gave up 18 cents to close at 6.10-1/4.

There hasn’t been much bullish news for corn to grab onto to incentivize buying, and instead, the focus has been on weather which seems to have improved forecasts daily now. Rains have moved through some of the driest areas in the central and western Corn Belt, but while helpful, for many it is not enough. Rain has also fallen in South Dakota, southern Minnesota, Nebraska, and Iowa, with continued rains forecasted. Yesterday, the USDA reported on crop conditions and saw corn’s good-to-excellent rating fall 1% to 57% which compares to 62% one year ago. 16% of the crop is rated poor-to-very poor, and 94% of the crop is silking vs 97% on average, and 16% dented vs 20% average. Private analysts are still wrestling with the USDA’s yield estimate of 175.4 bpa and believe it to be closer to the 172-174 range. If the USDA adjusts yields to be lower on the next report, there may be some bullish price action as a result of a lower carryout. Ethanol margins continue to narrow and hurt corn demand as crude oil prices fall. U.S. corn is currently attractive for export business compared to Brazil as Brazilian corn is reported to be at a dollar premium to the U.S. for the month of November. Dec corn closed just above its 21-day moving average and the next area of attention lower is the gap at 5.84-1/4.

SOYBEAN HIGHLIGHTS: Soybean futures closed lower today along with meal and bean oil. Improving weather continues to be a factor as well, as uncertainty about China’s economy and the demand from the country. Sep soybeans lost 39-3/4 cents to end the session at 14.54-1/4, and Nov lost 31-1/4 cents to 13.81.

Today’s sell-off was mostly bled-over news from yesterday that kept sellers active. The weather forecasts seem to be getting more favorable daily, weak economic data from China adds worries that demand will slow down, and there has been no resolution to the tensions regarding Taiwan. The USDA increasing soybean yields and carryout certainly hasn’t made for a bullish argument, and it will be interesting to see if they revise those numbers to be lower for September’s report, but a lot can happen between now and then and the crop is not made yet. Crop ratings fell 1% to 58% good-to-excellent vs 57% at this time last year. 74% of the crop is setting pods vs 77% on average, which makes the improved rain chances in the Western Corn Belt well timed to improve yields. Iowa ratings fell the most by 8% to 63% good-to-excellent, while Wisconsin had the best rating at 77%. NOPA reported July crush at 170.2 mb which is under the 171.5 mb expected but above June’s crush of 164.6 mb, as crush margins have been attractive yet narrowing lately. Soybeans are sensitive to Chinese news, and the market is not liking the economic issues reported from China. A bit of bullish news came in the way of a private exporter reporting a sale of 228,606 mt of soybeans for delivery to Mexico during the 22/23 marketing year. Nov beans closed below their 200-day moving average and the next target lower is the chart gap at 13.49-1/4.

WHEAT HIGHLIGHTS: Wheat futures traded on both sides of steady, but failed to hold onto any gains by the close. Spillover weakness from corn and soybeans did not help, as the market appeared to take on a risk-off posture today. Sep Chi lost 14-3/4 cents, closing at 7.86 and Dec down 15 at 8.02-3/4. Sep KC lost 11 cents, closing at 8.71-3/4 and Dec down 11-3/4 at 8.73-1/4.

Yesterday’s Crop Progress reports were no help to the wheat market with spring wheat crop ratings unchanged from last week at 64% good to excellent. Additionally, 16% of that crop is said to be harvested, while 90% of winter wheat is harvested. Ukraine shipments continue to pressure the market with five more vessels having left, reportedly carrying corn and wheat. Apparently, there are applications for 30 ships to come in over the next couple of weeks. Also bearish to the market is the estimate of Russian wheat production by Sov Econ, who increased their projection to 94.7 mmt (from 90.9 mmt). All in all, and though closing lower today, the general trend for wheat has been in a sideways trading range for a good while now. Lower corn and soybeans today may have added to spillover pressure, but long term we believe wheat still has underlying fundamental support.

