MARKET SUMMARY 1-19-2023
The United States may soon be passed as the world’s largest exporter of corn. Brazil has had a strong corn exporting year and is quickly closing the gap. According to the last USDA data, the gap between the U.S. and Brazil is only 2.5 MMT. Brazil exports have ramped up aggressively this past year, as agreements with China have opened the door for Brazilian corn bushels to enter China at the near-term expense of U.S. demand. Looking forward, Brazil is projected to produce a possible record large corn crop and could pass the U.S. during the calendar year as the world’s largest exporter of corn, as the demand for U.S corn has been limited by tight supplies and high prices.
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CORN HIGHLIGHTS: Corn futures softened for the second session in a row, losing 4 to 5-1/2 cents with September leading today’s contracts lower. March lost 4-0 to end the session at 6.77-1/4, while December gave up 4-3/4 to close at 5.96-1/4. Traders remain actively buying dips with expected downgrades to Argentina’s crop. However, poor economic data out of China and another decline in U.S. equities suggest traders and investors may be conservative in their investments. Buying corn after a rally has been a challenge as futures quickly experience either profit taking or willing sellers. That appears to have been the case again yesterday and today.
This week’s Cattle on Feed report is likely to show on feed figures at less than 98% of a year ago. With hog numbers also on the decline, it is a challenge to expect feed numbers to hold or increase, another dot to connect for the bears. Beyond some demand concerns, the market’s focus will be on supply potential out of southern hemisphere countries. As reported Argentina will continue to struggle due to hot dry conditions but recent rains and more in the forecast may suggest later planet corn could yet do well. Ultimately it is a challenge to see how Argentina’s crop reaches close to average. That will help provide support for prices for some time however the real focus for southern hemisphere corn will likely be the second crop Safrinha from Brazil. Soybean harvest is underway, and once these beans are off the field, generally corn planters follow quickly behind. At present there is no reason to expect anything less than an average crop, and if weather is conducive, it might be easier to pencil in above average. End users appear satisfied to remain mostly buying as needed.
SOYBEAN HIGHLIGHTS: Soybean futures closed lower again today along with beans and meal as rains continue to fall in Argentina with more forecast over the next two weeks. Brazil is beginning harvest in the North and is on track for record production. Mar soybeans lost 9-3/4 cents to end the session at 15.14-3/4, and May lost 10 cents at 15.11-1/2.
All three soy products moved lower with the biggest percentage loss in bean oil despite bullish higher crude oil and a bullish report from the DOE. They reported that supplies of ultra-low sulfur distillates fell to 105.6 million barrels last week which was down 11% from a year ago and the lowest levels in nine years. The use of bean oil as biofuel will help to extend diesel supplies and as a result many new processing plants are under construction. While prices have fallen, crush margins remain strong with the value of crushed beans exceeding the value of uncrushed by 3.26 a bushel based off March futures. Brazil’s soybean crop is starting their harvest with production estimates at 5.62 billion bushels according to the USDA but may be higher. Argentina has received rains with more on the way, but it may be too late for much of the crop. Only 3% of Argentina’s crop is rated good-to-excellent and 60% was rated poor. 4% of the crop is setting pods, and this is the portion of the crop that could fare much better thanks to the incoming rain. March beans posted a bearish key reversal yesterday and then today the stochastics showed a sell signal crossover, so the technicals may be pointing to a downward trend.
WHEAT HIGHLIGHTS: Wheat futures had another disappointing close as they continued to be pressured by outside markets and pressure from lower corn and soybeans. Mar Chi lost 8 cents, closing at 7.34-1/4 and Jul down 8 at 7.45-1/2. Mar KC lost 9-1/2 cents, closing at 8.32 and Jul down 9 at 8.23.
