MARKET SUMMARY 09-08-2022
The weakness in the crude oil market on Wednesday triggered the “Death Cross” technical signal, which could keep selling pressure in the market in the near future. The “Death Cross” is a market chart pattern that reflects recent price weakness as a short-term moving average drops below a long-term moving average. For most technical traders, this occurs when the 50-day moving average crosses under the 200-day moving average, which happened yesterday on the continuous daily crude oil charts. Despite the dramatic name, the “Death Cross” is an indicator that a trend will likely continue as a short-term decline can become a longer-term trend. The crude oil market has been in a strong selling pattern for an extended period, and that trend will look to continue. There are many other factors that determine price moves, such as demand, supply, money flow, but for crude oil, this cross of moving average confirms the weakness in the crude oil markets.
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CORN HIGHLIGHTS: Corn futures edged lower, closing 2-1/4 cents weaker in September and 2-1/2 in December. Both contracts traded either side of steady throughout the session as the market weighed a rebound in crude oil versus the impending harvest and yesterday’s negative looking price reversal in which corn futures gave up gains of 10 or more cents and closed near 5 cents lower. Weaker wheat prices were a weight on corn futures today as was a lack of positive news. September closed at 6.74-1/2 and December at 6.68-3/4. On a positive note, December did manage to close 9-1/2 cents above today’s low.
Yesterday’s poor finish looked negative, especially with follow through selling during the mid-morning hours today. Yet the comeback late in the session would suggest prices are probably content to consolidate and wait for further news to provide direction. As harvest approaches, the market will gather a better perspective as to whether farmers will more aggressively sell out of the field at current prices or store. Our bias is they will store. Prices traded higher in the spring months for several weeks at levels that allowed farmers to make decisions. The U.S. dollar remains high and with harvests just around the corner, the perception of ample inventory available to end users could keep rally potential in check. In the days ahead more analysis of what Russian President Putin said in remarks yesterday regarding revisiting export channels could have impact on world markets and price. For the most part, new news will be slow in coming other than Monday’s WASDE report. The pre-report average estimates, according to Reuters, have the average yield expected at 172.5 bpa verses 175.4 last month. Ending stocks are estimated at 1.217 bb verses 1.388 a month ago.
SOYBEAN HIGHLIGHTS: Soybean futures closed modestly higher today after bouncing around both sides of unchanged throughout the day. Crude oil made back some of yesterday’s losses offering support, and crush margins are still generous, keeping domestic demand strong. Sep soybeans gained 3-3/4 cents to end the session at 14.70-1/2, and Nov gained 2-1/2 cents to 13.86.
While prices didn’t slip further today, thanks to an increase in crude oil, there are still bearish fundamentals to be watched that have been weighing on the markets. China’s economy and Covid lockdowns are affecting their crude oil demand and today, it was reported that their crude imports were down 9.4% in August from a year ago, which contributed to yesterday’s sell-off in Oct crude that brought it to the lowest levels in six months. Chinese demand for soybeans, however, does not seem to be slowing, and Nov beans on the Dalian exchange rose 0.3% today at the equivalent of $19.88, near the highest prices in over two months. Argentinian farmers sold 78 mb of soybeans between Monday and Tuesday following the implementation of the soy dollar incentive, and more selling is likely to continue throughout the rest of the month. Domestically, soybean demand is good with incentivizing crush margins. Based off the Jan futures, margins have slipped slightly over the past two weeks, but the crush is still at an attractive 2.88 premium above the cost of soybeans. Oct soybean meal fell by 5.9 today to 409.1, and Oct bean oil rose 1.36 to 65.04. The major thing to watch coming up is Monday’s WASDE report, where the average trade estimate for soybean yields is 51.5 bpa, compared to the USDA’s 51.9 bpa in August. There are also expectations that FSA’s prevent plant data could show a decline in corn planted acres and an increase in soybean planted acres. Nov beans are at the bottom of their trading range and closed again below their 50-day moving average with a gap lower on the chart at 13.49.
WHEAT HIGHLIGHTS: Wheat futures had a lower close today in both US contracts and Paris milling futures. Without confirmation that Putin is going to withdraw from the export deal (and no other news to speak of) the market simply lacked any reason to go higher. Dec Chi lost 15-1/4 cents, closing at 8.29 and Mar down 13-3/4 at 8.43-3/4. Dec KC lost 8-1/2 cents, closing at 8.93 and Mar down 9-1/4 at 8.94-1/4.
