MARKET SUMMARY 8-29-2022
The U.S. Dollar Index traded to new highs for the year to start the week. The U.S Dollar Index continues its strong upside trade, steadily rallying since the start of the year, driven by a tightening monetary policy, and economic concerns outside the U.S. Last week, Fed Chairman Powell doubled down on maintaining a strong monetary policy into the near future in order to fight inflation in the U.S., which sent buyers into the U.S. currency. This stance pushed the U.S. Dollar Index though the July highs and the greenbacks highest levels in twenty years. The Dollar Index has pulled back off the session highs during Monday’s trade, very similar to the price action back to July. The next few days will be key to see if this price area is a ceiling of resistance, or a launching point to push the dollar even higher, which will likely weigh on commodity markets.
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CORN HIGHLIGHTS: Corn futures pushed higher again today on follow through from last week’s strong gains. The growing reality that if the Pro Farmer and DTN crop expected yield and total production numbers are current, supplies will tighten to the point where rationing may be necessary. September corn added 15 cents to close at 6.83-3/4 and December added 18-3/4 to end the session at 6.83. A close above the 100-day moving average (first time since June 23) was supportive as well, likely creating technical buying late in the session. Wheat prices were sharply higher as well, likely adding support.
Export inspections near 27 mb were termed neutral. Attention will now focus on the September WASDE report. Will this report align with Pro Farmer and DTN? Most likely yield declines are likely from the USDA, but how much and how soon? If nationally yield is close to 168 bpa, then this could suggest carryout and stocks to usage numbers will mirror 2012. Technically, we targeted Dec 6.75, and that area was triggered today. Additionally, the 6.82 low from June 1 was considered a target point with today’s high of 6.83-3/4 December exceeded this point. The next level of resistance is just under 7.00 based off what is termed and inverted head and shoulders formation. Today was impressive no matter how you slice it. Over 40 cents gained last week, and today’s gains and strong finish suggest the bulls are in charge.
SOYBEAN HIGHLIGHTS: Soybeans closed lower today with Sep leading the way down as first notice day approaches and yields appear to be better than anticipated. Sep soybeans lost 70-1/2 cents to end the session at 15.34-3/4, and Nov lost 23-1/2 cents to 14.37-3/4.
Soybeans closed lower today, particularly in the front month, with trade relatively quiet in meal and bean oil. Wednesday is first notice day and liquidation of the Sep contracts are likely a result of that. Pro Farmer’s crop tour wrapped up last week and they have estimated average soybean yields at 51.7 bpa, higher than the USDA’s estimate last month, while their corn yield came in significantly lower than the USDA’s. Other than the bearish yield news, demand is still strong domestically and internationally with China stepping up as a main buyer for new crop. Crush margins continue to grow, especially with today’s sell-off, and USDA’s report showed that the value of crushing one bushel of soybeans in Illinois increased from 20.78 to 21.52, profitable and an incentive for processors to purchase cash beans. The USDA said that 16.1 mb of soybeans were inspected for export last week, putting this season’s total down 5% from a year ago and in line with estimates. A technical issue has delayed the USDA from releasing last week’s export sales numbers, but they announced 28.4 mb of new crop sales last week with 19.0 mb for China. Friday’s CFTC data showed non-commercials as net buyers of 5,135 contracts increasing their net long position to 104,471 contracts. Nov beans are still in a rangebound pattern with the 100-day moving average acting as resistance.
WHEAT HIGHLIGHTS: Wheat was the leader of the grain complex today breaking out of its rangebound pattern as tensions in Ukraine escalate. Sep Chi gained 35-1/4 cents, closing at 8.20 and Dec up 37-1/2 at 8.42-3/4. Sep KC gained 29-1/4 cents, closing at 9.12-1/2 and Dec up 30-1/4 at 9.12-1/2.