With the exception of the front two months in MPLS wheat, US Chi and KC futures (and Paris milling wheat futures) settled red across the board. In a similar pattern to yesterday, wheat was positive earlier in the day but sank to a lower close by the end of the session. The wheat market is being pressured by several things. First, by shower activity in the US southern plains. Second are the outside market concerns about the economy and recession. Third would be poor US exports which are being undercut by the Black Sea region. And finally, the rains in Argentina are bringing down corn and soybeans, which is spilling over into wheat. Interestingly, and for unknown reasons, Putin is said to be asking Russia to slow their export numbers. However, Ukraine continues to ship grain, with a reported backlog of 100 vessels in Turkey awaiting inspection. According to the UN, Russia is intentionally delaying these inspections.
CATTLE HIGHLIGHTS: Live cattle and feeder futures saw additional selling pressure as cash markets are trending softer this week and the market is seeing long liquidation before Friday’s Cattle on Feed report. Feb cattle were 0.850 lower to 155.950, and Apr cattle lost 1.100 to 159.125. March feeders were 1.625 lower to 180.100.
Live cattle prices broke through support levels on Thursday as the April contract challenged trendline support and the 100-day moving average at the $158.500 level. Prices have held for the moment, but further downside is possible if this level doesn’t hold. That would be a test of the 200-day moving average at $156.900. The 200-day moving average was the area tested in the last major price correction in Sept and Oct. The cattle market is seeing some profit taking before Friday’s January Cattle on Feed Report. The expectations are for a friendly report as cattle numbers will continue to tighten. Expectations for the report are: Total Cattle on Feed at 96.8% of last year, Placements at 91.5% of last year, and Marketing at 94.7% of last year. If these numbers are realized, the cattle market may be setting up for some bullish strength. The cash market is starting to build, but slowly. Cash bids were $154-155 on Thursday with little business, but some northern dress trade triggered at $249 in NE (down $2), but not enough to establish a true trend. Trade will continue to build into the end of the week, but the softer bids pressured the February contract. Retail price saw some buying strength at midday with Choice gaining 0.35 to 274.43 and Select adding 1.90 to 255.76. The load count was light at 49 loads. Feeder cattle, like live cattle saw additional long liquidation and are testing trendline support under the market. A weakening cash index pressures the Jan feeders with expiration on 1/26. The feeder index dropped 1.22 to 177.87 and is trading at a discount to the board. The cattle market lost momentum and is now under pressure from profit taking and technical selling. 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 stayed on the defensive on more technical selling as the pressure picked up steam on Thursday. The futures market is still struggling to find footing against a weak cash market. Feb hogs were 0.675 lower to 76.650, and April lost 1.800 to 84.400.
Apr hogs stayed on the selling trend and is challenging the fall lows. With the close on Thursday, April hogs are trading over $12.00 off the most recent high as the selling pressure to start the year has been aggressive. The October low is $82.625 and that seems to be an area the April contract can test. Buyers may start to find a value in the market at these levels as the hog market is strongly oversold and could be due for a turn higher. Fundamentals are still a concern. The cash market is weighing on the Feb futures. The lean hog index slipped 0.33 to 73.85 and is still trading at a discount to the futures. Direct cash was soft, losing 0.20 to 70.06 and a 5-day average of 70.99, also holding a large discount to the Feb and April contracts. Retail values were firmer on Thursday, gaining 0.27 at midday to 78.16. The load count was moderate at 206 midday loads. Load counts have improved this week as retail demand has improved at these lower price levels. The CME pork cutout index was down 0.56 to 79.33, reflecting the tone in the retail markets as well. The USDA will announce weekly export sales on Friday morning, and a friendly number could help support hog prices. 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: Shaky action in the spot market trade has kept the overall dairy complex on the defensive. An 8.50 cent drop in the block/barrel average brings it under $1.80/lb for the first time since early September, causing double-digit losses in the Class III futures market. Meanwhile, spot butter and spot powder fell 4.75 and 3.00 cents, respectively, to levels they have not traded at since 2021 while dragging Class IV futures negative. With support levels continuing to break, it is tough to know when the bleeding will subside.
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Author
Bryan Doherty