Today, the wheat market gave up a good portion of the ground it picked up yesterday (on comments by Russian President Putin that he was taking another look at the export corridor deal). The war in Ukraine rages on, but is a situation of constant change. Several news outlets are reporting that Ukraine was able to recapture over 20 towns in eastern areas. However, there is still major concern about the Zaporizhzhia nuclear power plant and the potential for a disaster there. Here in the US, there is talk about the La Nina weather pattern continuing through January. This could reduce rains across the US southern Plains for planting. Globally, the market may be focusing on a drop in demand for wheat and the fact that Russia has a steep discount of wheat prices vs US. Overall, wheat is once again stuck inside the sideways trading range, but with the next USDA report due for release on Monday, September 12, traders may get more information to go off of next week.
CATTLE HIGHLIGHTS: Choppy trade in the cattle markets as live cattle finished mixed and feeders saw mild buying strength. A softer cash tone this week limited the live cattle market. Oct live cattle gained .125 to 144.375, but Dec live cattle slipped 0..425 to 149.650. Feeder cattle saw light gains as September feeders were .300 higher to 182.325.
After testing support levels early, the live cattle market tried to find some footing, but live cattle prices lacked overall direction. Cash trade saw light to moderate trade developing in most areas at midday, with northern dressed deals at $226 up to $227, which is mostly $2.50 lower than last week’s totals. In Southern trade, live business was at $141, about steady with last week’s price levels. Retail values were lower on Thursday, which helped limit gains. At midday, choice carcasses dropped 2.29 to 259.05 and select was 0.72 lower to 236.79. The load count was light at 96 midday loads. Estimated daily cattle slaughter of today was 127,000 head, up 2,000 from last week and 6,000 greater than last year. Weekly export sales are still an unknown this week, as the USDA will begin reporting that data again on September 15. The lack of information on the export front is keeping the market guessing on the overseas demand, which has been very strong in 2022. Feeder cattle saw price recovery after Wednesday’s strong selling pressure. A weaker tone in the grain market aided the support in the feeder market on Thursday. The Feeder Cash Index traded 1.17 higher to 180.31, helping support the feeder market. Sept feeders were trading at a $2.00premium to the index and that could keep prices limited to the upside or tied to the index as September expiration is around the corner. Cattle market tried to find some footing on Thursday going into the end of the week. Friday’s trade may be key for establishing a trend for next week. The cattle market may be looking to the USDA WASDE report on Monday and the next corn crop production numbers and the volatility that could bring into cattle prices.
LEAN HOG HIGHLIGHTS: Lean hog futures finished mixed to mostly lower as deferred contract saw moderate losses versus strength in October futures. The ongoing fundamental weakness pressures the entire complex. Oct hogs gained 1.050 to 92.125 but Dec was 0.925 lower to 82.675.
October hogs posted a strong rally off session lows, as prices closed back above the key 200-day moving average. This may be tied to the premium of the cash market over the Oct futures or the rolling of short October positions into deferred contracts with the bear spreading in the market today. For December, there is still not a sign that a near-term low is in place, and the market will need additional buying strength and may need to have improved fundamental pictures for that low to get established. The cash trade is still trending lower, and midday direct cash trade was softer again on Thursday. Morning direct trade was 3.29 lower to 94.18 and a 5-day rolling average of 95.93. The Lean Hog Cash Index continued to slide reflecting the recent cash weakness, losing 1.78 to 101.48. Oct futures are still trading at a 9.355 discount to the index and could limit the downside pressure in the futures. Retail values turned were firmer at midday on Thursday, l.97 to 104.12 as prices have trended higher this week. Today’s midday load count was moderate at 169 loads. Deferred contracts may have been pressured by a report that the USDA attaché to China reported that they expect 2023 Chinese pork imports will decline to 1.85 MMT and the hog market is still counting on a strong export demand. The estimated hog slaughter for today was 478,000 head, down 2,000 from last week and 3,000 from last year. The hog market is still in the process of trying to forge a bottom. The market is volatile and has been open to big swings in price. The fundamentals will need to be consistently firm for the market to feel more optimism.
DAIRY HIGHLIGHTS: The October Class III contract closed 25 cents higher at $20.59, its fourth highest close in a row and more than $1.30 off last week’s low. Overall, its tough to get too excited on the next leg for futures until either $19.00 or $21.00 is solidly breached for the second month futures. The block/barrel average was down slightly after yesterday’s jump, hanging just beneath $1.90/lb. That average has only closed above that mark four times since falling beneath it in late July. On the heels of yesterday’s push to an all-time high in spot butter and positive close in powder today, Class IV futures managed small to moderate gains today as well.
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Author
Bryan Doherty