MARKET SUMMARY 12-02-2022
The U.S. dollar broke support levels and maintained its trend lower. The U.S. Dollar Index dropped to its lowest levels since June as the market trended lower on the week. The weakness in the dollar was fueled by speculation the fed will reduce the aggressiveness of interest rate hikes and soften the monetary stance in the future. Recent economic data has been supporting and comments by Fed Chairman Powell have helped build this belief. Since late September, the dollar index has dropped nearly 10 full points. This week, the dollar traded below the 200-day moving average for the first time since June 2021. The weaker tone in the dollar should support commodity prices as U.S. goods should be more competitive on the global markets. Currencies can trend for a long stretch of time, and the U.S. Dollar index is looking to work to test lower levels.
Like what you’re reading?
Sign up for our free daily TFM Market Updates and stay in the know!
CORN HIGHLIGHTS: Corn futures plunged as fund selling was again a dominant feature. Small speculators were likely exiting long positions as well. What news there was seemed to be viewed as negative. Dec corn lost 15 cents to close at 6.35, Mar lost 14-1/4 to close at 6.46-1/4, and Dec 2023 gave up 3-1/4 to end the session at 5.98. Mar lost 25 cents for the week closing at its lowest level since August. Dec 23 gave up 12-3/4 for the week. Poor exports, a disappointment in biofuel news where electric vehicles are credited as biofuel and canola/rapeseed is eligible for-blend credits, and technical selling were challenges in the market this week.
Between the dollar dropping near 10% since late September and Mar corn futures losing near 60 cents, corn is becoming a better value for end users. Yet, at the same time, there is not much reason for end users to buy aggressively. Bigger picture concerns regarding world demand and presently no urgency with supply disruptions for production in South America or the U.S. may be why funds are shedding futures. The rise in interest rates which began in June is an up-trending chart, while ownership of agriculture commodity futures by funds is a declining chart. We indicated several weeks ago the inability of the market to hold gains from one day to the next and unwinding of long positions by funds suggested potential weakness ahead. Stochastics are building downward momentum and are not yet in the oversold territory, a potential sign of lower prices yet ahead.
SOYBEAN HIGHLIGHTS: Soybean futures closed higher today in a reversal from yesterday’s sharp selloff caused by a limit down move in bean oil. Meal closed higher but bean oil closed lower again due to follow-through selling from yesterday and a slight move lower in crude. Jan soybeans gained 8-3/4 cents to end the session at 14.38-1/2, and Mar gained 9-3/4 cents at 14.46-1/2.
Beans and meal were the only grains to close higher today following a brutal selloff in beans and bean oil yesterday. Yesterday traders were spooked into dumping bean oil after the EPA released their biofuel mandates that came in as expected, but apparently not as had been hoped. With funds having such a big net long position in bean oil it didn’t take much to spark selling and that bled into soybeans as well. The reaction was excessive and the gains in soybeans today show that prices stand a good chance of recovering. Yesterday USDA’s NASS reported 1.64 billion pounds of soybean oil on hand at the end of October which is down 14% from a year ago, and supplies of low sulfur distillates are tight and will need the help of bean oil supplies. Domestic demand and crush is still strong, and export demand is still alive with China purchasing four cargoes of beans from the U.S. yesterday. Export demand will likely slow when Brazil’s crop is harvested, and China is already buying beans for February/March delivery with six cargoes purchased from Brazil yesterday along with the U.S. purchase. Despite the worries about Brazil’s crop, demand for soy products is strong overall. Mar beans are in an upward channel and closed above the 200-day moving average today.
WHEAT HIGHLIGHTS: Wheat futures took a kick in the teeth today with double-digit losses in all three U.S. futures classes and lower Paris milling futures as well. Weakness is stemming from poor exports and funds selling. Mar Chi lost 22 cents, closing at 7.61, and Jul down 20-3/4 at 7.79-3/4. Mar KC lost 19-1/2 cents, closing at 8.70-3/4, and Jul down 18-1/2 at 8.59.
