MARKET SUMMARY 1-24-2022
The USDA released the Cattle on Feed report on Friday, and numbers were much heavier than expected, weighing on the market on Monday. Total cattle on feed as of January 1 was 1% higher than last year at 12 million head. The market was expecting a slight drop from last year. This total was the second highest January 1 inventory since the data was kept going back to 1996. The biggest surprise was the placement of cattle into lots, running 6% above last year and well above expectations. This total was the highest placement total for December in history of the data. The heavier than expected report weighed on cattle prices on Monday, and the cattle market saw additional selling pressure from a negative outside market trade on the day. The load of cattle in the lots may limit the front end and keep prices in check going into the late winter and spring months.
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CORN HIGHLIGHTS: Corn futures ended the session on a firm note, gaining 4-3/4 in March, closing the session at 6.21. December added 2-1/4 to end the day at 5.67-1/2. Export inspections were termed supportive at 44.2 mb. Sharp gains in the wheat pit spilled over into corn, as did firming basis levels. March closed at its highest level since June 10. March futures have also gained 46 cents since last week’s low price.
Another day of sharp losses in the equity markets may again be suggesting growing worry that inflation may be difficult on stock prices but supportive for commodities, as traders and investors look to move money to inflation assets. We can’t help but think the corn market is also reflecting a general expectation that soybean acres in the US will be up and unless there are ideal crop conditions throughout the second growing season for Brazil the market will continue to look at price dips for opportunities to secure inventory. Rain events in South America over the weekend included beneficial rains in parts of Argentina and again scattered rains in southern Brazil. The next technical target for March is the 6.33 high from June 10, 2021.
SOYBEAN HIGHLIGHTS: Soybean futures finished lower the second day in a row, losing 8 to 13 cents. Nearby March lost 11-1/4 to end the session at 14.03, and November gave up 8-3/4 cents to close at 12.43. Export inspections at 1.297 mmt (467.6 mb) were supportive. However, the overall pace of expectations is expected to slow in the weeks ahead and may eventually be a worry. For now, the setback from Friday and again today represents some weather improvement in South America, yet many are concerned that it might be too little too late for much of the crop that was affected.
It was a volatile day for soybean contracts with many finishing near $0.20 off the daily low price. It appeared traders were somewhat washed out through the use of sales stops by mid-session and the likelihood that traders were buying wheat and selling soybeans on spreads. Futures clawed back late in the session, and while they did close 10 to 13 cents lower, given how weak they were earlier in the session, today’s close doesn’t look all that bad. Attention will continue to focus on rainfall totals and extended forecast. We wouldn’t make the argument that there’s an extreme forecast for hot and dry, but it does suggest net drying in the southern regions of Brazil where additional rainfall is absolutely needed. Soymeal finished mixed with bull-spreading a feature, while soybean oil lost nearly 100 points on the heels of crude oil, trading nearly 2.00 lower.
WHEAT HIGHLIGHTS: Wheat futures had a banner day as the circumstances at the Ukrainian border are once again thrust into the spotlight. March Chi gained 20-1/2 cents, closing at 8.00-1/2 and July up 18 at 7.92-1/4. March KC gained 24-3/4 cents, closing at 8.18 and July up 21-1/2 at 8.20.
The weekly USDA data pegged wheat inspections at 14.7 mb. With total inspections now at 486 mb, there will need to be an increase in pace to meet the USDA’s goal. Wheat exports have struggled, but as the conflict between two of the globe’s largest wheat exporters continues to heat up, it continues to push prices higher. Recent talks between Russia and the US were unproductive, and it was reported that the US state department has now ordered non-essential embassy staff to leave Ukraine. In addition, any US citizens in that country have been urged to leave and have been told not to travel to Russia. On the Russia topic, private analyst SovEcon is estimating Russia’s 2022 wheat production at 81.3 mmt, which is up from the USDA’s 75.5 mmt in 2021. Furthermore, Russia’s wheat export tax will be slightly lower this week at $95.80 per metric ton (this is around the equivalent of $2.60 per bushel and still quite substantial). From a weather standpoint, southern Plains dryness remains a point of concern and will likely continue into February. If La Nina persists, that dryness could push out into March. For this reason, KC wheat is likely undervalued, unless there is a change in the weather pattern.
CATTLE HIGHLIGHTS: Cattle futures strongly lower trade to start the week as the market reacted to the heavier than expected Cattle on Feed report and a strong sell off in the equity markets. Feb cattle slipped 1.600 to 136.325, and Apr cattle was 2.025 lower to 140.075. In the feeder market, selling pressure was also noted with Mar feeders losing 2.050 to 161.250.
Cattle futures broke lower technically, dropping to support levels and trading to their lowest point since November. The selling started at the open as cattle futures gapped lower, triggering a round of technical selling and long liquidation. Strong selling pressure came from a drop in energy and equity markets, helping add to the losses for the day. Friday’s Cattle on Feed report was heavy, and that helped trigger the selling. Total cattle on feed as of January 1 was at 101% of last year, totaling more than 12 million head, this was the second-highest January total on record. Placements were also well above expectations at 106% versus expectations and was the highest December placement number on record. Those two numbers surprised the markets, setting up a price correction. Cash trade was quiet today, being a typical Monday with nothing developed at this point and will likely hold off into the end of the week. Beef retail values have trended higher recently and stayed firm at midday. Choice carcasses gained 0.35 to 292.76, but Select was 1.69 firmer to 284.02. Load count was light at 26 loads. The heavy placement numbers weighed on the feeder prices. Jan feeders expire on January 27 split from the index with the weakness today. The Feeder Index was 0.64 lower to 160.46. it was a difficult start to the week for the cattle markets. The heavy cattle on feed numbers could open the door for a further push lower, and with the weak technical close, have the downside momentum to help with the push lower.
LEAN HOG HIGHLIGHTS: Hogs futures finished mixed to higher despite the strong selling pressure in the outside and cattle market. The hog market stayed bull spread, supported by a strong midday move in retail values. Feb hogs added 0.125, closing at 86.325 and Apr hogs were 0.375 higher, closing at 95.325.
Strong buying support fueled by technical buying and money flow helped push hog futures to new highs again to start the week, keeping the pace seen last week. The money flow into the hog market has been impressive as the demand for U.S. pork stay strong in the face of tighter hog numbers. Pork carcasses traded sharply higher at midday, helping support the jump in futures prices. At midday today, pork carcasses were 8.89 higher to 102.18, crossing back above the $100 level. The load count was moderate to light at 210 midday loads. Slaughter numbers improved last week, and Monday’s estimated kill at 455,000 head, up from last week, but tailing last year. The cash hog market values on midday direct trade were 1.36 higher at 61.81 versus Friday’s totals. The Lean Hog Index traded higher, gaining 0.72 to 77.51, and still holding a large 8.8150 discount to the futures. The spread could limit the near-term upside in the futures market. The deferred stay on their climb after pushing to new highs again today, pushing through or challenging the $105 level and establishing another new contract high again on today’s close. The longer-term concern of a tight hog supply picture supports the longer-term market, as that trend still looks higher.
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Author
John Heinberg