MARKET SUMMARY 2-28-2023
December corn futures have been on a “slippery slope” since peaking in October at 6.37-1/4. Today’s close has the market precariously close to breaking out of the downside of a support channel. Historically, it is not unusual for December corn futures to lose 25% of their value from a post-harvest high to following year low. In this case, the question is, does October pricing constitute a post-harvest high? If it does, then losing 25% eventually points to a 4.78 low sometime between now and the end of harvest.
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CORN HIGHLIGHTS: Corn futures again pushed lower after the pause session on weak chart technical indicators and from spillover weakness in wheat and soybean prices. What appeared to be heavy fund selling exasperated today’s price decline likely uncovering sell stops as well. May corn lost 13-1/4 cents to end the session at 6.30-1/4. December lost 6-1/4 to close at 5.69-3/4. Bear spreading was a noted feature again today as it appears fund selling coupled with a lack of export activity is keeping pressure on the front months. Many of the soybean contracts lost more than 30 cents today.
The technical picture has turned bearish with most futures contracts now trading at 6 month low prices. World supplies stay snug, yet expectation for a rebound in production and end users buying only as needed has kept the vision for cheaper prices intact. Ukraine and Argentina are positive stories for supporting prices, yet the view of the market may more accurately be reflected in less downside potential for corn prices rather than rally potential. Sometimes friendly news means less downside and that appears to be the case here. Futures have closed lower five consecutive sessions. We might argue that additional downside is limited. There is a good likelihood that end user buying picks up and farmer selling slows. While big crops are forecasted for Brazil and the U.S., at present they are just forecasts. Any thing can happen and with prices dropping it wouldn’t now take much for prices to rebound.
SOYBEAN HIGHLIGHTS: Soybean futures closed sharply lower for the fifth consecutive lower close, as technicals were triggered causing funds to unwind some of their long positions. Bean meal broke the hardest and was down over 3% in May, while bean oil fell as well despite higher crude. Mar soybeans lost 27-3/4 cents to end the session at 14.90-1/2, and Nov lost 24-3/4 cents at 13.47-1/4.
Soybeans broke through support today in a dramatic selloff that began with bearish outlook forum numbers last week and was further pushed down by the end of the month and first notice day for March grains. A decline in prices has been largely expected with Brazil’s harvest in full force and US exports slowing down as countries turn to Brazil for much cheaper beans. It’s possible that the US may see some cancellations on sales as Brazilian offers come in significantly cheaper. It is estimated that about 1.84 billion bushels have been harvested in Brazil, and following that, weekly export inspections for last week were poor at just 25.4 mb. Argentina’s crop has repeatedly been revised lower with recent estimates falling between 32 mmt and 34 mmt, which compares to the USDA’s 41 mmt estimate, but this seems to be priced in by now. Export demand is certainly declining but domestic demand has remained stout and may bar prices from falling too low. May soybeans took out levels of support and all moving averages apart from the 100-day and 200-day and they also closed below the bottom end of their Bollinger Band.
WHEAT HIGHLIGHTS: Wheat futures faded again today after brief attempts to turn positive throughout the session. This could mean that a bottom is near, but not fully established as the tone has shifted to bearish over the past several days. May Chi lost 4-1/2 cents, closing at 7.05-1/2 and Jul down 4-1/4 at 7.13-3/4. May KC lost 4-1/4 cents, closing at 8.12-3/4 and Jul down 5 at 8.06-1/2.
Wheat traded lower again today, but was not down as severely as it has been the past several sessions. It may also be showing signs of nearing a bottom technically as it has become oversold. Fundamentally, it is difficult to point to anything different today versus a couple weeks ago. This makes it increasingly difficult to explain why it has seen such a big move; May Chicago hit the lowest level since September 2021. It is believed that the funds have added to their short positions in wheat with some estimates saying they could be net short as many as 100,000 contracts. Without updated data from the commitments of traders report, however, it remains an unknown. Pressure is also stemming from continued exports out of Russia at levels much cheaper than the US. For example, Turkey is said to have bought 790,000 mt of wheat from Russia and Ukraine recently. And while the Black Sea export deal is set to expire on March 19, right now the talk is that it may in fact be extended, which would be bearish to the market.
CATTLE HIGHLIGHTS: Both live and feeder cattle closed higher today with fats being led higher by boxed beef and anticipation of higher cash, while feeders benefitted from drastically lower corn. Feb live cattle were 2.500 higher to 167.500, and Apr cattle gained 0.500 to 165.475 Mar feeders gained 0.625 to 189.800.
The cattle complex performed well today despite the brutal selloff in grains as higher boxed beef is giving optimism for higher cash again this week. Choice cuts rose 0.61 to 288.95, while select was unchanged at 279.25 this afternoon, but saw solid gains yesterday. Cash trade last week was higher, but light and some trade followed through into Saturday. 24% of the cattle purchased last week for deferred delivery, and with boxed beef moving higher, packers need to be aggressive in their purchases. As corn has broken to the downside, feedlots have gotten a well needed break and futures were able to move higher. If the downward trend in corn continues, feeders could continue gaining. Early asking prices for cash in the South are sitting at 166 or higher but are still not established in the North, and it is probable that significant business will not take place until Friday. The rest of the week should hold more upside potential for both fats and feeders with higher cash and boxed beef as well as the downturn in grains.
LEAN HOG HIGHLIGHTS: Lean hog futures had a mixed to lower close as futures remain limited by lower cash. Apr hogs gained 0.450 to 85.175 and Jun was down 0.375 at 101.725.
After closing below support yesterday, the hog market may have experienced some technical selling today. However, the mixed close could indicate that a nearby bottom is forming. The front month contract charts also seem to be establishing the right shoulder in an inverted head and shoulders formation. This would point to another run higher. Export and domestic demand may also be improving as packers have been more aggressive and China has been a recent buyer. Expectation is for tighter supply and stronger demand down the road which would be supportive to futures. However, the index at 78.22 is still well below the futures and may limit upside movement for now. It is worth noting that the index has been trending higher and if the gap closes between it and the front month April, it could offer longer term support to the market.
DAIRY HIGHLIGHTS: Class III action was mixed and mostly quiet on Tuesday, but the second month March contract managed to close back above $18.00. Spot cheese was unchanged while whey fell 3/4 of a cent for an uneventful Class III spot trade. While spot butter was unchanged, powder gave back a couple cents to fall to $1.18/lb, dragging Q2 and Q3 Class IV futures down, although volume was non-existent. Feed markets are finally giving dairy producers some signs of hope with hefty losses in corn and the soybean complex, but with the month of March already upon us and ongoing turbulent global news, volatility is likely to stick around.
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Author
Brandon Doherty