MARKET SUMMARY 1-18-2023
Beef cattle inventory will remain tight in 2023, as culling rate and beef cow slaughter were at the top of the charts. Preliminary beef cow slaughter in 2022 is around 4 million head, the largest kill rate since 1996. Beef cows were moved out of the system as pasture conditions and feed reserves were strongly affected by dry conditions across cattle country last year. The massive liquidation has culling rate at its highest levels since 1980, over 13% last year. These numbers will be reflected in the cattle inventory report on January 31, and trends are noticeable in the expectations for this week’s Cattle on Feed report. Recent precipitation may provide some relief to some areas in the West, but a large portion of cow-calf regions are still seeing significant drought pressure.
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CORN HIGHLIGHTS: Corn futures ended a four-day winning streak, giving up 4-0 cents in March and 2-3/4 cents in December. March ended the session at 6.81-1/4, and December closed at 6.01. Weakness in most commodities and equities spilled into the corn pit with prices reflective of a “risk-off” day. Solid gains in crude oil turned to losses by mid-session which may have also contributed to today’s losses.
All attention is on Argentina where rains have fallen but have not been enough. More is in the forecast and if the La Nina weather pattern is in fact weaking increased chances of rain on a more frequent basis is anticipated. Technical indicators are a hook reversal today and futures testing the upper Bollinger band and failing. In addition, there is an argument that old crop futures have double topped. Yet, to close only 4 cents lower in March is a pretty tame close compared to the recent gains of over 30 cents in recent sessions. Expect farmer selling to pick up, especially if rain in South America is more abundant. If rain is light, expect futures to rally to 7.00 or higher. The large and unprecedented decline of 1.6 million acres on last week’s report is something that is not easily forgotten.
SOYBEAN HIGHLIGHTS: Soybean futures closed lower today along with corn and wheat. Bean oil was the only soy product with a higher close, which came despite losses in crude oil. The losses in beans came as a result of rains in Argentina and a more promising forecast. Mar soybeans lost 15-1/4 cents to end the session at 15.24-1/2, and May lost 16 cents at 15.21-1/2.
Soybeans and bean meal fell today as Argentina received beneficial rains this past weekend and has a much more promising forecast moving forward. Both the American and European models are in agreement that Argentina will have better rain chances over the next two week as well as southern Brazil. According to the models, 60-70% of the crop can expect between 2 to 5 inches of rain, and the Argentine drought has been a large factor in boosting bean prices so continued rain could add more pressure. March soybeans posted a bearish key reversal today and have currently rallied nearly 13% or 1.77 from the harvest lows so it should not be a surprise if prices begin to slip soon. World ending stocks were raised and US export demand is about to take a hit from Brazil once their crop is harvested and being shipped to China. Domestic demand has been the constant bullish factor with high crush margins incentivizing processors, but December’s NOPA crush report was disappointing at 177.5 mb compared to trade estimates of 184 mb. Today there was word from India that their bean meal exports could more than double this year and offset some of Argentina’s losses but is bearish for US prices. The bearish key reversal in March beans today does not bode well, and the stochastics are close to showing a crossover sell signal.
WHEAT HIGHLIGHTS: Wheat futures sank to a close just above session lows. Many commodities seemed to be under heavy selling pressure today as the market responded to weak economic data. Mar Chi lost 9-1/4 cents, closing at 7.42-1/2 and Jul down 7-1/2 at 7.53-1/2. Mar KC lost 14-1/4 cents, closing at 8.41-1/2 and Jul down 11 at 8.32.
In a risk off session, corn, soybeans, and wheat all closed lower. Earlier in the day wheat was positive but could not hold onto those gains. There wasn’t much fresh news directly pertaining to the grain markets, but what seems most likely is that they followed the weakness in outside markets. Crude oil, for example, was (at one point) up over two dollars per barrel. At the time of writing, it is down close to a dollar. This sharp selloff is accompanied by the Dow being down close to 500 points. Economic reports today suggested that economic growth is slowing. In addition to all of these things, Argentina is getting about half an inch of rain in some areas. While it is still dry and more is needed, the perception is that it is still bearish for the grain markets. Here in the US, there is snow in Nebraska, with rain in Kansas, Oklahoma, and Missouri. This precipitation is also not enough to reverse the drought, but pressured wheat, nonetheless. From a global perspective, Russia is still undercutting other exporters; most of Algeria’s purchase of 570-600,000 mt of wheat is likely to be sourced from Russia.
