MARKET SUMMARY 2-15-2022
The crude oil market tumbled nearly 4% on Tuesday as the tensions between Russia and the U.S. over the Ukraine saw some easing. The ongoing concerns of a possible escalation in the Black Sea region helped support oil prices, as the front month March contract traded to a multi-year high at $95.00 a barrel. The possible tightening of an already tight global supply picture brought money flow into the crude oil and other commodity markets. As tensions seemed to cool, money was moving to the sidelines on Tuesday in most commodity markets, led by the weakness in crude. Price are challenging near-term support, but this market and others may be led by the technical trade versus the fundamental trade.
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CORN HIGHLIGHTS: Corn futures were under pressure all session on lessening concerns that Russia would attack Ukraine. March closed at 6.38, down 17-3/4 cents while new crop December lost 8-1/2 to end the session at 5.89-3/4. Despite a generally supportive weather forecast in South America for prices, the market’s focus was on politics and a “ratcheted down” tension.
Today’s weakness also came in the form of spillover selling pressure from sharply lower wheat and soybean prices as well a decline in the crude oil futures of near 5.00/barrel. The fundamental picture could be construed as slightly negative for new crop corn prices due to dry weather and South America which, while hampering being yield, may allow for a more rapid start to second crop planting. While not wanting to read too much into one day, last week’s reversals and the ease at which prices move lower today may suggest the market is running out of information to feed the bulls. We also believe that last week when March futures moved above 6.50 there was a strong influx of farmer selling. The big question is whether the news surrounding Ukraine and Russia is a sign of less tension or only enough to pacify the market for a day or two.
SOYBEAN HIGHLIGHTS: Soybean futures were under pressure throughout the session with easing tensions between Ukraine and Russia suggested as the primary reason for lower prices today. Lower-than-expected crush figures and technical selling, perhaps in respect for last week’s reversals, may have also played a part in today’s weaker trade. March lost 18-3/4 cents to end the day at 15.51-3/4 and November gave up 10-1/2 to end at 14.32.
When prices become volatile, it doesn’t take long for them to lose much ground. Last week’s high in March soybeans was 16.33 with today’s close near 15.50. The point here is to simply remind you that placing price orders above the market can pay dividends. Soybean futures have a historical tendency to be somewhat volatile and can often rally sharply or lose ground quickly. Placing sell order well above the market may seem futile at the time, yet last week’s surge was a reminder that in a tight supply scenario, price activity can be extreme. Today’s crush figure was termed a disappointment at 182.22 million bushels. The market was anticipating 186.7.
WHEAT HIGHLIGHTS: Wheat futures tumbled today. Reportedly, Ukraine’s President Zelensky said he was joking about a Russian invasion taking place tomorrow. March Chi lost 19-1/2 cents, closing at 7.79-3/4 and July down 19-3/4 at 7.82. March KC lost 22-1/2 cents, closing at 8.06 and July down 21-3/4 at 8.10-1/2.
In addition to Zelensky’s “joke” about Russia invading, it was also indicated that as many as 10,000 Russian troops will be removed from Belarus after completing their exercises. Other units may be moving forward; however, there are still many unknowns with this situation. On another bearish note, Sov Econ increased their estimate of Russia’s wheat crop to 84.8 mmt (this compares to 75.5 mmt last year). These news items set a negative tone in the marketplace today, but longer term, weather in the US remains supportive. The southern Plains are still dry and look to remain that way. Next week there may be some moisture for HRW wheat areas, but the forecast seems to put it only in the eastern areas. US markets were not alone today, with Paris milling wheat futures also sharply lower, by the equivalent of about 25 cents per bushel.
CATTLE HIGHLIGHTS: Live cattle futures climbed for the second day in a row, following the stock market higher today on a less stressful Russia/Ukraine new day. Russia was apparently maneuvering troops away from Ukraine’s border, signaling an invasion is not imminent, counter to what US intelligence had been suggesting. A decline in corn prices supported feeder cattle futures, which gained 1.05 to 1.85 as March lead today’s gainers, closing at 104.15. February live cattle closed at 142.90, up 47 and within striking distance of the contact high of two days ago, 143.62.
Estimated slaughter was 123,000, 1000 more last week at this same time. The choice select spread narrowed this morning with choice losing 2.63 at 271.33 and select adding 1.14 to 269.89. The narrowing of the choice and select values would argue that there may be plenty of choice animals available or consumers are not chasing higher priced cuts. It may be a combination of both. Feedlot weight gain is said to be very good which may also imply there are ample heavier animals available. We like the overall uptrend, and we like the demand side of the equation. Improved wages, and declining COVID cases are keeping a firm tone to beef demand.
LEAN HOG HIGHLIGHTS: Hog futures managed to stop the bleeding as long liquidation may have run its course. Tightening supplies still support the market fundamentally. Apr hogs gained 1.825, closing at 104.150 and Jun hogs were up 1.850 at 113.700.
After a period of liquidation by traders, the hog market seems to have found some footing again. April is now the front month and has a large premium to cash, however. This may be difficult to maintain. Slaughter pace is increasing, and packers may need to bid more aggressively to keep up. Hog slaughter today was 478,000 vs 472,000 last week. Lower grain prices may also be beneficial to livestock. Pork cutout is up 2.13 and the National Direct Morning report was up 5.62. Depending on what metrics you use, hog futures could still be considered overbought. Avian flu has been found in the US which could ultimately have an impact on demand for both beef and pork. The CME lean hog index is up 1.59 at 91.51.
DAIRY HIGHLIGHTS: The US dairy market received more positive data on Tuesday morning when the Global Dairy Trade results were released. The GDT auction saw more bidding and fairly strong demand for global dairy products. The overall GDT price index jumped 4.20% to 1,516 points – its best price since April of 2013. This is the third event in a row in which the index improved at least 4.00%, a sign of steady demand. Within the auction, GDT butter added 5.10%, GDT cheddar added 3.50%, and GDT skim milk powder gained 6.00%. This puts each product at 5-year highs. The results of the GDT supported milk prices earlier in the day, but the market faded throughout the rest of the session. Pressure from a weaker feed market kept the market mixed as corn fell 18c and soybean meal fell $10/ton.
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Author
Brandon Doherty