MARKET SUMMARY 12-7-2022
The technical picture for corn futures turned negative the last several weeks. There may be varying fundamental reasons, including slow exports and a La Nina weather pattern in South America that appears to be weakening, in addition to softer energy prices. Whatever the reasons, the price trend has turned lower. The question on many farmers’ minds is where prices might drop to. The March corn chart has a target for futures to move to. The target is a gap which exists from $5.91 to $5.95. Gap theory is they get filled. While they often do, it is not etched in stone they will. The practical or rational reason gaps may tend to fill is they are obvious to anyone looking at a chart. In essence, they can become self-fulfilling. If I see the gap, you see the gap and many others see the gap; bearish traders may sell anticipating others will be selling as well, and eventually prices may fill the gap. Buyers may be patient looking for the gap to fill, and therefore they too have a target to buy, which is the lower end of the gap.
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CORN HIGHLIGHTS: Corn futures broke a six-day losing streak, following the soybean and wheat markets higher. March corn added four cents to close at 6.41-1/4, and December 2023 added 3 to close at 5.96-1/4. A slight uptick in the ethanol production was supportive. While finishing higher, today’s close was not all that impressive as much strong gains were posted in wheat and soybeans. Weaker energy prices were again problematic.
Moving forward, South American weather will be the most important variable affecting world supplies. Argentina remains dry; however, forecasters are suggesting the La Nina pattern currently in place will dissipate into late December and January. This likely means more moisture for both southern Brazil and northern Argentina, both currently suffering from dry conditions. A waning La Nina pattern would also suggest increased chances of rain in the U.S. Plains where drought is a major concern. Farmers are concerned that friendly news may be lacking, and despite tight supplies, end users are in better shape today than they were in August, meaning hand-to-mouth buying will likely stay around unless weather adversely affects crop. The potential good news is that China may secure inventory sooner than later. Covid restrictions are being lifted, and it is hoped this means more aggressive buying of U.S. corn is in the near-term future. Friday the USDA will release the WASDE report. No yield changes will occur on this report but may on the January report, where the last yield projections for marketing year will be released.
SOYBEAN HIGHLIGHTS: Soybean futures closed higher today as the US Dollar Index slipped, meal climbed to new contract highs, and export demand remains solid. While meal continues to climb, bean oil has had its sixth consecutively lower close as crude oil tumbles to its lowest levels since the beginning of the year. Jan soybeans gained 17 cents to end the session at 14.72, and Mar gained 15-3/4 cents at 14.77-1/4.
Both soybeans and meal had very strong days fueled by yesterday’s bullishness and the hot and dry conditions in Argentina that have delayed planting and will likely cause lower bean production. In Brazil, however, conditions have been excellent with plenty of rain and more forecast over the next seven days, and a huge crop is to be expected. Export demand has been strong with China showing up with at least 2 flash sales so far this week and another to unknown destinations. Demand from China has been better than expected given the state of their economy, but they have now announced a serious relaxation of Covid policies which should improve the economy and possibly increase their soybean demand. Jan beans on the Dalian exchange were up 0.3% at the equivalent of $19.67 a bushel. Bean oil’s selloff came after the DOE reported a push lower in refinery activity with crude inventory down 5.2 million barrels last week to 413.9 mb, and now crude is trading just above 72 dollars a barrel. Jan beans remain in the trend of their upward channel but closed at the very top of their Bollinger Band.
WHEAT HIGHLIGHTS: Wheat futures stopped the bleeding today as they began to correct from an oversold situation. Mar Chi gained 20-1/2 cents, closing at 7.49-1/2 and Jul up 18-1/4 at 7.63-3/4. Mar KC gained 18-3/4 cents, closing at 8.48-3/4 and Jul up 17-1/2 at 8.39-1/2.
