MARKET SUMMARY 12-13-2022
A U.S. key inflation data came in better than expected, the U.S. Dollar Index traded to new nearby lows. U.S. annual Consumer Price Index inflation declined to 7.1% for the month of November, which was below market expectations. The cooler inflation print has markets anticipating the possibility of a less aggressive stance on raising interest rates and tighter monetary policy. This supported markets early in the session and helped the U.S. Dollar Index break support to trade to new multi-month lows. The U.S. Dollar Index traded to a session low of 103.530, but more importantly, broke lower out of the most recent consolidation pattern. The trend in the Dollar Index is still working lower, which should be supportive of commodity and equity markets.
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CORN HIGHLIGHTS: Corn futures gave up solid gains of 5 or more cents late in the session, finishing the session mixed. Tomorrow is the last trading day for December corn, which gained 2-1/2 cents to close at 6.43-3/4, while March lost 0-1/2 to end the day at 6.53-1/2 after reaching a high of 6.60. December 2023 lost 1 cent to close at 5.96. Supportive to price was a weaker dollar and higher energy.
Today’s lackluster finish is concerning. Futures did push up against a downward trendline, which, after being unable to breakthrough, may have prompted bearish traders to exit longs, establish shorts or both. Volume appeared light, so we don’t want to read too much into a weak finish, yet with soybeans up near 20 cents on the close and for corn to lose ground is disappointing. Focus grows on the southern hemisphere and production capabilities. The internet has pictures of stressed corn in Argentina and southern Brazil. We acknowledge and respect these difficult weather conditions, yet over all, it is too early to draw conclusions to significantly smaller SA crop. Remember last year when Brazil struggled with dry weather early in the season. First, crop corn was diminished, but the second crop (much larger crop) was very strong with record yields recorded. Basis in areas remains strong, so make sure and take advantage of this opportunity and lock in prices. Tomorrow, the Federal Reserve will conclude its meeting with a 50-basis point (1/2%) increase in borrowing rates is expected.
SOYBEAN HIGHLIGHTS: Soybean futures closed higher today along with both bean oil and meal following a bullish CPI report that sent stocks sharply higher and the US dollar to the lowest level since late June. More dry conditions over the next two weeks in Argentina were supportive as well. Jan soybeans gained 19-1/4 cents to end the session at 14.79-3/4, and Mar gained 19 cents at 14.84-1/2.
The big market mover today was the CPI report, which showed US consumer inflation slowing to 7.1% over the past 12 months from a peak of 9.1% in June, and lower than the average trade guess of 7.3%. Stocks jumped sharply following this report, but faded into the end of the day and the US Dollar Index fell to the lowest level since June, which was friendly towards nearly all commodities. Crude oil gained over 2 dollars a barrel and is trading back above 75 a barrel, which supported bean oil enough to see a 3% increase in the January contract. Export demand remains firm with solid inspections yesterday and private exporters today reporting a sale of 140,000 mt of soybeans for delivery to unknown destinations for the 23/24 marketing year. It is possible that exports begin to slow if China starts to hold out for Brazil’s much cheaper new crop in a few months, which could pressure futures. Brazilian weather has been great, and a record crop is being priced in, but any weather scares at this point would be bullish. Argentina received much needed rains over the weekend, but now faces another dry two week forecast and it remains to be seen if those rains were enough to help the crop. The second round of Argentina’s soy dollar program has resulted in 3 mmt of sales in the past two weeks. The trend in March beans remains steadily higher and the 15-dollar level is getting close, but whether it will act as resistance or prices will break through remains the question and could come down to exports and South American weather.
WHEAT HIGHLIGHTS: Wheat futures had a mixed close with losses posted in the Chicago contract, but small gains in Kansas City. Despite a strong start, most of the gains were given up as the stock market lost ground and exports resumed in Odessa. Mar Chi lost 4 cents, closing at 7.50-3/4 and Jul down 2 at 7.65-3/4. Mar KC gained 3 cents, closing at 8.65-1/4 and Jul up 3 at 8.49-1/4.
Momentum indicators have recently turned upward and remain at or near oversold levels. This helped wheat start the day off strong, but nevertheless, it faded by the close. With carryout at a 15 year low, uncertainty regarding the status of Ukraine, and downgrades to southern hemisphere crops, there is still support under the market. However, wheat has been on a recent downtrend regardless. Yesterday, wheat finished with a strong close on news of Russian attacks on Odessa, and some of that may have carried through into today’s early trade. However, it is being reported that eight vessels did depart today with 23 more in line. Reportedly, bad weather and slow vessel inspection are also keeping Russian exports lower than expected though. The US Dollar Index was also sharply lower today; as of this writing, it is down about a full point around the 104 level. This also may have helped wheat this morning. However, despite all of this, wheat could not hold onto gains today. This also comes in the face of talk that Russia plans to lower their 23/24 wheat planting to a targeted 80-85 mmt. Perhaps the market was more focused on news today that French wheat farmers intend to increase acreage by 2023. On a final note, some rain and snow are moving across the US southern Plains, but western areas may miss out on moisture again.
