MARKET SUMMARY 2-14-2022
Last week the USDA made a historic cut to the projected Brazilian soybean crop. With the adjustment last week, the USDA has cut the Brazilian crop by 7% to 134 mmt, down from a first forecast of 145 mmt. This is the sharpest drop in production estimates since 2012 and provides good support to the soybean market. The biggest focus of the soybean market now will be the possible changes in U.S. demand. The smaller than anticipated South American supplies could open the door for additional export activity in a window the U.S. is typically out of the market. That potential extra business would quickly tighten overly tight U.S. supplies.
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CORN HIGHLIGHTS: Corn futures started Sunday night with gains of 2 to 4 cents, but by the morning bears were in charge, pushing prices 8 to 10 cents lower. By day’s end, March came back to finish 4-3/4 higher at 6.55-3/4 and December added 3-1/2 to end the session at 5.98-1/4, a new contract high close. Russia indicating an attack on Wednesday spurred higher energy prices late in the session, and corn soon followed.
It might be a wild ride for prices from this point forward, or maybe not. As we indicated late last week, it is much too early to draw conclusions regarding the Safrinha second crop from Brazil. Expectations are for record large. The slow advance by USDA toward corn crop losses is probably accurate. If smaller crops occur, export activity would have to rise to meet importers’ needs. As it is now, 6.50 old crop and near 6.00 new crop might be all the market will muster as carryout near 1.5 bb would not, in our opinion, warrant 6.50 or higher. Yet, this year there are so many variables at play. Currency fluctuations, high energy prices, weather, fertilizer availability and costs are potential price drivers. Export inspections at 57 mb were supportive, yet the overall pace continues to trail last year, reflective of a lower total export sales estimate from 2.753 bb down to 2.425.
SOYBEAN HIGHLIGHTS: Soybean futures firmed initially on the overnight but soon came under pressure, turning negative by morning and dropping more than 20 cents. Prices floundered there most of the session with March losing 13 cents, closing at 15.70, while November new crop gave up 1-1/2 cents to close at 14.42-1/2. Tension is heightened today with prices recovering about half their daily losses by the close. Talk that Russia will invade Russia on Wednesday sent the energy complex higher, and most commodities quickly followed.
We are not sure of the impact an invasion would mean for the long run, but for the short run, the market would concern itself with supply disruptions. This, coupled with declining supplies in South America, suggests it is just a matter of time before exports from the US increase. Export inspections were supportive at 42.4 million, yet still trail the pace needed to meet USDA expectations at 2.050 bb. Be balanced in your marketing. Both bulls and bears have pivotal arguments to support their view. Last week’s reversals loom large, and the failure of old beans to come back strongly today could be a sign the market is anticipating most of Brazil and Argentina’s losses are factored into price.
WHEAT HIGHLIGHTS: Wheat futures, after trading lower today, came back due to news from the Ukrainian president stating that the Russian attack will happen this week. March Chi gained 1-1/2 cents, closing at 7.99-1/4 and July up 3-1/4 at 8.01-3/4. March KC gained 4-1/4 cents, closing at 8.28-1/2 and July up 4-1/2 at 8.32-1/4.
Wheat inspections were pegged at 16 mb with total inspections now at 532 mb (the USDA now estimates wheat exports at 810 mb for 21/22). After trading both sides of neutral, wheat managed to post small gains today. The trading range was relatively large, with a low of 7.80-3/4 and a high of 8.13-1/2 today in March Chi. Just prior to the close, reports emerged that Ukrainian president Volodymyr Zelensky was informed of an impending attack by Russia, with the apparent day of the attack cited as February 16. Additionally, US Secretary of State Antony Blinken said that the US will be temporarily relocating their embassy operations from capital city Kyiv, to Lviv (close to Ukraine’s western border). There is much uncertainty surrounding this situation – only time will tell how things actually play out. In other wheat related news, dryness remains a concern not only in the US but in northern Africa too. US wheat prices are still high relative to Europe as far as export demand, but end users are in need, which should provide support to the market.
CATTLE HIGHLIGHTS: Live cattle futures edged higher, gaining 17 to 55 points while feeders gained 65 to 80 points. After weak finishes the last two sessions, futures rebounded today helping to consolidate prices that may have been on the verge of steeper losses. February added 55 points to end the session at 142.42, while March feeders added 65 to close at 166.75. Cash was not well defined, which may have allowed the live market to drift, while the feeder complex may have found support on ideas that good weight gain and dry conditions are helping to pull cattle ahead of schedule.
Firmer cutout values this morning with choice gaining 24 cents and select adding 1.79 were viewed as potentially supportive. Expectations that declining covid cases could mean better demand is helping to provide support, while higher energy and inflation is expected to weaken consumer purchasing power. It should be expected that consumers will be more selective in how they spend their money, including eating out as well as spending on more expensive cuts. If tensions continue to rise between Russia and Ukraine, exports could be on the rise as importing countries may take a bird in hand approach regarding food. In times of uncertainty, commodities generally find support more quickly than equities. The stock market has been lower three sessions in a row, while the dollar index has been higher during the same three sessions. A flight to quality?
LEAN HOG HIGHLIGHTS: Hog futures closed mixed with gains in Feb, Apr, and May but a lower close in deferred months. Long liquidation continues in deferred months, but the nearby contracts may be finding support after trading both sides of neutral today. Feb hogs expired today with a settlement at 91.625. Apr hogs gained 0.100, closing at 102.325 and Jun down 0.350 at 111.850.
Cash on Friday’s National Direct Afternoon report was down 0.28 but was up 2.89 on today’s morning report. Cutout values on Friday were up 8.48, which is likely an indication of strong demand. This may mean packers will be aggressive early this week. The market may also be starting to find support after two days of lower trade with the front months making small gains. On the other hand, long liquidation generally lasts three days and technical indicators still looking negative could put further pressure on the market. April stochastics have downward momentum and the reversal on February 10 still looks menacing. With April taking over as front month, there is a large premium to cash. The CME lean hog index is up 1.18 at 88.92.
DAIRY HIGHLIGHTS: Class III futures were two-sided during today’s trade with the March contract pushing to $22.81. This is the highest close for the second month on this move and is 14 cents beneath the intra-day peak from about a month ago. The spot trade was supportive with cheese up 2.375 cents to $1.9325/lb while spot whey was 2 cents higher today at $0.8425/lb. Class IV milk trade was relatively quiet with Q2 leading the way higher and the second month unchanged at $24.85. Meanwhile, spot butter added 3 cents to the topside in addition to last week’s gains to close at $2.7850/lb, while powder was up a quarter cent to $1.90/lb.
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Author
Bryan Doherty