MARKET SUMMARY 1-25-2022
Wheat prices have sky-rocketed in recent sessions with support coming from two primary areas. Deteriorating relations this week between Russia and Ukraine is headline news. The Black Sea region is vital to wheat reaching destinations around the globe. Bitter cold temperatures are settling in across the Midwest, potentially affecting wheat. Conditions remain dry as well. A continued dry pattern in Canada is starting to creep more on the radar as potential challenges increase to farmers in that part of the world.
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CORN HIGHLIGHTS: Corn futures ended the session mixed with March losing 1 cent, closing at 6.20, while December gained 2-1/4 to finish at 5.69-3.4 after posting a high of 5.72. March’s close had to be a disappointment to bulls. At one point, March was trading as much as 10 cents higher. Traders may have taken gains off the table once prices peaked. March futures had a low of 5.85 last week and high this week of 6.31. Farmer selling likely picked up when prices rallied early in the day.
Today’s close, while disappointing, wasn’t a big surprise. Overbought technical signals and farmer selling after a strong recovery at the end of last week and beginning of this week left the market vulnerable to a drop. New crop continues to edge upward, competing for acres with soybeans. Insurance guarantees will be formulated in February. It is likely December futures will find continued support. While it is early to talk about weather outlooks for summer, most of the central and western regions of the Midwest remain dry, and there seems to be little significant moisture in the longer-range forecast. The weather patterns are similar to 2012 and 1988, both La Nina pattern years. Excess dryness continued from winter into spring.
SOYBEAN HIGHLIGHTS: Soybean futures gained 4 to 11 cents on continued weather concerns in the southern Hemisphere as well as spillover strength from another session of sharply higher wheat prices. March gained 4-1/4 cents to end the session at 14.07-1/4, and November added 11 to close at 13.18-1/2. Bear spreading was noted late in the session as an acreage battle between corn and soybeans may be picking up steam.
It looks like the soybean market is consolidating on price charts. The overall trend remains higher with 14.46 established as a new high late last week for the current uptrend. The contract high holds from June at 14.45. Technicians will argue a pennant formation has formed and that March beans are destined to move through 14.50. Yet, we are at a time of the year where technical indicators may not matter as much as the next forecast. A private firm in Brazil is arguing the crop could be less than 130 million metric tons. If that is the case, we expect March soybeans to rally through this overhead resistance and possibly to 15.00. November soybeans will fight for acres. If supplies are short in South America, there will still be exportable soybeans, buy just less. That means it is likely importing countries will turn to the U.S. earlier than typical implying increased exports. This could tighten carryout back under 300 mb.
WHEAT HIGHLIGHTS: Wheat futures posted double-digit gains again today. The headlines haven’t changed much, but uncertainty around the Russia conflict is supportive to prices. March Chi gained 17-1/2 cents, closing at 8.18 and July up 15-1/2 at 8.07-3/4. March KC gained 16-1/2 cents, closing at 8.34-1/2 and July up 13-1/2 at 8.33-1/2.
Along with US futures, Paris milling wheat gapped higher today, and the March contract closed at a level not seen since the end of December. Europe is perhaps at more risk with the Ukrainian border conflict, helping to rally those prices. Not much has changed on that front, but the US Department of Defense reportedly stated that 8,500 US troops are awaiting orders to deploy if Russia does invade. There were reports that Russia began conducting military drills, which added to these fears today. This is a delicate situation, but it is the uncertainty of what will happen that is impacting the market. Conflict could end tomorrow, next month, or next year; right now, there are many unknowns. What is known for certain is that the USDA lowered winter wheat crop conditions in several Plains states including Kansas, Oklahoma, Texas, and Nebraska. Though the southern Plains remain dry it is still early – January weather does not have the same impact as weather in early spring.
CATTLE HIGHLIGHTS: Cattle futures ended the session mixed with front month February closing 77.5 higher at 137.10 and June down 15 at 135.42. Feeder cattle were mixed with January gaining 7.5 but losing 1.40 in March to end the session at 159.85. Weather and cold storage was considered supportive, yet the hangover from lower demand due to covid is keeping near-term prices rangebound to weaker.
After solid gains of 1.00 to 2.50, cutout values were slightly softer this morning with choice down 16 cents at 293.34 and select down 14 cents at 284.65. Expectations are that retailers restocked after the holiday season, which may suggest the market is cooling. Futures likely reflected this sentiment as well with recent weakness. Yet, many commodities are pushing into new highs and ideas that covid could be lessening gives us reasonable expectations cattle prices are finding support. Strength in the February contract may have exhibited that sentiment today by closing higher. Hog futures have been on a steep uptrend. We would be surprised if traders began to sell hogs and buy cattle. Feeders remain generally defensive on a lack of strength (recently) due to weaker back month live cattle futures as well as higher corn prices. March corn closed 1 cent lower after trading higher 10 cents higher on the session. Perhaps a near-term top is close.
LEAN HOG HIGHLIGHTS: Hog futures had a strong finish as they continue their uptrend. Technical buying and strong demand are helping futures. Feb hogs gained 1.125, closing at 87.450 and April hogs were up 1.925 at 97.250.
Demand for pork remains strong. Strong cash to start the week may indicate that packers need hogs to fill this demand. Though this morning’s cash trade showed some weakness, futures rallied by the close regardless. Slaughter pace may also be increasing, and hogs are needed to fill this demand. African swine fever is still a big concern in several other countries, which may necessitate higher US exports. In the long term, tight supply will help support the market. The strength seen in hogs is also triggering technical buying by traders, but there are some bearish items to note. Firstly, China has been purchasing more beef than pork. And from a technical perspective, hog futures are very overbought and could be due for a correction to the downside.
DAIRY HIGHLIGHTS: Class III milk prices kept their downward slide going today, with the February contract closing 54 cents lower at $19.91, the first time the second month contract has closed beneath $20.00 since December 28th. The March contract was nearly limit down to move to $20.81. Yesterday’s reports were somewhat mixed overall, with milk production down slightly year-over-year for the month of December, while cheese stocks in cold storage were a few percentage points higher. The block/barrel dropped 5.25 cents today to $1.73250/lb, down 7.75 cents on the week so far and down almost 25 cents from the 14-month high posted on 1/12. Even though spot whey continues to rally, Class III and spot cheese are in lock step and have drifted back into familiar territory from late 2021.
Class IV milk futures traded lower today, with the February contract dropping 23 cents to move back beneath $24.00. While the consistent, month-after-month rally in Class IV milk means some setbacks will be part of normal and healthy market movement, it is tough not to have some concern regarding butter prices. Spot butter hit its third highest point ever on Friday with a close at $2.9350/lb, trailing just the 2014 and 2015 rally peaks which hit an apex just above $3.00/lb. Spot prices are down 23.50 cents in two days so far this week which is no cause for panic when looking at how much that market has rallied in recent months, but historically butter prices have topped in a straight-up-and-straight-down pattern. The next few days will be important to gauge market direction.
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Author
Bryan Doherty