CATTLE HIGHLIGHTS: Cattle futures mixed to mostly higher trade on the day as the market was supported by improved core inflation data and anticipation of developing cash trade. December live cattle rose .500 to 154.900, and Feb cattle futures gained .250 to 156.350. In feeders, Jan feeders faded 0.275 higher to 183.650.
December live cattle closed at a new contract high as buying strength helped support the front month futures going into expiration at the end of the month. Early in the session, the cattle markets were supported by a cooler than anticipated CPI or Consumer Inflation Data. Inflation measures in November trended 7.1% year over year, which is still high, but below market expectations. The more friendly number helped the U.S. dollar break to new multi-month lows, which helped the commodity markets in general. The early session strength faded, but cattle futures were able to hold most gains. Fundamentally, the cash market is still undeveloped on the week. Early asking prices are $157-158, but nothing has developed at this point and will hold off until later in the week. Expectations are for steady cash trade as packer margins have tightened. Retail values were mixed with choice carcasses gaining 3.31 to 260.33, but select slipped .78 to 224.90. The load count was light at 64 loads. Choice carcasses built on a strong close yesterday, which also triggered some buying on the session. A turn firmer in retail values could go a long way to help support the cash market. January feeders are tied to the Cash Index. The Feeder Cash Index was 0.03 higher to 179.97. The index is still at a discount to the January board, which could be a limiting factor. Feeder cattle still found a bid on the day tied to the strength in the overall market, despite grain futures trading higher for most of the day. The direction overall in the cattle markets is higher and the market looks well supported. A tight supply picture and firm overall demand tone will likely keep the market climbing higher into 2023.
LEAN HOG HIGHLIGHTS: Lean hog futures prices were higher as December futures expiration is a couple days away, and a strong midday surge in retail values helped support the hog market. Dec hogs, which expire on 12/14, gained .450 to 82.400, and Feb hogs added .875 to 84.575.
The hog market could be looking at peak slaughter for the year, as the December contract hits expiration on Wednesday. Last week, total hog slaughter reached 2.572 million head, which was down slightly from last week and last year. The early December window is typically one of the larger prints for hog slaughter, and numbers are expected to begin to trend lower into 2023. With Dec expiration, the season tendency is for strength in the hog market into early January, support prices in general, especially the front end of the market. We will need to see if this trend will continue at the end of 2022. Demand may still need to be the trigger for prices, and retail values were up strongly on midday trade. Retail values were 9.22 higher at midday to 96.165, supported by a $62.65 jump in the pork belly primal. The load count was good at 206 loads. The strong jump in belly prices is likely tied to export demand as an end user stepped in to pick up that primal. The p.m. close for retail values will go a long way to support or limit price direction on Wednesday. Midday direct cash trade was .15 lower to 81.63 and a 5-day average of 83.47. Some price recovery on a consistent basis in retail values would go a long way in supporting the cash market. The lean hog index was .52 lower to 81.47. The December futures expire on 12/14 and is tied to the cash index. February is holding a premium, and that has limited the most active month. The hog market may be looking to turn higher with a seasonal window after Dec expiration tomorrow. Typically, February futures will trend overall higher it its expiration as animal supplies tighten. The key will still be the fundamentals to see if a strong retail demand can spill over and help improve the cash market.
DAIRY HIGHLIGHTS: A strong spot butter session and a steady cheese trade brought buyers back into milk futures on Tuesday. The butter market was bid up 7c and closed up at $2.77/lb on four loads traded. This recovers a good chunk of what was lost in yesterday’s 11.25c down session. Over in cheese, blocks were bid up 1.25c to $2.0725/lb while barrels fell a penny to $1.86/lb. There was just one load traded. There continues to be a wide spread between block and barrel cheese prices. Although that gap has tightened recently, the spread still remains 21.25c wide. The recent Midwest cheese report said there has been some hesitancy from cheese buyers with blocks 20c higher than barrels. Cheese processing is said to be relatively steady and spot milk remains available at discounted prices. At close, January 2023 class III added 21c to $19.25, while January class IV held steady at $20.08.
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Author
Amanda Brill