MARKET SUMMARY 09-12-2022
The USDA lower corn crop projections close to analyst estimates, reflecting a tight corn supply for the 2022-23 marketing year. The USDA lowered corn yield by 2.9 bushels/acre to 172.5 and also reduced harvested acres by 1 million acres, making a sharp cut in the projected corn crop for the harvest this fall. Despite strong adjustments on the demand side of the balance sheet in feed usage and exports, U.S. corn carryout for 2022-23 was lowered to 1.219 bushels/acre. This total is down 300 million bushels from the current 2021-22 carryout projection. The corn market has been anticipating this move, and has priced in a lot of the adjustments, but the report and the strong move higher in the soybean market has December and March corn challenging the $7.00 going into harvest. Regardless, the tight ending stock supply picture keeps the pressure on world producers to have strong crops in the year ahead to help meet the global demand.
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CORN HIGHLIGHTS: Corn futures ended the session on a firm note gaining 9 to 13-3/4 cents, with September leading the way higher closing at 7.12-3/4, its highest finish since June 22. December added 11 cents to close at 6.96. Prices rallied on spill-over strength in soybeans and firmer energy prices. Today’s USDA report was, in a nutshell, neutral yet confirmed tighter carryout for next year. Today’s report also confirmed a trend of lower yield and evidence world projected supplies remain tight.
Today’s yield number from the USDA was 172.5 bushels per acre. This was in line with the pre report estimates of 172.4. Last month was 175.4 bpa. Total production is 13.944 billion bushels, and this compares to the Aug report of 14.359. Projected carryout is now 1.525 billion, which was in line with the pre report estimate of 1.537. For next year (2022/2023 season) projected carry out is 1.219 billion, lower than last month at 1.388 billion and in line with the preview port estimate of 1.180 billion. World carryout for the 2021- 22 season is 312.1 million metric tons, the same as the pre report average estimate. For 2022- 23 world projected carry out is forecasted at 304.5 million metric tons, above the average estimate of 301.8, but lower than last month’s 306.7.
SOYBEAN HIGHLIGHTS: Soybean futures closed sharply higher today after the USDA revealed a bullish surprise in their WASDE report. Oct bean meal made new contract highs and bean oil was higher as well. Sep soybeans gained 60-1/2 cents to end the session at 15.49-3/4, and Nov gained 76 cents to 14.88-1/4.
The USDA shocked markets today after cutting soybean yields to just 50.5 bpa, down from their estimate last month of 51.9 bpa, and far below the average trade guess of 51.4 bpa. Soybean planted acreage was cut by half a million acres to 87.5 million from last month’s estimates and leaves current production estimates at 4.38 bb for 2022, 153 mb less than last month’s forecast. The USDA also sharply lowered ending stocks for 2022-23 by 45 mb down to just 200 mb, the lowest it has been in the past seven years and leaving supplies dangerously tight, especially if South America has any problems. For demand, the USDA lowered their crush forecast by 20 mb, cut exports by 70 mb, and trimmed residual use by 3 mb, lowering overall demand to 4.433 mb. For old crop, the USDA pegged supplies at 240 mb due to a lower export forecast. Earlier today, the USDA said that 12.2 mb of soybeans were inspected for export last week, putting total inspections for 22/23 up 70% from last year. On Thursday the USDA will finally report export sales that have not been reported in weeks. Crush margins are narrowing with a report today showing one bushel of soybeans in Illinois producing 19.96 worth of meal and oil, down 54 cents from last week. Friday’s CFTC data showed non-commercials selling 2,172 contracts reducing their net long position to 99,629 contracts, the smallest position so far this year. Nov beans closed above the top of their Bollinger Band, and there is a gap higher on the chart at 15.36.
WHEAT HIGHLIGHTS: Wheat futures traded lower with the exception being deferred KC contracts. Without much help from today’s report, the wheat market simply had no reason to go higher. Dec Chi lost 10-3/4 cents, closing at 8.58-3/4 and Mar down 10-3/4 at 8.73-1/4. Dec KC lost 2-1/4 cents, closing at 9.27 and Mar down 2 at 9.27-3/4.
