TFM Daily Market Summary 2-14-2023


Could old crop/new crop soybean spreads possibly be telling the market that demand is beginning to slow? Recently the May/November soybean spread peaked at 168-3/4 in mid-January, as the demand for old crop U.S. soybeans remains strong longer than anticipated. Dry weather in Argentina is hurting production, and wet weather in Brazil slowed the early harvest; those production problems sent importers back to the U.S. for January supplies. Since that window, the momentum in the soybean spread has been fading and, on Monday, failed to challenge the previous high before reversing lower on the day. The weakness in the front month soybean prices is an indicator that the demand for U.S. soybeans may be slipping with more fresh supplies of cheaper soybeans from Brazil building as harvest begins to pick up. This is a historical trend as the market moves from late winter to spring.

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CORN HIGHLIGHTS: Corn futures ended mixed with front months experiencing small losses after two days of higher prices. March ended the session down 2-3/4 at 6.82-14, while new crop December added 1-0 to close at 5.97-3/4. Softer wheat and soybean prices along with a lack of new positive news had prices drifting lower by the end of the session in a rather subdued range bound trade. Softer crude oil prices may have influenced corn futures today. Attention in the days ahead will be on South American weather, exports (due for release on Thursday) and ethanol numbers out tomorrow.

Weekend temperatures were not conducive to Argentina’s corn crop as above normal is drying out areas that recently received moisture and keeping other areas dry. Southern Argentina is expected to see mostly dry conditions through the end of February. Brazil on the other hand has experienced areas of too wet, limiting soybean harvest, and keeping corn planting, as a whole, behind schedule. Yet, we would not be too invested on the idea of planting delays this week. After this week if it looks like a wet forecast, then perhaps the market will become more concerned. March corn futures hit resistance today at the upper Bollinger band, an area that has acted as strong resistance over the last several months. Should futures break above this level the next resistance is 6.97.

SOYBEAN HIGHLIGHTS: Soybean futures closed lower today along with meal, while bean oil moved higher despite a dollar sell off in crude oil. While prices were lower today, they are not far from recent highs and likely remain at these high levels due to strong exports. Mar soybeans lost 5-1/4 cent to end the session at 15.37-1/2, and Nov lost 1-3/4 cents at 13.83.

While soybeans saw limited gains yesterday and small losses today, the trend remains higher with March reaching its highest levels yesterday morning since the June and contract high. Today prices tested the 15.50 level again but failed, which may see beans work lower. Argentinian drought has been a big support for beans and meal, and now new private estimates for the crop have been reduced to 36 mmt compared to the 41 mmt that the USDA has estimated which would be an approximately 180 mb difference. On the other hand, Brazil is about 17% harvest on their crop which is expected to be record large with yields reportedly better than expected, but harvest progress still behind the average of 24% for this time. Export sales have been strong and now only 174 mb more of sales are needed to meet the USDA’s estimates which is a reasonable number given the short export window left for the US before Brazil takes over export business. US exports tend to drop off around the first of March until June, and historically prices tend to slip around the beginning of March. The NOPA crush report will be released tomorrow, and estimates are for 181.6 mb which would be up from December. For the bushels the US loses in export sales, domestic demand appears to be strong enough to keep prices relatively supported. March beans remain in an upward channel with resistance at 15.50.

WHEAT HIGHLIGHTS: Wheat futures gave up some ground today – long liquidation and some moisture for the HRW areas contributed to late session weakness. Mar Chi lost 6 cents, closing at 7.86 and Jul down 3 at 7.99-1/2. Mar KC lost 6-1/4 cents, closing at 9.06 and Jul down 4-1/4 at 8.81.

