MARKET SUMMARY 08-18-2022
The retail side of the beef market has supported prices, and the choice/select spread helps reflect why prices are supported. The choice/select retail beef spread has been historically wide, trading over $25.00 between the two recently, reflecting the demand for higher quality beef. Currently, tighter supplies of higher grading retail beef have driven prices higher for choice grade beef, supporting the spread. As carcass weights have begun to move closer to trending below the 5-year average, due to higher input costs, the amount of higher-grade beef supplies have also tightened. Add in a friendly demand tone domestically and in the export market, packers are having to “bid up” for high-quality beef, which has supported the cash market. Going into the end of the year, cattle supplies are expected to tighten, which should help support the spread and the cattle market even further.
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CORN HIGHLIGHTS: Corn futures ended the session on a firm note with Dec posting an outside trading range meaning today’s price activity exceeded both yesterday’s high and low price. Sep gained 4-3/4 to close at 6.19-3/4 and Dec added 3-3/4 to close at 6.15-3/4. Support came from higher soybean prices and continued thoughts that recent rains have not been enough to add weight to this year’s crop. Also, a slow but developing story is continued heat and dryness in parts of China’s corn crop which could turn into a big story on the world’s macro corn supply picture.
For the most part, corn futures are trading rangebound and have been for 6 weeks. The time of year suggests prices tend to move lower easier than higher. Anticipation of increased corn harvest from this time forward and little weather to affect the crop yield one way or the other suggests a defensive posture. Yet, with this year’s crop behind schedule, rain throughout August is essential for maturity. We hear more concern regarding fill. Boots on the ground with the Pro Farmer starting next week will provide additional perspective. Technically, the 21-day moving average held as support today. The market is at a critical pivot point. If prices slide below 6.00 on Dec, this opens the door to a target of 5.84-1/4 where a gap would be filled. If this does not hold as support, then expect a retest of the low from July 25 at 5.61-3/4. If prices break resistance at 6.43 expect a test of 6.50 and then 6.75.
SOYBEAN HIGHLIGHTS: Soybean futures closed higher again today following good export sales numbers, strong demand for cash soybeans, and a jump in crude oil. Sep soybeans gained 20-1/4 cents to end the session at 14.95-1/2, and Nov gained 15-1/4 cents to 14.05-1/4.
Export sales gave soybeans a nice boost today with the USDA reporting an increase of 3.6 mb of soybean export sales for 21/22, and an increase of 47.9 mb for 22/23 with primary increases for China, unknown destinations, and Mexico. The presence of China as the main buyer for 22/23 soybeans was an encouraging sight as there have been concerns that they would be less active due to the recent tensions with the U.S. China is currently experiencing extreme heat and dryness in their major crop-growing regions and their crop is getting severely damaged. CNBC has reported that China is limiting factory hours, setting mandatory air conditioning temperatures at 78.8 degrees or higher, and taking other measures to conserve energy in the face of the worst heat wave and drought since 1961. If China continues to increase imports due to this, the global carryout could get dangerously tight, and prices would have room to run higher. In the U.S., there is strong demand for physical meal with spot prices in Illinois reaching 530 a short ton and nearly 90 above Sep meal futures prices. The trend for Nov soybeans remains sideways for now but today Nov closed above the 200-day moving average which is encouraging.
WHEAT HIGHLIGHTS: Wheat futures gave up a lot of ground today as they broke out of the recent trading range to the downside. Technical selling, a wet forecast in the U.S. southern Plains, and increasing Black Sea exports are contributing to weakness. Sep Chi lost 31-3/4 cents, closing at 7.31-1/2, and Dec down 31-1/2 at 7.49. Sep KC lost 38-1/2 cents, closing at 8.12-1/2, and Dec down 37-3/4 at 8.15-1/4.
All three U.S. wheat futures classes closed sharply lower today as any hopes for finding support at the bottom of the recent range were dashed. The Sep Chi contract has not closed at this level since October 2021. Paris milling wheat futures also lost 13.50 euros per mt in the front month Sep, with that contract closing below the 200-day moving average for the first time since late 2020. With the market still trying to adjust to concern about relations between the U.S. and China, more grain shipments out of Ukraine, and possibly more Russian wheat exports, there just seems to be more sellers than buyers right now. The seven-day forecast also includes heavy rains in the southern Plains which may have added pressure, as that moisture will replenish soils for the upcoming winter wheat planting. In general, global wheat supplies remain tight, which one would think is supportive. But with the volatile year so far, do not rule out anything as far as price swings. In other news, the USDA reported an increase of 7.6 mb of wheat export sales for 22/23 and the USDA is estimating total exports at 825 mb.
