MARKET SUMMARY 1-26-2022
The potential conflict in the Ukraine has helped support agriculture markets, as ports in the Ukraine are a top exporter of many different ag products. For futures markets, the largest concern is the potential impact in the corn and wheat markets. Globally, the Ukraine ranks third in total global wheat exports, as approximately 12% of the world’s supply of wheat is exported out of this region. The Ukraine is the fourth largest exporter of corn, or about 18% of global exports come through this port. Those concerns are the reason for the strong price movement in the wheat market and the sustained buying strength in corn futures. If an altercation were to escalate, importers would be concerned about losing this export hub and have to look to other sources. These concerns have sent money flows and buyers into the markets. Prices will be extremely volatile and headline-driven in the near-term as the ag markets digest the news coming out of the Ukraine.
Like what you’re reading?
Sign up for our free daily TFM Market Updates and stay in the know!
CORN HIGHLIGHTS: Corn futures closed higher with gains of 3 to 7 cents as front month March lead today’s rally closing at 6.27, its highest close since May 7. December added 3 to close at 5.72-3/4, another new contract high close. March corn has finished higher in six of the last seven sessions. Concerning weather in South America along with sharp gains in soybeans provided support. In addition, the weekly Ethanol Production report indicated a grind of 105.07 mb, above the weekly pace of 100.256 to meet the current USDA projection.
We indicated yesterday recent support for corn prices may have come from sharply higher wheat prices. However, wheat futures were on the defensive today suffering double digits losses on all three exchanges. Yet corn continued higher and finished on a firm note, near the daily high. In part soybeans gaining more than 30 cents on old crop front months March and May, yet the bigger picture perspective continues to suggest that a strong ethanol grind could mean another 50 to 100 million bushels added to the USDA’s supply and demand figures in the corn used for ethanol line item. New crop finds continued support on high input costs and expectations that soybeans currently priced above 13.30 November futures will encourage for acres for soybean production.
SOYBEAN HIGHLIGHTS: Soybean futures, reflecting additional private source downgrades to the southern Hemisphere crops, finished with sharp gains of 15 to 32-3/4 cents. March led today’s gainers, closing at 14.40. November new crop added 5-1/4 to end the session at 13.34. Both soymeal and oil rallied sharply today. Growing weather concerns in South America and technical short covering were features in today’s markets.
Early yield results from different regions in South America have been termed less than expected or disappointing. Northern regions of Brazil are experiencing good growing conditions but might have too much moisture. The La Nina pattern continues to suggest more above normal temperatures and below normal precipitation into February for southern Brazil and northern Argentina. Often when prices move strongly higher, farmer selling slows. This helps to accelerate further gains. We do believe farmers were aggressive sellers at higher prices earlier in the year, and therefore soybeans may be in the strong hands of commercials, a friendly factor. Farmers this year likely wanted storage space for corn. Soybean oil continues to find support on ideas that a smaller Brazil production could mean more demand for the U.S.
WHEAT HIGHLIGHTS: Wheat futures slipped today; it was reported that Ukraine’s defense minister said there was no imminent threat of an invasion from Russia. This may have put some pressure on futures today along with profit taking after the recent rally. March Chi lost 23 cents, closing at 7.95 and July down 17 at 7.90-3/4. March KC lost 18-3/4 cents, closing at 8.15-3/4 and July down 16 at 8.17-1/2.
Paris milling wheat futures also suffered today, closing the gaps that were left open after yesterday’s session. They were down about the equivalent of 29 cents per bushel. Minneapolis futures succumbed to selling pressure too, with March down 31 cents at 9.16-1/4. Right now, the political situation in the Black Sea region is delicate to say the least. As it changes day by day, it has the potential to push markets around but remains an overall bullish setting for wheat. An estimated 23 mmt of wheat is scheduled to be shipped from Russia and Ukraine between February and June. This is not an insignificant amount, and any disruption could bolster the European and US markets. In other global news, next week begins the Chinese New Year. China is likely to wind down any trading until after their celebration, which could have an impact on the markets. Wheat is unlikely to be directly affected by this, but it is important to note nonetheless. On the subject of China, the 2022 Winter Olympics opening ceremony is February 4, and Putin is expected to be there. If Russia does invade Ukraine, it likely would not occur until after the Olympics are concluded (historically this is similar to the 2014 Olympics and the annexation of Crimea).