Wheat was lower in the premarket, but began to rally as soon as the market opened and kept its pace. A majority of today’s rally seems to have to do with tensions in Ukraine as today the IAEA headed to the Zaporizhzhia power plant to do an inspection after satellite images show holes in the roof. The plant has already lost power twice and was forced to rely on its diesel generators. If the plant lost power completely, it would trigger a nuclear disaster. Officials have said that so far, the radiation levels were normal, but the IAEA is still assessing physical damage, working conditions, and security systems. Further, Ukraine’s military began an offensive mission to take back parts of southern Ukraine, all this causing supply concerns for wheat. Only 983,000 mt of wheat have left Ukraine’s ports out of the 44 ships, compared to 2.3 mmt of corn that has left. Canada’s all wheat production has been estimated by Statistics Canada to be 34.6 mmt, short of the USDA’s 35.0 mmt estimate. In the US, 19.1 mb of wheat were inspected for export last week, signs of more activity, but still down 19% from this date a year ago. Non-commercials were buyers last week and increased their net long position by 7,962 contracts in Chicago wheat to 26,096 contracts. Dec Chi wheat futures broke out of their recent trading range and closed at the top of their Bollinger Band and two ticks above their 50-day moving average since June 8.
CATTLE HIGHLIGHTS: Cattle markets were influenced by a strongly higher grain market and August futures expiration this week to start trade softer on Monday. August live cattle, which expire on 8/31, gained .750 to 141.550, but deferred futures were .150-.350 lower. Feeders saw strong losses as Sept lost 2.275 to 179.925 and October dropped 2.325 to 181.075.
August futures expire on Wednesday and saw some short covering as positions closed before expiration. The more active October contract saw selling pressure, as the market is likely tide to cash trade. October is trading at it lowest level in a month, and chart weakness may still lead the market lower this week. The cash market was undeveloped on Monday, as numbers are getting put together. Trade was steady last week in the South and softer in the North, which was disappointing for the market. Expectations are for that tone to continue again this week. October futures are at a small premium to the cash trade, leaving it vulnerable to selling pressure. Today’s slaughter totaled 122,000 head, 3,000 below last week, but 5,000 greater than a year ago as the cattle market is working through heavier near-term supplies. Retail values stayed supportive and were firmer at midday with choice carcasses adding .76 to 263.52 and select was 2.59 higher to 241.35. The load count was light at 43 midday loads. Choice carcasses holding the $260+ level is still supportive of the beef market. The strong move in grain markets had feeder market dropping to test most recent support levels with triple-digit losses. The price weakness makes the technical picture soft for feeder cattle, but the cash trend is still supportive. The Feeder Cash Index traded 0.91 higher to 183.16. September has quickly shifted to a discount to the index, which should help support feeder futures. Price action in the cattle market was very disappointing as prices are trading at their lowest levels in a month. Some of the move lower is season based on the post Labor Day market, but animal numbers are comfortable, which has weakened overall cash tone. The cattle market still looks supported by the fundamentals and the longer-term view still looks friendly, but the short-term trend is currently working lower.
LEAN HOG HIGHLIGHTS: Lean hog futures are continuing to etch out a bottom as prices used midday retail strength to see additional short covering and triple digit gains. Oct hogs were 1.600 higher to 92.250 and Dec hogs gained 1.650 to 84.600.
October pushed back through the 200-day moving average over top of the market, which improves the technical picture. Oct futures may now be looking at the upside price gap just above the market from last week, but still leaving open the downside gap from July 5 at 89.750. December has posted three consecutive higher days, and a more positive outlook with Monday’s close. Retail values are trying to find footing and helped provide the strength today with midday values trading 6.51 higher to 108.74. Today’s midday load count was moderate at 185 loads as the value may have triggered some buying strength. The cash trade was soft again as midday direct cash trade was 4.26 lower to 106.05 and a 5-day rolling average of 120.29. The Lean Hog Cash Index was sharply lower on the day, dropping 2.73 to 113.32, maintaining its trend lower. The index is still trading at a strong premium to the Oct futures, closing at 21.070 premium over the futures on the close, as the cash market seems to be dropping to meet the futures’ value. The hog market is trying to find a bottom, as the retail market is finding some footing. We are still defensive given the tone in cash, as the hog market is still in jeopardy of dropping lower to find a low.
DAIRY HIGHLIGHTS: While Class IV action was mixed on light volume, the nearby Class III contracts came under pressure to start the week with September futures down 35 cents to $19.89. Spot cheese broke beneath $1.80/lb in today’s trade as the market hangs near its 2022 lows, and it will remain an uphill battle for that market given the current supply glut. This week is devoid of any fundamental reports, and given the current coverage on milk for the Mode Farm, the main focus will be watching for opportunities on inputs in the coming months. A rising dollar, falling equities, and ever-present question marks surrounding fertilizer for the coming year has kept volatility in those markets as 2022 has progressed.
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Author
Bryan Doherty