Despite historically tight supplies both for the U.S. and globally, wheat prices continue to decline. Funds are estimated to have sold another 8,000 contracts of Chi wheat. This fund selling has been pressuring the market in addition to poor U.S. exports. The Ukraine export corridor deal is weighing on the market as well, but there are still relevant questions to ask. One has to wonder if it will eventually close and what that will mean for price. The extension agreed upon was four months but initially, there was talk of a twelve-month extension. Part of today’s bearish outlook may stem from talk that fighting might come to an end in Ukraine – this does not seem likely right now but headlines often move the market. From a fundamental point of view, Australia’s crop (which itself has had quality downgrades) might be the only significant wheat supply source for some time to come. Other world exporters are short on supply compared to past years. Stats Canada, for example, estimated their wheat production at 33.8 mmt, a reduction from the previous projection of 34.7 mmt. Additionally, the Argentina wheat harvest is said to be 23% complete (vs 45% last year), and the crop is rated only 8% good to excellent. As a final note, congress did vote to avert the railway strike on December 9.
CATTLE HIGHLIGHTS: Live cattle futures finished the week heading higher with technical support, and the firmer cash tone helped trigger money flow into the cattle market. Dec finished 0.300 higher to 153.350, and Feb added 0.450 to 155.875. Feeders saw strong buying strength as Jan feeders gained 1.375 to 182.450. For the week, Dec cattle gained 0.275 and Feb added 0.750. Jan feeders added 4.150 on the week, supported by the lower corn market.
A firm close on the end of the week has the cattle market looking to test recent highs, supported by a firmer tone in cash markets. This week’s cash trade developed with southern live deals marked mostly $155, fully steady with last week’s totals, but northern dressed sales were marked at mostly $249, $4 higher week over week. Retail values trended firmer overall on the week. At midday, choice carcasses retreated 2.02 to 251.55 but select added 0.66 to 225.66 on light movement of 66 midday loads. The weakness at midday helped pull choice carcasses back in line with last Friday’s values, after peaking mid-week. The overall reduced retail values have tightened packer margins, which could have packers pull back on slaughter pace in the near future to help improve their margins. Today’s slaughter totaled 123,000 head, 2,000 more than last week, and 3,000 above a year ago. Saturday’s kill is estimated at 28,000 head, bringing the weekly total to 663,000, 67,000 greater than the prior week, but 19,000 below 2021. Feeders traded higher, following through on yesterday’s strength, supported by weak grain markets. The Feeder Cattle Index was unchanged at 178.40 and was 4.77 higher on the week. Jan feeders have stretched out to 4.05 premium to the index, which could limit gains. A good overall week with firm price action in the cattle markets. The cash market stays supportive, and the weak grain has pushed value into the feeder market. the overall trend is still looking firmer going into next week.
LEAN HOG HIGHLIGHTS: Lean hog futures finished higher on short covering and technical buying for the second straight session, closing with triple-digit gains. Dec hogs, held in check by the cash market, softened 0.700 to 82.425 but Feb rallied 1.225 higher to 90.425. For the week, Dec hogs were 1.350 lower, but Feb hogs gained 1.925.
The Feb contract posted a bullish reversal on the charts on Wednesday and used that technical strength to rally just short of $7.000 over the past three sessions to end the week near the highs of the week. Resistance is starting to build over the Feb futures at 91.000 in the near term, but the contract high is near at 93.300 from August trade. Dec hogs are moving closer to expiration on 12/14 and stay tied to the cash market and the index. The Lean Hog Index was softer, losing another 0.65 to 83.24, and was 2.93 lower on the week. The cash index and Dec futures are trading near each other which should limit gains or losses for the Dec futures. Feb is building a strong premium to the cash market, anticipating a turn higher in cash trade in the first quarter. Direct cash trade was softer, losing 3.18 to 81.88 and a 5-day rolling average of 84.70. Retail values at midday today were firmer, gaining 2.94 to 89.46. The load count was good at 232 loads. The front month Dec futures will be limited as the fundamentals are still lagging at this time. Feb and deferred futures had a strong week, and optimism regarding numbers and cash markets in the first quarter support the market as contract highs are not far away.
DAIRY HIGHLIGHTS: Class III January futures made a large turnaround as the price dipped to $19.37 and rebounded back to $20 by Friday, losing only 10 cents on the contract overall this week. Class IV January futures gapped lower on Monday and despite a small trading range for the week of only 4 cents, the contract was down 41 cents from last Friday’s settlement. Spot cheese followed Class III futures lower early in the week, then rebounded in later sessions to settle fractions of a penny under $2/lb, spot butter remains relatively rangebound the last two weeks and closed today near the bottom of the range at $2.90/lb, spot powder continues to trend lower with a settlement of $1.36/lb, while whey was nearly unchanged this week at $0.45/lb.
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
Brandon Doherty