MARKET SUMMARY 2-16-2022
Sales of soybeans for the 2022-23 marketing year are off to a strong start. With concerns regarding the South American supplies weighing on the market, importers have stepped up to pick up next fall’s U.S. soybeans, trying to secure supplies. China has been the largest customer, locking in 1.7 MMT of those soybeans. The recent pace is starting to eclipse the strong start seen in 2020-21, when China stepped in the market to secure soybeans from this past fall’s harvest. Weather still looks to be a factor on the South American crop, and the strong buying pace will likely continue and support the overall soybean market.
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CORN HIGHLIGHTS: Corn futures gained back about half of yesterday’s losses with March adding 9 cents to close at 6.47 and December gaining 4 cents to close at 5.93-3/4. Sharply higher soybeans and thoughts yesterday was overdone provided support. Continued expectations for Argentina’s corn crop to shrink due to dry weather was also supportive. The Brazilian Real reached its highest level since June. Lastly, less certainty over buildup of Russian troops on the Ukraine border may have had traders buying today.
Ukraine, it is estimated, will need to market between 500 and 800 million bushels. The potential bullish argument is that supply disruptions could be a catalyst for higher future prices. Today’s ethanol report indicated total production 7.063 million barrels, up 105,000 barrels from last week. Stocks at 25.483 million barrels is up from last week’s 24.799. Corn used per week is averaging 102.43 million bushels, currently ahead of the average needed per week of 100.009 mb. Expect price activity to remain choppy but with a bias for higher. We don’t believe the South American crop is in better shape this week than it was last week.
SOYBEAN HIGHLIGHTS: Soybean futures closed at their highest level in five sessions. March gained 36-1/4 cents and new crop November added 23-1/2 cents. March closed at 15.87-1/2 and November at 14.55. NATO suggested there is no evidence that Russia is removing troops from the border of Ukraine. Continued hot and dry in northern Argentina, southern Brazil, and Paraguay also provided underlying support today.
The Brazilian real continues to gain upward momentum, closing at its highest level since early last summer. Obviously, this can make US beans more attractive. It still looks likely the US will capture more export activity in the months ahead. Last week’s price reversals on Thursday need to be respected, yet the overriding market concern currently is weather. Soybean oil will continue to lead the complex due to higher energy and lack of world vegetable oil supplies. In the weeks ahead, focus will be solely on weather and South American crop prospects. It is estimated 20% of the crop is harvested.
WHEAT HIGHLIGHTS: Wheat futures had a mixed to slightly higher close. Despite strength in corn and soybeans, Chi and KC had only modest gains and MPLS closed slightly lower. With conflicting reports out of Russia, wheat simply had no reason to trade much higher or lower. March Chi gained 3/4 cent, closing at 7.80-1/2 and July up 1/2 cent at 7.82-1/2. March KC gained 2 cents, closing at 8.08 and July up 3 at 8.13-1/2. March MPLS lost 1 cent, closing at 9.52 and July down 1/4 cent at 9.43-1/2.
Wheat has been staying in a trading range, albeit a broad one. US weather has been supportive, and there likely won’t be a breakout to the downside because of that. Conversely, wheat will likely not break out to the upside unless the US sees more export demand. That is, if you disregard the Russia / Ukraine situation. There are mixed reports on that front with Russia talking about pulling troops out of Belarus, but US intelligence officials are saying there may actually be a buildup of troops. There are also reports that Russian naval vessels are blockading Ukrainian ports. This situation is still full of unknowns, which causes nervousness among traders. Additionally, with a long weekend ahead (grains are closed Monday for President’s Day) traders may even up positions beforehand. In terms of US weather, a large storm front is set to move across a wide area including some parts of the southern plains – this may have put some pressure on the market. The moisture there will be welcomed but not enough to stop the drought conditions.
CATTLE HIGHLIGHTS: Live cattle futures closed quietly without much change after February futures posted a new contract high price of 144. February ended the session gaining 22 points to close at 143.12. Feeders lost 17 to 1.27, likely from higher corn prices pressuring futures after reaching their highest level yesterday in six weeks. Steady to firmer cash with top prices 141 to 142.50 were supportive factors. Weaker cutout values yesterday and again this morning are negative to price.
Today’s trading range was somewhat small, and it appears the market was waiting for more news to provide direction. As anticipated, the current uptrend reflects good demand, fewer COVID cases, as well as expectations that US exports will remain active. The macro picture continues to have a firm undertone as well. Limited supplies of feeders in the foreseeable future will likely have traders buying dips on futures and feedlots scrambling for supply. The big negative factor is the price of feed. If costs continue to move higher, this could be a limiting factor to higher feeder prices. Yet it will also likely reduce the herd. This morning’s choice values at 269.45 were 92 cents weaker after losing 3.59 yesterday. Select cuts were down 2.11 at 265.72 this morning after giving up 93 cents yesterday.
LEAN HOG HIGHLIGHTS: Hog futures rallied today with support from strong cash and cutouts. Apr hogs gained 1.250, closing at 105.400 and Jun hogs were up 1.250 at 114.950.
Today was another solid day for the hog market. Cash was supportive with the National Direct Afternoon report up 2.90 yesterday and the morning report was up 11.20. Pork cutout this morning was also supportive, up 3.65. The upcoming winter storm is set to move across a large part of the United States and may impede the movement of hogs. Slaughter pace is increasing, and packers need to obtain supplies to keep up. Slaughter today was pegged at 478,000 head, compared to 472,000 last week. On a bearish note, May left a gap on the charts below current levels, which may need to be filled. Technically, it looks like traders bought the recent dip as they anticipate tightening supplies through the year.
DAIRY HIGHLIGHTS: For the first time in 2022, each dairy spot product closed the day in the red. Spot butter led the charge lower, falling 6c to $2.80/lb on 7 loads traded. Rounding out the trade, spot powder fell a penny to $1.89/lb, whey was down 0.25c to $0.81/lb, and spot cheese dropped 1.875c to $1.95125/lb. Milk futures saw pretty heavy selling pressure across the next twelve contract months as a result of the offering in spot. Most contracts finished the day double digits lower. Second month class III milk fell 66c to $22.31 while second month class IV fell 23c to $24.75. The reason for the selling could be twofold. Obviously a day of pressure in each dairy spot products is a negative and could hint at further selling to come. Additionally, the market had been in overbought territory and a correction lower was likely to reset the technicals.
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Author
John Heinberg