MARKET SUMMARY 09-28-2022
The U.S. Dollar Index has rallied sharply in recent weeks, on top of a rally for the entire calendar year. Some suggest bull markets accelerate as they reach a top. This group of thinkers may be arguing the dollar is reaching a top and today’s reversal activity might agree. The dollar has gained near 7% since mid-September. The trading range for today is larger than yesterday’s, and if the index closes lower a bearish key reversal is formed on charts. At the top of a long uptrend, it might signify a top, but more importantly, suggest the recent slide in commodities may also be over. Soybean futures traded lower again today, yet once the dollar started to weaken, bean futures bounced back closing 18 cents off the daily low and finishing slightly positive, gaining 0-3/4 cents. Dec Chicago wheat closed 41-1/4 cents off the daily low gaining 31-3/4 cents on the session.
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CORN HIGHLIGHTS: Corn futures gained 3 to 4 cents today on strength in the energy complex, stronger wheat prices, and a reversal downward for the U.S. dollar. Dec added 3 cents to close at 6.70-1/2 and Mar gained 3-3/4 to end the session at 6.76-1/2. Each day more harvest results will be advertised. So far it looks like mixed, which is in line with private estimates as well as the USDA yield at 172.5 bpa, down from the previous month.
The Quarterly Grain Stocks report is due for release on Friday. The average estimate prior to Friday’s report is 1.512 billion bushels. Reports can always contain surprises and then of course so can the reaction to the report. However, given the strong cash prices this summer it is hard to imagine that there would be much of a bearish surprise on Friday’s report. While exports have slowed, the expectation that farmers passed up 7.00 corn for multiple months and have stockpiled inventory is probably not very realistic. Corn could be in commercial hands but there again we doubt it. End users have been purchasing hand to mouth and consequently, if demand hasn’t fallen off there’s little reason to expect a bearish report on Friday. Today’s technical pictures suggest corn is likely to trade between 6.50 and 7.00 in the weeks ahead. We don’t see a cause for farmers to sell corn under a board price of 6.50. At least, not unless they felt they had to. That is unlikely as many had ample time to contract bushels at higher price levels and if early results are any indicator, we don’t expect across the board better than expected yields.
SOYBEAN HIGHLIGHTS: Soybean futures closed with minor gains today of 0-3/4 cents in Nov and 5 cents in Jul. Nov closed at 14.08-3/4, 18 cents off the daily low. Jul closed at 14.25. Nov 2023 added 8 cents closing at 13.58. A sharp turnaround in the U.S. dollar, higher energy prices, and strong gains in wheat spilled over to soybeans.
As mentioned above, the topping action in the U.S. dollar led to a strong recovery in soybeans today to close in the green. This does not necessarily mean the U.S. dollar is done going up, but at least offered some relief today. Another factor that has been pressuring soybeans (and soybean oil) is the recent sharp decline in Malaysian palm oil futures. Yesterday they fell 8% to a 20-month low and are down 17% over the last 5 days. In general, there is much concern about demand and global economies (especially China). The world bank’s lowering of China’s growth number to 2.8% is the first time in 30 years it had dipped below 3.2%. On the supportive side, 11% of oil production in the Gulf of Mexico has been shut down due to the hurricane. This led to a sharp increase in crude oil today which lent support to biofuels. The big item to keep in mind this week will be Friday’s Quarterly Grain Stocks report. The average trade guess for soybean carryout is 242 mb (the USDA was at 240 mb on the most recent WASDE report.
WHEAT HIGHLIGHTS: Wheat futures closed near the highs of the day, gaining back a good amount of ground. Much of this appears to be tied to supportive news out of the Black Sea region. Dec Chi gained 31-3/4 cents, closing at 9.03-1/4 and Mar up 30-3/4 at 9.15. Dec KC gained 32-3/4 cents, closing at 9.76 and Mar up 31-1/2 at 9.72.