CATTLE HIGHLIGHTS: Live cattle and feeder futures saw mixed to mostly higher trade. Some of the selling pressure slowed as the market is looking toward Friday’s Cattle on Feed report, the development of cash trade, and weakness in grain markets. Feb cattle were 0.200 lower to 156.800, but Apr cattle gained 0.125 to 160.225. March feeders were 0.425 higher to 181.725.
Live cattle prices consolidated within Tuesday’s trading range as cattle prices were looking for direction overall. The market is starting to look to a couple reports for a glimpse of cattle numbers. The monthly Cattle on Feed report is this Friday after the market close, and January bi-annual cattle inventory will be out on Jan 31. Both reports are expected to show ongoing tightening in the cattle supplies going into 2023. Technically, a possible test lower would include the 100-day moving average at 158.450, or even the 200-day moving average at 156.840 for the April contract. Even with a correction to those levels, the market is still in an uptrend supported by friendly fundamentals. Cash trade was still undeveloped to start the week, and the market is hoping for some rebound on the cash market after a steady to lower trade last week. Fed cattle exchange did trade on Wednesday with bids at 155.00-155.50, but no trades were completed as prices were below reserve level. Cash trade will likely start developing later in the week. Retail values were mixed at midday with Choice carcasses slipping 2.23 to 274.53 and Select gaining 0.49 to 255.02. The load count was light at 76 midday loads. Feeder cattle saw some recovery as grain markets fell on selling pressure. The Feeder cash index was 1.98 lower to 179.07 but is trading mostly in line with the Jan futures with expiration for January feeders on the 26th. The cattle market has been losing momentum, and trade to start the week confirmed the weaker tone. Overall, the markets are still in an uptrend, and the Cattle on Feed report could help provide direction after its release on Friday going into next week.
LEAN HOG HIGHLIGHTS: Lean hog futures saw the sellers return aggressively as prices posted triple digit losses. The futures market is still struggling to find footing against a weak cash market. Feb hogs were 1.125 lower to 77.325, and April lost 1.925 to 86.200.
Apr hogs resumed the selling pressure as prices challenged Friday’s low and posted the lowest close since October. The weak price action leaves the door open for additional technical selling, possibly targeting the October lows at $82.625. Price did trade higher but ran into resistance at the $89.00 mark before softening into the close. The hog market is extremely oversold and will likely be due for a turn, but that still looks to be elusive at this point. Fundamentals were still a concern. The cash market is weighing on the Feb futures. The lean hog index slipped 0.16 to 74.18 and is still trading at a discount to the futures. Direct cash was soft losing 0.96 to 70.26 and a 5-day average of 71.52, also holding a large discount to the Feb contract. Slaughter runs have stayed heavy with last week totaling 2.688 million head, up 13.6% over the same week last year as packers have plenty of hogs to choose from, leading to weaker cash markets. Retail values were weak, losing 0.07 at midday to 77.37 after a weak close on Tuesday afternoon. The load count was moderate at 233 midday loads. The CME pork cutout index was down 0.93 to 79.89, reflecting the tone in the retail markets as well. Despite being an oversold market, the fundamental picture is still concerning as the cash market and retail market haven’t made the turn needed to provide good support. Until the market can find some fundamental support in terms of stronger pork values or improvement in cash prices, the hog market may still be searching for its low.
DAIRY HIGHLIGHTS: It was a red day across the board for the spot dairy market as all four products finished lower. Cheese fell 0.50c to $1.8675/lb while butter lost 4.75c to $2.37/lb – falling below the 2022 low. Technically, the powder market looks the most bearish at this time having lost another 3.25c today and closing at $1.21/lb. That marks the lowest close for powder since April 2021. With butter and powder making new lows, the Class IV futures market took a hit on Wednesday. March Class IV fell 38c to $18.27 while April lost 46c to $18.22. At this time, powder, butter, and whey all remain in downtrends, while cheese holds mixed. The market can’t find its footing given the fact that the global market keeps weakening. There are concerns over what this could do to US exports moving forward. As global dairy prices get cheaper, it may be hard to keep up the strong export pace the US has had over the last couple years. In other markets, corn fell 4c, soybean meal lost $3.10, and heating oil futures added 1.36c to about $3.18/gal.
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Author
Brandon Doherty