Wheat was finally able to pick up some ground today after the recent selloff. While it’s possible that this may just be a bounce, the wheat market is heavily oversold and in need of a correction. This may be the beginning. There has not been much fresh news to feed the bull lately, and that may be in part why prices have sagged. Fundamentally, tight supplies should still be providing support. Also, today’s rally comes in the face of a bearish forecast for the US southern Plains. Over the next seven days, large areas of that region will receive precipitation which may help the drought. The biggest potential market mover this week, however, could be Friday’s USDA report. While no major changes are expected, surprises are always a possibility. If anything, world carryout may be adjusted higher after the recent increased projection for Australia’s crop. Right now US wheat is fighting an uphill battle in terms of exports, as they continue to be undercut by cheap offers from Russia. In tandem with US futures, Paris milling wheat hit a nine-month low yesterday but did see a nice jump higher today.
CATTLE HIGHLIGHTS: Live cattle had a quiet close with all contracts relatively unchanged. On the other hand, feeders closed nearly a dollar lower as grain prices moved higher. Cash trade has not yet been established and cutouts moved lower. December live cattle rose 0.375 to 151.925, and Feb cattle futures dropped 0.075 to 153.550. In feeders, Jan feeders dropped 0.900 to 180.900.
Live cattle tried to trade higher today, but gains were held back by the continued decline in boxed beef and lower cash trade. Scattered trade took place in the North this afternoon at 247 which is 2 dollars below last week. Asking prices in the South are between 156 and 157, and remaining asking prices in the North are around 250 or above. No cattle were sold at today’s Fed Cattle Exchange where 1,023 head were listed with opening prices at 153, but reserve prices of 155 were not met. After today’s close, the afternoon boxed beef report was released with a big jump in choice cuts of 6.31 to 248.96, and an increase in select of 0.63 to 219.77. If boxed beef doesn’t form a bottom soon packers may reduce chain speed and become less aggressive in the cash market. This increase in boxed beef should provide support to live cattle tomorrow. Feeders fell again today as grains rose, but the trend remains higher in feeders. Feb live cattle dropped down to the 100-day average which is acting as support and bounced back just below the 100-day moving average. Jan feeders remain in an uptrend but closed below their 200-day moving average.
LEAN HOG HIGHLIGHTS: Lean hog futures finished mixed with front month December gaining 10 cents to close at 82.37. July led today’s gainers, adding 77 to close at 106.35. Front months were held in check with mixed to weaker cutout values, especially for pork bellies which were trading 20 lower. Estimated slaughter was 492,000, 2000 less than a year ago for this same time.
High volatility in recent weeks may be suggesting the market is nearing a top. It is not unusual for a market to wildly fluctuate near a top or bottom. We are not necessarily suggesting a near term top is in place; however, longer range economic concerns both domestically and internationally could weigh on demand. Yet, support does come from China relaxing covid restrictions and recently lower requirements for loans. Ultimately, both should help to kick start a positive economic environment and potentially lead to more pork exports. Domestically demand is solid, but expectations of more inflation could keep consumers pocketbooks somewhat empty. The good news is high priced pork products should be old news and if consumers are willing to spend money pork may be at the top of their list.
DAIRY HIGHLIGHTS: The day-to-day trade for dairy remains fairly choppy at the moment. January 2023 Class III jumped 61c on the first trading day of December but has given back most of that rally through Wednesday. The market is in the midst of a push and pull from fundamentals that are both positive and negative. The bullish fundamentals continue to be high input costs, strong US dairy export demand, nearly $3 butter, and a dairy cow herd that hasn’t grown since May. On the bearish side, the market is being held back by weak powder and whey markets, near-record cheese inventories, and milk production that is back up over 1% year-over-year. Futures softened on Wednesday as spot whey, butter, and cheese were all offered lower. There has been a lull in demand after the early November holiday rally. January 2023 Class III fell 42c to $19.62, while February Class III fell 23c to $19.51. The Class IV trade was mixed to neutral.
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Author
Bryan Doherty