SUMMARY: Today’s selloff appears to have been related (yet again) to the Russia / Ukraine border conflict. Though the headline is getting stale, it will remain an important factor for price direction until the situation is either resolved or there is a war. Some technical indicators are also giving sell signals in Chi wheat today. We will be keeping an eye on this for follow through tomorrow. Keep up to date with recommendations – a cash sale was triggered today.
CATTLE HIGHLIGHTS: Cattle futures saw some follow through buying, as prices posted triple-digit gains. A steady cash market and improved technical picture allowed for money to flow into the cattle market. Feb cattle gained 0.950 to 138.050, and April cattle added 1.800 to 141.900. March feeders were 0.950 higher to 160.800. Last trading day for Jan feeders is tomorrow, 1/27.
Cattle futures look to recover from the most recent push lower, as prices held support in the 100-day moving average under the April contract. After two consecutive tests of this moving average, the path of least resistance looked higher, as price targeted the gap on the charts from Monday’s difficult open. Cash trade was light on Wednesday and held mostly steady money with last week at $137. This was supportive given the weakness in the futures market. Daily retail beef values traded slightly lower at midday as Choice carcasses lost 0.88 to 291.50 and Select dropped 1.23 to 282.09. The load count was light at 73 loads. Estimated cattle slaughter was 118,000 head, 3,000 over last week. Fear of labor shortages due to COVID variant outbreak seem to be moving past the market. Feeder cattle saw moderate gains, led by the strength in the live cattle market. Feeder charts have broken down technically, but with strength in the grain markets, still managed moderate gains, led by the strength in live cattle values. Weekly export sales will be announced on Thursday morning and could have an impact on prices going into the end of the week.
LEAN HOG HIGHLIGHTS: Hog futures paused off their most recent uptrend and finished mixed on Wednesday. The market was supported by retail values and technical buying but is over-bought and may be getting cautious. Feb hogs gained 0.575, closing at 88.025, and April hogs were down 0.800 at 96.450.
Hog futures took a pause overall with mixed trade, as the premium to the cash market may be making the hog futures market nervous. Daily direct cash trade was firmer at 62.81, trading 1.56 higher than yesterday’s trade. The lean hog index gained 0.13 to 78.45 but is holding a large discount of 9.57 to the Feb futures and 18.000 to April, which could be a limiting factor. Pork demand stays relatively strong; midday carcass values were 3.42 higher to 95.88 on moderate to light demand of 177 loads. Weekly export sales will be released on Thursday morning and could help establish the price trend going into the end of the week. The strength in the hog markets has been tied to money flow and technical buying. Summer hog contracts are pushing well above the $100 market but consolidated at the top of the range today. From a technical perspective, hog futures are very overbought and could be due for a correction to the downside.
DAIRY HIGHLIGHTS: The dairy spot trade has seen a noticeable shift in supply and demand so far this week. Each product of butter, powder, and cheese has closed the spot session lower in each session. Butter has seen the brunt of the selling pressure as the market looks to have put in at least a short term top. Spot butter was down 8.75c on Monday, fell 14.75c yesterday, and dropped another 21c today. There were 3 loads traded today. Butter has a history of putting in a top and reversing hard to the downside – we may be seeing that play out now. Additionally, spot powder has fallen 3.75c total over the past few days as the market comes off of multi-year highs. The class IV trade has run into resistance as a result of the lower spot products. It’s important to note that these products did just go through a parabolic move higher, so a correction was expected.
Over in the class III trade, cheese price action continues to dictate day to day futures trade. With spot cheese down for the ninth day in a row, class III saw more of the same. Steady selling pressure hit the 2022 contract strip, with February milk lower for the ninth day in a row. February is now down over $3.30 from its January 13th high. The spot whey trade has been holding up well, currently sitting at an all time high on the CME spot trade of $0.82/lb. With cheese down so many days in a row, its possible we see a rebound in the market here. That could be a good opportunity to get caught up with sale or hedge recommendations.
Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of the National Futures Association. Stewart-Peterson Inc. is a publishing company. SP Risk Services LLC is an insurance agency. A customer may have relationships with all three companies. TFM Market Updates is a service of Stewart-Peterson Inc. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.
Author
John Heinberg