MARKET SUMMARY 10-5-2022
It is widely expected that OPEC will reduce production by two million barrels a day. More importantly, non-OPEC countries may also decide to lower exports. With the Biden administration committed to release barrels from the Strategic Reserve, it is concerning enough to the marketplace that futures are moving higher in recent sessions. A wide view expectation is that crude oil prices could retrace back to the $100 area. Some private estimates are higher. While it is true the driving season is likely to slow now that summer is over, the need for energy products in agriculture will be on the rise, not to mention home heating. One must wonder if a relatively flat line US rig count according Baker Hughes, (765 at the end of September verses 767 at the end of July) and now reduced OPEC production is going to send oil prices well above the $100 mark despite near-term strategic reserve supply availability, at least through November. One also has to wonder what happens after November.
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CORN HIGHLIGHTS: Corn futures ended without much fanfare, closing with small gains. December added 1-0 cents to close at 6.84. December 2023 added 2-1/4 cents to end the session at 6.21-1/2. Today is the fourth day in a row December futures price has closed firmer, yet each successive close is less than the previous days. Perhaps a sign that the market is running out of gas? Maybe. What it likely suggests is more sideway price pattern in the near term. Firmer energy and mixed yield results are proving support as is slow farmer selling; however, the dollar rebounded today by near 1% as there is less confidence today that future interest rate hikes will slow.
While we believe farmer selling is light, it is still likely occurring. And if behind on sales, it should. Prices are historically high. Markets have been on volatile over-drive-in recent years. Anything could come along to disrupt a friendly bias. Managed money remains strong long for this time of year. If money flow decides to leave, the downturn can be quick. OPEC is likely to confirm a cut in production, maybe as much as 2 million barrels a day. The administration is vowing to keep moving reserves to the marketplace. This could help in the short term to keep prices from rallying; however, sooner or later the reserves need to be replenished. It is a bit unsettling as winter approaches; the market may also recognize this concern as well. A growing concern for basis and price is lack of water in the Mississippi.
SOYBEAN HIGHLIGHTS: Soybean futures closed lower today as the US Dollar moved higher, harvest is pressuring prices, and cash soybean meal prices have fallen sharply over the past two weeks. OPEC announced production cuts that were supportive of bean oil. Nov soybeans lost 13-3/4 cents to end the session at 13.69-3/4, and Jan lost 13 to 13.80-1/2.
Soybeans and soybean meal closed lower today as the dollar moved higher and an inverse trend between the two has been apparent over the past few weeks. US soy products are already more expensive than those in South America, so a rising dollar only adds to demand worries. In addition, harvest is underway, and the US is expecting new supplies of 4.38 billion bushels. This, combined with the USDA raising soybean ending stocks to 274 million bushels, has made it hard for soybean prices to gain any ground. Soybean oil was higher today as well as palm oil, and crude oil gained following OPEC’s announcement to cut oil production by 2 million barrels per day. Tight oil supplies enforce the need for more soybean oil for biofuel, which has helped crush margins. Crush values based off January futures ended 3.04 above the cost of soybeans yesterday, which is still an attractive premium to incentivize processors to buy cash beans. Earlier today the USDA reported that biodiesel exports totaled 88,142 mt in August with 92% of that going to Canada, and exports are now up 7% year to date. Brazil is planting under favorable conditions while Argentina is experiencing drought in much of their major growing areas. Nov beans are oversold and are at the lowest prices in a month, with a gap lower on the chart at 13.49.
WHEAT HIGHLIGHTS: Wheat futures closed mostly higher today. Tight supplies are keeping support under the market, and questions surrounding the Ukraine war are also supportive to price. Dec Chi lost 1 cent, closing at 9.02 and Mar down 1/4 at 9.15-1/4. Dec KC gained 1-1/2 cents, closing at 9.90-1/4 and Mar up 2 at 9.86-3/4.
After a two-sided trade, all three US wheat futures classes settled higher (with the exception of the front two months in the Chi futures). Bear spreading, noted most prevalently in the KC futures, could be an indication of supply concerns down the road. Friday’s wheat production estimate from the USDA was estimated at 1.65 bb and the next WASDE report will be released on October 12. Given that estimate, 22/23 US carryout will likely be at a 15-year low level. There also remain a lot of question as to how much wheat will continue to come out of the Black Sea. The export deal expires on November 22 and could potentially be closed prior to that date if Putin decides to retaliate. Ukraine has been putting up a good fight and retaken some areas under Russian control. But with the escalation in fighting, Ukraine’s ag ministry recently said that just 2.7 million acres of winter wheat has been planted (compared to 7.7 million last year at this time). Here in the United States, the southern Plains remain drought stricken, but forecasts suggest a possibility of much needed rain next week.
CATTLE HIGHLIGHTS: Both live and feeder cattle closed higher today, but feeders led the way as grain prices slipped. Live cattle benefited from the anticipation of higher cash trade this week as packers need the cattle and the feedlots know it. Oct live cattle were up 0.475 at 144.675, and Dec gained 0.425 to 147.925. Oct feeder cattle were strong, gaining 1.900 and closing at 176.550.
Some very light cash trade occurred today during the Fed Cattle Exchange where just one lot of 201 head sold at 144.25, but feedlots are holding strong in their asking prices of 145 in the South and a bid thrown out in the North of 234, which was passed today. Cash seems poised to trade around a dollar better than last week which has given support to futures. In feeders, we have been technically oversold for nearly two weeks and it is about time traders stepped in to buy as it is widely known that feeder cattle in the country are hard to find and very expensive- something the board has not reflected at all lately. Consumer demand seems to be picking up with two days of higher cutout prices and choice at 248.04 and select at 221.91. There is demand from consumers for high quality beef and packers will need to step up with their purchases to fill that demand. Oct live cattle closed above their 40-day moving average today and remain in a rangebound formation while Oct feeders remain in their downtrend but appear to be coming out of oversold territory with today’s higher close.
LEAN HOG HIGHLIGHTS: Lean hog futures recovered after yesterday’s beating. A strong gain in cash may have contributed, but futures are also oversold and due for a correction. Oct hogs gained 3.800 to close at 90.800 and Dec was up 2.075 at 76.500.
After yesterday’s sharp decline in hog futures, today’s trade looks much more encouraging, but is also adding to volatility in the marketplace. The cash index at 93.44 is at a premium to nearby futures (which may need to increase to meet that level). In addition, the chart gap on Dec between 85.250 and 85.375 is still waiting to be filled. Slaughter pace has been running strong and weights are about three pounds less than last year. This may indicate that more hogs will need to be slaughtered to make up for that difference. To paint the whole picture, though, one must also take into account the economic concerns facing both the United States and the world. The Fed is talking about raising interest rates another 75 basis points in November, the US Dollar is historically high, inflation is increasing, and there are worries of recession. All of these things are putting pressure on both commodity and financial markets. Ample supply nearby may also weigh on the market.
DAIRY HIGHLIGHTS: Most Class III contracts closed higher on the day but November futures held an ugly showing by trading up to $22.20 this morning before shifting 36 cents off the high with a $21.84 close. The October contract struggled multiple times at the $22.00 mark and it looks like November may take over that role. Within the Class IV market, the roll shifted the second month chart roughly 70 cents down but November futures did close 24 cents higher at $23.84. Spot butter was 3 cents higher today to move back to its all-time high from a few weeks ago and the fundamental set-up remains tough to bet against, especially with another solid showing for exports.
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Author
Amanda Brill