CATTLE HIGHLIGHTS: Cattle markets had a strong day, as a stronger cash market tone and selling pressure in the grain markets saw cattle prices surge higher with triple-digit gains. Aug live cattle closed 1.550 to 141.300, and Oct traded 1.875 higher to 145.675. Feeders followed suit with Aug gaining 1.600 to 181.525 and Sep led the market higher gaining 2.475 to 185.475.

The potential cash market fueled cattle futures on Tuesday, as Aug closed the June chart price gap and closed just short of the contract high.  Oct still looks well supported, as prices are trading in the June price gap. Cash trade is still undeveloped, but early packer bids for $236 dress traded in Nebraska were passed over. This was already a strong tone, and the feedlots are gaining some leverage and are willing to see where the bids will go. The market is expecting higher trade and added premium into future prices on Tuesday. The bulk of cash trade will likely hold off until later in the week. Today’s slaughter totaled 126,000 head, even with last week, but 4,000 more than a year ago, but Monday’s kill was revised down to 121,000 head. Retail values at midday were firmer as choice carcasses gained 1.88 to 266.34 and select was 1.09 higher to 240.81. The load count was moderate 80 midday loads. The choice/select spread moved back to $25.53. The cash market will stay active as packer margins are still friendly and the demand for quality beef remains, especially as retailers put together their Labor Day retail marketing plans. Feeder cattle surged higher on Tuesday, as grain markets saw selling pressure and strength spilled over from the live cattle market. With the strength, prices are back challenging recent highs, setting up an important day tomorrow. Cash feeder prices remain strong as producers struggle to secure cattle, which keep support under the Aug feeder market. The Feeder Cattle Index added 0.76 to 179.35. The overall market is still trending higher, and fundamentals stay supportive. The strong cash market tone and support in retail markets gave cattle markets a boost on Tuesday. Feeders are back to the recent highs and looking to push through, as the cash market supports feeder prices. Friday brings the next round of cattle on feed numbers, and that could make the market choppy into the end of the week.

LEAN HOG HIGHLIGHTS: It was a difficult day in the hog market as prices tumbled, setting up a negative technical picture on the daily charts. Oct dropped 4.00 to 96.575 and Dec hogs lost 3.150 to 87.700.

Since the concerns regarding the Chinese economy hit the news on Sunday night, certain commodities have been under pressure, and lean hogs have been part of the risk-off trade. On Tuesday, prices turned early session strength and reversed charts to close at their lowest point since the first of the month. The reversal signal and weak price action will keep the market under pressure to start the session on Wednesday. The weakness came despite some recovery in midday direct cash trade, which gained 5.73 to 120.55 and a 5-day rolling average of 123.76. The Lean Hog Cash Index was slightly lower on the day, slipping 0.22 to 121.71. The index is still trading at a strong premium to the Oct futures, closing at 25.135 premium over the futures on the close. The retail market saw midday pork carcasses trading firmer, gaining 0.37 to 125.28, following Monday’s strength. The load count was moderate at 206 loads. The estimated slaughter for Monday was revised to a higher total of 442,000, and Tuesday’s estimate was 476,000 up slightly from last week, and 5,000 over last year. The trend will likely keep hog numbers below last year’s levels, so the carcass weight and total production will be key for prices. The hog market is still well supported by the cash market, but today’s price action was technical in scope, and likely setting up more pressure tomorrow. The price action on Wednesday will be key to see if follow-through changes the trend or if this was a one-day price move.

DAIRY HIGHLIGHTS: There were fireworks in the dairy markets prior to the US dairy spot trade session as September 2022 Class III futures were limit up briefly.  That excitement was tempered once spot trade sessions did not back the activity of early trading.  Spot cheese was unchanged at $1.91875/lb on no loads traded and spot butter was lower by over 2 cents per pound to settle at $2.9625/lb. Despite the negative GDT results and poor spot trade, the majority of the dairy markets enjoyed an uptick in prices, while spot powder and whey enjoyed minimal gains.  Both Class III and IV milk futures saw gains in the second month through the end of the year contracts, with September Class III futures leading the way with $0.53/cwt gains to close at $20.88.  We have yet to see what caused the early volatility in the markets this morning, but short covering prior to the spot trading sessions could very easily be the case, as the markets were relatively oversold.

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

John Heinberg

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