Wheat was sharply higher today as concerns about Black Sea exports escalate. The Nord Stream pipeline reportedly has two or three leaks, and the question remains as to who caused that. Many are saying it was deliberately sabotaged. In any case, tensions in the region are on the rise, especially since Putin said that he will put nuclear weapons on the table if necessary. It is also being reported that four states in Ukraine have voted to become part of Russia (there are many people questioning the validity of the referendums, however). With everything going on, the Ukrainians have asked for an export corridor to Europe for their grain in the event that the deal with Russia is not renewed or possibly closes early. Here in the U.S., drought in the southern plains remains on the minds of many. According to NOAA, it would take 9-15 inches of rain to end the drought in Nebraska, western Kansas, and the panhandles of Texas and Oklahoma. While wheat had a good day, economic worries are still out there and will likely continue to add pressure. The world bank lowered China’s growth number from 5% to 2.8%. This is the first time in 30 years in which that number has been below 3.2%. Overall a mix of both supportive and negative factors may keep the market range bound for now.
CATTLE HIGHLIGHTS: The cattle market still traded lower, despite a turn in the equity and U.S. Dollar Index, which should have supported the market. Steady cash helped keep the market on the defensive. Oct cattle 0.525 to 143.050 and Dec cattle were 0.625 lower to 146.275. Selling pressured feeders as well with Oct losing 0.125 to 175.000.
Both live cattle and feeders stayed on the defensive as prices worked to new near-term lows. The long liquidation in the cattle market has now taken $6.00 off the Dec contract in the past 7 days as money is moving out of the cattle market. This may also be tied to end-of-month and end-of-quarter trade as funds square positions on the balance sheet with September coming to a close. More cash traded at $143 today in the South, which is steady with last week’s averages, confirming early trade from yesterday. Northern dress trade was mostly filling at $228, steady to slightly higher than last week. Today’s slaughter totaled 127,000 head, even with last week, but 9,000 greater than a year ago. Overall slaughter pace so far this year is running up 1.5% from a year ago, adding beef supplies to the cooler. Retail boxed beef prices were mixed at midday with choice carcasses trading 0.40 higher to 248.83, but select cattle lost 1.29 to 219.92. The load count was moderate at 113 loads. The choice-select spread was widened at 28.91 with today’s midday retail trade. The wide spread shows the packer demand for higher dressing cattle. The futures may have trouble gaining as traders adopt the risk-off mentality thanks to the bearish outside influences. Disappointing to see those outside markets trend higher but failed to lift the cattle market with the strength. The selling will likely continue into the end of the week.
LEAN HOG HIGHLIGHTS: Lean hog futures may have finally seen some value buying in the front-end Oct contract, but the selling pressures stay in the market overall. Oct hogs gained 0.675 to 89.375, but Dec hogs were down 0.425 at 75.825.
Selling pressure seemed to slow, but prices still traded lower, but could the market be signaling a building to a potential bottom in the near term? There are no indicators of a bottoming action being in place, but maybe the strength of selling is starting to run out. The Cash Lean Hog Index traded 0.58 lower to 96.41, but the strong premium of the index to the futures aided in the buying strength for the front month. Oct is still trading at a 7.035 discount to the current index. Thursday will feature the Quarterly Hogs and Pigs report, which may help provide direction to the market, but there has been little in the way of fresh news to support the market. Expectations are for all hogs and pigs as of Sept 1 to be 99.2%, breeding animals at 99.6%, and animals kept for marketing at 99.1% of last year. Expansion still looks to be absent from the market, especially with high input costs in feed grains. Midday direct cash hog trade was 1.265 lower to 89.25 with a 5-day average at 90.56. Pork retail values were 0.89 higher to 99.90 on a load count of 152 loads. The market will be watching the demand in the near term with the arrival of the Chinese Golden holiday from October 1-October 7. China has been releasing pork supplies out of its reserves, to help combat high pork prices domestically.
DAIRY HIGHLIGHTS: Wednesday’s dairy trade saw a strong rebound in the Class III milk futures as contract months finished green across the board. There remains optimism in the market, despite the fact that cheese inventories are near record highs and milk production in August was up 1.60% year-over-year. That optimism is coming from the cheese market due to the fact that demand remains steady. So far in September, buyers have bid cheese blocks up 26.50c and have bid cheese barrels up a whopping 35c. There is some talk across the country that retail demand for cheese is declining, though, as high grocery store prices are causing customers to change their buying habits. For now, the cheese price holds strong over the $2.00/lb level. We are also coming up on the time of year when seasonal holiday demand picks up. In Wednesday’s trade, October Class III added 56c to $21.85, while November added 42c to $20.92. Class IV was mixed.
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Author
Brandon Doherty