MARKET SUMMARY 09-16-2022
While new crop soybean sales are strong for the new marketing year, corn sales have been very lackluster. As of September 8, corn sales are trending well behind the previous two years at only 12.3 MMT. The total only represents 21% of the USDA target for corn exports for the marketing year, compared to sales at 40% of the target last year. The biggest difference has been the lack of China purchasing U.S. corn. The demand enthusiasm has been tempered by the high prices for corn, strong U.S. dollar, and competition from other exporting countries, like Brazil, limiting our sales. The slower export demand pace may limit prices, despite the forecasted tight supply picture with this year’s harvest. The USDA recently cut 100 million bushel off their export total on Monday’s Supply and Demand report, and will likely make further reduction in the future if the sales pace doesn’t improve.
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CORN HIGHLIGHTS: Corn futures ended the day and week uneventful after some fireworks on Monday when prices shot higher following big gains in soybeans, which saw a down grade in yield at 50.5 bpa verses the pre-report figures of 51.5. As the week wore on, however, a lack of positive news and likely some hedge pressure and longs exiting weighed on corn prices. December corn ended the session down 0-1/4 cent at 6.77-1/4. The high for December corn this week was 6.99-1/2. For the week, December lost 7-3/4 cents. With prices high and harvest around the corner it is no surprise that futures drifted downward from gains early in the week.
Wheat prices made a strong and encouraging turn around today helping to pull corn up for double digit losses. We make the argument that prices are at a pivot point. Bullish traders will argue a textbook uptrend with a series of higher high and higher low prices. While true, bears will argue end users (especially importers) are not aggressively buying and using what they need until more supply in the weeks ahead is available. Both are right, yet it is likely that bears will win the short-term view, but bulls will win the long-term perspective. Tight world inventories suggest no room for error. Macro-economic conditions and high commodity prices may keep prices from appreciating in the near term, however supplies are so tight that any disruption to availability of corn and prices will be in an upswing and rationing mode.
SOYBEAN HIGHLIGHTS: Soybean futures, after strong gains Monday proceeding the USDA WASDE report, settled down the rest of the week, ending the session quietly with November losing 3 cents, closing at 14.48-1/2. For the week, November added 37-3/4 cents or 2.7%. Monday saw November add 76 cents when yield for this year’s production was lower than expected at 50.5 bpa, down 1 bushel from the previous month and below expectations. Weekly export sales, while strong, were not enough to keep prices from sliding, closing lower four sessions in a row. Expectations for harvest to kick in soon and China buying Argentine soybeans were negative factors.
Unless South America harvests record crops (several months away), soybean prices have limited downside. Nonetheless, if behind on sales, get current. Prices are historically high and after a quick move higher on Monday have not looked all that impressive, suggesting the trade may concern itself that prices are running out of positive news. China’s economic woes and seemingly never ending covid lock downs may also be weighing on the minds of traders. Increased palm oil projections help to alleviate tight world vegetable supplies keeping bean oil futures trading sideways. Soymeal finds support from small crush figures, also reflective of tight inventory. Bottomline, projected carryout of 200 mb in the year ahead is paper thin. There is no room to error in either the northern or southern hemisphere in the year ahead. If demand weakens that may be different yet it is hard to pencil in where demand has room to decline.
WHEAT HIGHLIGHTS: Wheat futures managed a positive close despite early weakness. This seemed to stem from renewed concerns about the Ukraine war and the export corridor deal. Dec Chi gained 14-3/4 cents, closing at 8.59-3/4 and Mar up 14-1/4 at 8.74-3/4. Dec KC gained 9 cents, closing at 9.35-1/4 and Mar up 9 at 9.34-1/4.
Wheat took a turn for the better today after comments by Russian President Putin that he intended to continue his efforts in Ukraine. To double down, some news outlets reported that he threatened to walk away from the Ukraine grain export deal. Russia and Ukraine prices are currently cheaper than the US, which is adding resistance to the futures market. Helping wheat turn positive today was the about face in the US dollar; after again breaching the 110 level, by the close it had gone negative. The dollar remains at a historically high level, but as it fluctuates, so does the wheat market. As far as weather is concerned, there are chances for rain in the US southern Plains next week, but the recent NOAA 90 day outlook forecasted warm and dry conditions for most of the Midwest; this could cause problems for planting next year’s HRW crop. Weather in South America is also playing its part, with Argentina still suffering from continued dry weather which is reducing their wheat crop ratings. According to the Rosario Exchange, their main farm areas are seeing the driest period in 30 years.
