MARKET SUMMARY 8-30-2022
The percentage of higher grading cattle going to market is at multi-year lows, one of the strengths supporting the live cattle market. The demand for higher quality beef and good domestic consumer demand has been a supporting factor under the beef cattle market the entire summer. Choice retail beef carcasses have been holding near the $260 level, a good value historically. The reason for the strength has been the overall lack of higher grading carcasses going into the system. The ratio of prime, choice and select graded beef is leaning heavy to the lower grades, causing packers to keep bids strong to find enough supplies of the higher quality beef. The low percentage of quality is a product of higher feed costs, causing producers to move cattle out of the lots sooner, not allowing them to get finished, and cattle being pulled forward, reflecting the current picture of the cattle in the feed lot. The search for quality beef is one of the factors that is providing underlying support in the cattle market overall.
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CORN HIGHLIGHTS: Corn futures softened on the overnight as row crops and energies were on the defensive due to concerns with stressed relations between China and the U.S. and China and Taiwan. While futures did close lower, they finished well off the low of the day, reflecting a general supportive bias after last week’s lower yield estimate at 128 bpa from the Pro Farmer tour. Crop ratings also declined last night on the USDA Weekly Crop Progress report, which indicated 54% of the crop rated good to excellent, down from 55% last week. The poor and very poor categories increased to 19% from 18%. In essence, one out of every five fields is in poor shape. September futures lost 4 cents to close at 6.79-3/4 and 8-1/2 cents off the daily low. December lost 5-3/4, closing at 6.77-1/4 and 6-1/4 off the daily low.
Demand verses higher prices verses an impending harvest verses a shrinking crop. The market has a lot to digest, along with a war, high U.S. dollar, and economic concerns in China. Yet, though high priced historically, December futures will likely establish a trading range between 6.00 and 7.00. Futures have a firm price undertone, yet we question if buyers will continue to buy at higher prices with what should be ample supplies in a few weeks. Expect choppy price activity with a high likelihood the low for summer/fall on the December contract was established in July at 5.61-3/4. Export sales reporting is delayed for now, as reporting complications with a new system have arisen. The relatively slow pace of exports as of late suggest high prices could be taking their toll but more likely end users are only buying what they need. So far waiting for lower prices has not worked well the last four weeks.
SOYBEAN HIGHLIGHTS: Soybean futures closed lower today, but came significantly off the lows earlier in the day. Anticipation of higher yields, rising tensions between China and Taiwan, and lower crude oil were all bearish factors. Sep soybeans lost 21-3/4 cents to end the session at 15.13, and Nov lost 5-1/4 cents to 14.32-1/2.
The entire soy complex opened significantly lower with September contracts leading the way down as first notice day is tomorrow, and positions have begun to be liquidated, but rallied from the morning lows with November only losing 5 cents on the day. The spread between Sep and Nov has narrowed by 65 cents in the last few days, and anticipation of a bigger bean yield in the US, along with expanded production in South America, has put pressure on the market. Additionally, crude oil fell by over 5 dollars per barrel as most commodities were under pressure today, as Taiwan fired live rounds at a Chinese drone, stoking already inflamed tensions and spooking the market. The USDA reported a new sale of 9.7 mb of soybeans to unknown destinations for the 22/23 marketing year. A total of 15 mb has been sold to unknown destinations, and 23 mb to China in the past week, showing strong export demand. Crush margins remain generous and have given strength to domestic demand as well. Soybean conditions remained unchanged after yesterday’s USDA report at 57% good-to-excellent. 91% of the crop is setting pods and just 4%, dropping leaves at this point. Warm and dry weather is forecast over the next 10 days. Nov soybeans remain in their rangebound pattern, but dropped to the 200-day moving average today before recovering.
WHEAT HIGHLIGHTS: Wheat futures closed sharply lower as outside markets added pressure, the US dollar remains high, and recession worries remain a global concern. Sep Chi lost 21-3/4 cents, closing at 7.98-1/4 and Dec down 22-1/2 at 8.20-1/4. Sep KC lost 3-3/4 cents, closing at 9.08-3/4 and Dec down 14-3/4 at 8.97-3/4.