CATTLE HIGHLIGHTS: Cattle markets saw some profit taking on Thursday, as a strong selloff in the hog markets brought spillover selling into the cattle trade, despite higher overall cash trade. Aug live cattle lost 0.475 to 141.275, and Oct traded 1.100 lower to 144.750. Feeders saw moderate to strong losses as Aug lost 1.725 to 181.525 and Sep dropped 1.850 to 185.275.
The weak price action was technical selling and some possible squaring of positions before Friday’s August Cattle on Feed report. Overall, prices still look supported but are likely headed to the bottom of the price channel for Oct, with support near 143.500. On tomorrow’s Cattle on Feed Report, expectations are to still reflect tightening supplies. Total cattle on feed as of August 1 will stay firm at 100.8% of last year, Placements in July at 98.8%, and Marketing at 96.9% for last year. As usual, the placement numbers and total cattle on feed will stay the focus. The report will be released after the market close on Friday. Cash trade saw some light business this afternoon with Southern live deals marked at $142, $2 higher than last week, and Northern dressed trades are being reported at mostly $234, $4 higher than last week’s total. More business will likely build into tomorrow as asking prices remain firm. Retail beef trade was firmer at midday, as choice carcasses gained 0.27 to 264.61 and select was 1.36 higher to 239.25. The load count was light at 58 midday loads. The choice/select spread stays well supported at 25.36. A close eye will be kept on the retail values as the market moves past the Labor Day demand window. Weekly export sales released this morning saw new sales of 18,900 MT for 2022 were up 29% from the previous week and unchanged from the prior 4-week average. China, Japan, and South Korea were the top buyers of U.S. beef last week. Feeder cattle gave back yesterday’s gains on the weakness in the livestock market and the firmer tone in the corn market pressured feeders. Cash feeder prices remain strong as producers struggle to secure cattle. The Feeder Cattle Index added 0.54 to 179.89. The overall market is still trending higher, and fundamentals stay supportive. The strong cash market tone keeps prices supportive, but the market may be entering a cautious seasonal window. The Cattle on Feed report will likely keep the market choppy into the end of the week.
LEAN HOG HIGHLIGHTS: Lean hog futures had strong selling pressure across the market as technical selling and long liquidation triggered a breakdown in hog prices. Oct closed limit down, losing 4.750 to 93.300 and Dec hogs fell 3.250 to 85.175.
The positive price action on Wednesday was quickly forgotten as prices tumbled in the trading session. Prices dropped through most moving averages, as the Oct contract is looking to drop to the 200-day moving average and the price gap at 89.750 from early July. With the limit down move, the hog market will have expanded limits of $7.000 on Friday’s session. The drop in prices has been triggered by a seasonal turn lower in the cash market and the retail values. The cash trade was disappointing, as midday direct cash trade was 9.75 lower to 119.12 and a 5-day rolling average of 123.51. The Lean Hog Cash Index was softer on the day, slipping 0.44 to 120.62. The index is still trading at a strong premium to the Oct futures, closing at 27.320 premium over the futures on the close. The retail market saw midday pork carcasses trading slightly lower, losing 0.05 to 118.52, as prices are trending lower this week. The load count was moderate/light at 121 loads. USDA released weekly export sales on Thursday morning with new net sales of 13,600 MT for 2022, which were down 37% from the previous week and 43% from the prior 4-week average. Mexico, Japan, and South Korea led the purchases of U.S. pork last week. The technical side of trade took the values out of the hog market on Thursday, and prices seemed poised to be testing lower levels.
DAIRY HIGHLIGHTS: Both Class III and Class IV have settled into ranges recently with the floors seemingly at $20/cwt for Class III and $23/cwt for Class IV futures. The $20.00 floor on Class III extends all the way from front month August to May of 2023. The $23 level only extends to September Class IV futures, but the continuous second month chart has been above $23 since mid-January. Both of these products are currently consolidating on charts and there seems to be a breakout looming with few clues as to which way it will break out.
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Author
Amanda Brill