CATTLE HIGHLIGHTS: Live cattle futures traded slightly lower on some positions squaring and pressure from the equity markets and the fear of recession. Feeder cattle were mixed during the session as prices consolidated. Oct cattle slipped .125 to 145.500 and Dec cattle traded .350 to 150.975. October feeders traded .325 higher to 181.250. For the week, October live cattle were .175 lower and December live cattle were unchanged as prices consolidated. October Feeder cattle fell 4.325 on the week.
October and December live cattle futures were choppy during a relatively quiet session on Friday as prices consolidated. Weakness in equity markets limited gains on Friday, despite a firmer cash tone for the week. Prices are poised to push through the topside, but the market will need positive news to trigger the potential strength. The August price highs look to be the next possible upside target at 146.250 for October and 151.775 for December. The cash market was quiet overall on Friday with the exception of some light clean-up trade. For the week, southern trade was $142-143, up $1 over last week’s totals, and northern dress trade was also firmer with $226-227 catching most business. The firm cash tone may be starting to reflect the potential tighter cattle numbers and the packers need to find higher quality beef. Today’s estimated slaughter totaled 118,000 head, 9,000 head below last week, but 2,000 above a year ago. Saturday’s kill is estimated at 45,000 head, which will bring the estimated weekly total to 667,000 head, 63,000 greater than the prior week, and 17,000 more than 2021. Retail values have been softer this week and saw mixed trade at midday on Friday, with choice carcass trading .68 higher to 253.02 but select dropped 2.47 to 227.48. The load count was light at 92 midday loads. The feeder market was mixed as prices consolidated at this week’s lows. The Feeder Cash Index has been trending lower recently, losing 1.69 to 176.82 and traded 4.42 on the week. Sept feeders were trading at a small premium to the index and may keep Sept tied to the index value, expiration coming for Sept options and futures on 9/29. Overall, the high prices in the grain market have put pressure on the feeder cattle market this week. The stronger cash market tone was very friendly and supportive of prices this week, and the market has been anticipating a stronger cash tone as cattle supplies look to tighten, and maybe the start of that trend is beginning. The concerns regarding outside market weakness may limit cattle market gains.
LEAN HOG HIGHLIGHTS: Lean hog futures saw good buying support to end the week as more short covering and money flow pushed the market higher with the prospects of the cash market looking to stabilize.. Oct hogs gained .850 to 96.900 and Dec hogs gained .325 to 87.975. For the week, October hogs traded 3.725 higher while December added 4.850
Hog futures are putting in a good turn higher this week as short covering and technical buying supported the market. Front end hog futures pushed through resistance this week to post their highest close in nearly a month as the money flowed into the market. The cash trade has been trending lower, but after 5 weeks of pressure, the Lean Hog Index looks to be building a turn higher. The Lean Hog Cash Index traded slightly higher, adding .19 to 97.77. For the week, the index was still 2.49 softer, but the index trend turned firmer going into the end of the week. Oct futures is trading at a .870 discount to the index and if the index were to lift higher, it could lift the futures higher as well. Midday direct trade was still softer, losing 4.25 to 90.74 with a 5-day average of 94.15. Retail values were higher at midday on Friday, gaining 1.92 to 107.77. Today’s midday load count was light at 145 loads. The estimated hog slaughter for today was 473,000 head, down 7,000 from last week, and 2,000 over last year. The front-end supplies have stayed heavy, which has made it difficult for the cash market to find footing. The hog market looks to have made the turn higher starting last week, and the strong price action overall this week has helped build that potential low is in place. Hog supplies will be looking to tighten, and prices are looking supported to test higher level, but with the cash market still a concern, this could be a fleeting rally.
DAIRY HIGHLIGHTS: October Class III futures, the block/barrel average, and spot whey all closed higher on the week. The action was volatile with October futures putting in its weekly high of $22.05 on Tuesday before breaking hard, then bouncing off a Friday morning low of $20.78. Class IV futures finished the week two-sided but avoided any major moves, while spot butter came under selling after closing at $3.24/lb on Tuesday, a new all-time high. Many commodities felt the weight of a worse-than-expected CPI report on Tuesday which caused a dollar index rally, and some concern is warranted given the bearish cheese production/supply and the fact that spot butter’s move above $3.00/lb could lead to some demand destruction. Next week, August Milk Production is released Monday, a GDT Auction takes place Tuesday, and August Cold Storage will come out Thursday.
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Author
John Heinberg