Despite trading higher earlier in the session, both Chi and KC wheat posted losses today. Some profit taking was likely, as wheat has seen a decent run upwards over the past few trading days. The moisture on the radar did not help prices, with rain in the central US plains. Even some areas of the southwestern plains received coverage. While the drought in the HRW region has definitely not been busted, the perception of improving conditions is bearish. On the bullish side of things, there are rumors that Russia may decide not to extend the Black Sea export deal with Ukraine (unless sanctions against them are lifted). If the deal collapses, it would certainly provide some support to the wheat market. Additionally, Ukraine has claimed that Russia is still intentionally slowing inspections and delaying their shipments of grain. As a final note, bear spreading was noted in both Chi and KC futures which could be an indication of supply concerns down the road.

CATTLE HIGHLIGHTS: Live cattle futures were pressured by weakness in outside markets, triggering profit taking as consumer inflation data was slightly higher than expected and the market waited for cash trade to develop this week. February cattle were 0.125 lower to 162.150, and April cattle slipped 0.425 to 164.675. March feeders lost 0.550 to 186.650.

Consumer inflation data was slightly above market expectations on Tuesday morning, and the higher values caused the equity markets to sell off early in the day. With the Dow Jones pushing 400 points lower during the morning and the prospects of the consumer spending power being tighter, cattle futures saw some profit taking off yesterday’s strength. Prices drifted back to test moving average support, the 10-day under the April contract, before the market lifted off the lows for the day. Seasonality is also a concern, as cattle futures have a season tendency to peak around the Valentine’s Day window for a winter high. With that, the cash market will likely be the driver in the cattle futures prices in a window where prices are seasonally challenged. For Tuesday, cash trade was undeveloped as bids were lacking, but asking prices trended higher at $163 in the South. Trade will likely hold off until the end of the week in general. In the retail market, a firming choice market has helped support cash optimism. Choice carcasses added 2.24 to 272.19 and Select was 2.87 higher to 259.08. The load count was light at 72 loads. Feeder cattle failed to move higher with the weaker tone in the cattle market, despite a mixed to lower grain trade. Feeder Cattle Cash Index traded 0.26 lower to 183.07. Overall, the cattle market is well supported by the lack of cattle supplies and a potentially firming cash market. Cash will be king and will likely be the driver in the cattle market going forward.

LEAN HOG HIGHLIGHTS: Lean hog futures were mixed to higher on the session as the deferred futures saw more short covering and follow through buying after Monday’s strength, but Feb hogs, which expired today, stayed tied to the cash market. Feb hogs slipped 0.150 to 75.675 on its final trades, but April hogs saw more gains, adding 0.900 to 87.250.

The hog market saw good money flow out of short positions, pushing the deferred contract to moderate gains. The concern will still be the premium of the futures to the cash market. April will now be the new lead month this week and hold a $12+ premium to the cash market. That could be a limiting factor, but at least the cash market is trending in the right direction. A headline of ASF near Hong Kong may have helped the price recovery, but this case seems to be an isolated incident at this point. It is a news item worth watching, but with a market heavily oversold, it likely added to the buying strength early this week. The Lean Hog Index gained 0.63 to 74.64, reflecting an improving cash market. Direct cash hog trade at midday was 1.21 higher to 75.26. Retail values were 1.74 higher to 83.48 with movement of 168 loads. Retail values are starting to move away from the $80 area, which could support cash bids as well. The pork cutout index traded 0.02 higher to 80.11. It will still take the fundamentals to sustain any rally; at least cash is starting to try to help, and now the retail market is stepping up as well. The trend looks higher in the hog market, but so is the possible volatility.

DAIRY HIGHLIGHTS: Out of the 20 Class III and Class IV contracts from March through the end of 2023, only two did not finish with double digit losses today. The technical action had been promising for the March Class III contract after holding a weekly low at $17.34 for the previous two weeks and a close well off the lows on Friday, but today’s move has retracted some of that optimism. Despite the losses for milk futures, the spot market was quiet with cheese down 1.25 cents and butter up 2.25 cents. There are no fundamental reports this week and cyberattacks have delayed the recent Commitment of Traders reports normally released every Friday. Prior to that, an eye has been kept on Managed Money traders who had built up the second ever largest net short position on milk.

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John Heinberg

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