Corn, soybeans, and wheat all traded lower today. Though closing lower, corn and beans did make up most of that ground by the close. Wheat, on the other hand, posted double digit losses on in all three US futures classes and Paris milling futures also lost roughly 6 to 7 Euros per metric ton. After a strong session yesterday, the lower close today does not look great, but still leaves wheat on the higher end of the sideways trading range. Likely pressured by outside markets today, wheat simply struggled to rally. Lower crude and precious metals, as well as recession concerns, still pressured the market. Additionally, the US dollar continues to trade near a 19 year high and typically shares an inverse relationship with wheat prices. Also bearish for wheat is a new estimate of Australia’s production at 35.8 mmt. Here at home, the USDA said 50% of the spring wheat crop is harvested (compared to 71% average) and the crop was rated 68% good to excellent (vs 64% GTE last week). The Ukraine war also remains on the minds of traders – with reported resumption of Russian shelling against the Zaporizhzhia nuclear plant, there is concern of an impending disaster. There is also the topic of Ukraine exports – as of July 1, they have only shipped 1 mmt of wheat and with the export deal set to expire in a little over a month, there is question as to how much more will be exported. In other news, there were reports this morning that Taiwan fired live ammunition at a Chinese drone, increasing tensions between the two countries and increasing worries about US / China relations as well.
CATTLE HIGHLIGHTS: Buyers returned to the cattle markets as grain prices pulled back off their rally, fueling some value buying and short covering in the cattle markets. August live cattle, which expire on 8/31, gained .950 to 142.500, and Oct live cattle gained .925 to 143.825. Feeders saw strong gains as Sept recovered 2.250 to 182.175 and October added 2.200 to 183.275.
August futures expire on Wednesday and saw some short covering as positions closed before expiration. The more active October contract held support early in the session. Cash trade remains quiet in the country this afternoon, without even a token bid on the table. Early asking prices in the South have been noted around $144, but they have yet to be established in the North. Significant trade volume will likely be delayed until Wednesday or later. 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. Today’s slaughter totaled 126,000 head, even with last week, and 6,000 greater than a year ago, as the cattle market is working through heavier near-term supplies. Retail values stayed supportive and were mixed at midday with choice carcasses adding .10 to 263.14 and select was 1.18 higher to 241.57. The load count was light at 80 midday loads. Choice carcasses holding the $260+ level is still supportive of the beef market as the percentage of quality cattle at slaughter is at multi-year lows, keeping the packers’ interest in paying up for quality beef to meet demand. The grain markets pulled back on Tuesday, triggering some strong short covering in the feeder cattle market, closing with triple-digit gains, recovering some of the losses from Monday. The turn in the charts improves the technical picture, and the cash trend is still supportive. The Feeder Cash Index traded .21 to 182.95. September has shifted to a small discount to the index, which should help support feeder futures. Price action was improved on Tuesday and the markets may be looking to form a near-term bottom. The action of the grain markets and when cash trade develops this week will be keys for this market. The cattle market still looks supported by the fundamentals and the longer-term view still looks friendly.
LEAN HOG HIGHLIGHTS: Lean hog futures were firmer on Tuesday, following through on gains from the start of the week, as the retail market looks to be finding some footing. Oct hogs were 1.350 higher to 93.600 and Dec hogs gained .900 to 85.500.
Trading above the 200-day moving average brought more short covering on Tuesday in the October contract, but prices hit resistance at the 100-day mark, which could signal a potential sideways trading range developing. Oct futures closed the upside price gap just above the market from last week, but still leaving open the downside gap from July 5 at 89.750, which still leave a cautious bias. December has posted a fourth consecutive higher day. Retail values are trying to find footing and helped provide the strength today with midday values trading .26 higher to 102.83. Today’s midday load count was moderate at 203 loads. The recent turn higher in the retail market has helped bring some stability to the hog futures. The cash trade was firm, as midday direct cash trade was .33 higher to 106.38 and a 5-day rolling average of 117.71. The Lean Hog Cash Index was sharply lower again on Tuesday, losing 2.06 to 111.26, maintaining its trend lower. The index is still trading at a premium to the Oct futures, closing at 17.660 premium over the futures on the close, as the cash market seems to be dropping to meet the futures’ value. Esrimated hog slaughter on Tuesday was 480,000 head, steady with last week, and 3,000 head greater than last year. The hog market has turned higher, but the length of the rally will be based on the fundamentals, which are still cautious.
DAIRY HIGHLIGHTS: The dairy trade was pressured lower on Tuesday from a softer commodity market along with the fact that the US spot butter price fell 3.25c off of recent multi-year highs. After closing at $3.0825/lb last week Friday, butter held steady on Monday but was offered lower today. This may have gave some participants a pause in bidding as most class III and IV futures closed the session lower. Nearby futures continue to hold steady and aren’t experiencing as much volatility, but the further out contracts had a sizeable down day. October 2022 class III fell 31c to $20.10 while October 2022 class IV fell 40c to $23.60. There may have been profit taking or new farmer selling after the recent run-up in class IV prices. The grain trade also had a sluggish day with December corn down 5.75c and December soybean meal down $2.60 per ton. For now, milk futures remain in consolidation.
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Author
Amanda Brill