All eyes were on today’s USDA report, which turned out to be pretty neutral for the wheat market. US 22/23 carryout was unchanged at 610 mb and world ending stocks for 22/23 raised slightly to 268.6 mmt from 267.3 mmt in August. On September 30, the USDA will update its wheat production estimates in the Small Grains Summary. The USDA did raise Russian production by 3 mmt to 91 mmt (which would be a new record). Ukraine production was also increased by 1 mmt to 20.5 mmt. Speaking of Ukraine, increased combat in eastern areas may delay or ultimately reduce winter wheat plantings. While they continue to ship grain, there is much speculation that Putin is unlikely to extend the export corridor deal. He is meeting with Erdogan this week in Turkey to discuss the terms of the deal. Here in the US, HRW areas remain affected by drought and an elevated Dollar may reduce bullish potential for wheat. The expected increase in interest rates by the Fed this September is not expected to help. Longer term, and from a global perspective, food supply concerns may keep commodity prices elevated. In other world news, frost and freezing conditions over the weekend in Argentina may have taken a toll on their wheat crop.
CATTLE HIGHLIGHTS: Live cattle futures were firmer supported by firm retail value and potential improving cash markets, but feeder dropped as corn prices rallied after the USDA report on Monday. Oct cattle gained .075 to 145.750, and Dec cattle added .375 to 151.350. October feeders dropped 2.450 to 183.125.
The price action on Mon day was more tied to the reaction to the USDA numbers. The projections for tighter corn supply supported the corn prices and that had effects into the cattle markets. December live cattle seems poised to challenge the most recent highs as the market is anticipating tighter overall cattle supplies going forward. October is tied to the cash market but is holding a small premium to the current cash market. Cash trade was undeveloped to start the week, typical for a Monday. Expectations are for cash prices to be steady to higher this week and packers are looking for higher quality grades of beef. The is reflected in the retail prices. That demand for higher quality beef is still a market factor supporting prices as packers are still staying aggressive to meet that demand. This is still measured by a choice/select spread trading over $25.00. Retail values were mixed on Monday with good strength in the choice beef market. At midday, choice carcasses gained 2.12 to 259.38 and select was 0.74 lower to 233.99. The load count was light at 49 midday loads. Corn prices challenging $7.00 a bushel brought the sellers out in the feeder cattle market. Despite a strong cash tone, sellers jumped on the inverse relationship between grain prices and feeder cattle. The Feeder Cash Index slipped .33 to 180.91. Sept feeders were trading at a small premium to the index, to the index and that could keep prices limited to the upside or tied to the index as September expiration is around the corner. The live cattle market looks supported, but the direction of cash will be key. The anticipation of tight supplies keeps the buyers active in the deferred futures as spring and summer months are challenging contract highs. Feeders will stay tied to grains in the short-term.
LEAN HOG HIGHLIGHTS: Lean hog futures traded mixed to mostly lower as the cash market still struggled, keeping the pressure on the front-end of the market. Oct hogs lost 1.300 to 91.875 and Dec hogs slipped .350 to 82.775.
October hogs consolidated within Friday trading range as prices are looking for direction. October hogs are looking to turn the corner higher with the reversal on the daily chats on Thursday last week. The hog market still needs to find some stability in the cash market before that turn higher can truly occur. Until that occurs, there is still no sign that a near-term low is in place. The market will need additional buying strength and may need to have improved fundamentals for that low to get established. The cash trade is still trending lower, and midday direct cash trade was softer again on Monday. Morning direct trade was 2.00 lower to 88.59 and a 5-day rolling average of 94.16. The Lean Hog Cash Index continued to slide, reflecting the recent cash weakness, losing .69 to 99.57.. Oct futures are still trading at a 7.695 discount to the index and could limit the downside pressure in the futures, but compared to direct trade, October is now at a premium, and the weak cash tone is still a concern to the market. Retail values have been the bright spot, firmer at midday gaining 3.83 to 106.70 as prices have trended higher. Today’s midday load count was moderate at 174 loads. The estimated hog slaughter for today was 483,000 head, not comparable to last week with the labor day holiday, but up 13,000 from last year. The front-end supplies have stayed heavy, which has made it difficult for the cash market to find footing. The hog market is still in the process of trying to forge a bottom. A potential turn higher is in place technically, but the fundamentals will need to be consistently firm for the market to feel more optimism. Retail values have seemed to stabilize, but the trend in the cash market keeps our near-term bias defensive.
DAIRY HIGHLIGHTS: The second month Class III chart hit its highest point in two months today, as the October contract closed nearly limit up at $21.67. This does open up the topside with the technical close over $21.50 and with spot cheese finding solid buying entering a seasonally strong time period, there are reasons to be optimistic on milk in the short-term. Class IV action was positive as well as many of the quarterly averages continue to creep back near their highs from earlier this year. The close for October Class III futures today prompted the Model Farm to make some recommendations on Q4 milk, so please refer to the weekly video and the strategy section of this email for more information.
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