MARKET SUMMARY 2-6-2023
The corn market is caught between two different forces – weak export market and strong cash markets. The push and pull between the two has kept the corn market range bound in recent trading sessions. Export demand is poor with current sales running 46% under last year’s totals. The demand concern limits the upside value as the market is trying to stay price competitive in the global market. The cash market provides lift. Basis levels in the western Corn Belt and the East Coast are very friendly, trying to move corn to those areas impacted by high demand and low production. This push/pull in the market will likely keep the path in the corn market sideways in the near future unless some news breaks to change either path.
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CORN HIGHLIGHTS: Corn futures ended on a firm note despite lower wheat and soybean futures. A firmer U.S. dollar and lack of bullish news pressured prices earlier today, but futures battled back with small gains of 1-1/2 cents in March and 1-3/4 in December. March ended the session at 6.79 and December at 5.97-3/4, its highest close since Jan 18.
Export inspections at 18.9 mb were disappointing and below the weekly average to meet USDA projections. Today’s figure is not a surprise however as export sales up until last week have been very slow. Diplomatic relations with China have been in question this weekend with the U.S. downing what is termed a spy balloon, yet it didn’t appear this event had much impact on corn prices today. Today’s close was encouraging, considering there wasn’t much if any news that was supportive and, with weaker wheat and soybean prices, it does make us wonder if today was merely traders exiting short corn long wheat and short corn long soybean spreads. On Wednesday the USDA will release the WASDE report with expectations that exports could again be downgraded. An earthquake in Turkey may suggest that Black Sea exports could be affected yet there is little to suggest that will occur. The 21-, 100-, and 200-day moving averages all acted as support today with futures finding buying interest at these levels. Futures are hanging in there with bulls arguing it is a long time before SA crops are available, and supplies remain snug. While true on the snug part, a lack of strong demand and expectations for big production in 2023 has prices potentially over-priced. Currently, neither bulls or bears are winning the battle.
SOYBEAN HIGHLIGHTS: Soybean futures closed lower today, led down by bean meal, while bean oil ended the day higher with higher crude oil. A higher dollar and increased tensions with China put pressure on the soy complex today. Mar soybeans lost 10-3/4 cents to end the session at 15.21-1/4, and Nov lost 2-1/2 cents at 13.67-1/4.
Soybeans are still in their upward trend that has been chugging along since October, but the momentum is beginning to stall as Brazil’s likely record harvest is underway. It has been anticipated that exports would largely slow down as China and other major buyers turned to Brazil for far cheaper soybeans, but without the strong export picture, it may be difficult to justify these high prices. The estimate for Brazil’s crop is currently sitting around 153 million metric tons, but that number is subject to change as harvest continues and yields are reported. The US shot down another Chinese surveillance balloon off the coast of South Carolina, and this whole situation with the balloons has increased already high tensions and shaken bean traders. Export inspections came in this morning with encouraging numbers. The USDA reported 67.2 mb of soybeans inspected for export last week which put total inspections down 1% from a year ago but still above the USDA’s estimated pace. February’s WASDE report will be released this Wednesday but shouldn’t contain many surprises. Even with a drop off in exports, domestic demand remains stout with high crush margins and based of the March futures, crushed beans exceed the cost of uncrushed by 3.16, a good motivator for processors. March beans remain in their upward trend but have been having trouble with the resistance level at 15.50.
WHEAT HIGHLIGHTS: Wheat futures settled mostly lower on a lack of fresh bullish news, and uncertainty over global events. Mar Chi lost 6-1/2 cents, closing at 7.50-1/4 and Jul down 5 at 7.66-3/4. Mar KC gained 3 cents, closing at 8.76 and Jul up 1/2 at 8.58-1/4.
Wheat had a mostly lower close, with the front three months of the Kansas City contract being the exception. Bull spreading was noted for KC which may indicate some concern about demand down the road (as well as supply nearby). As far as headlines go, it was another relatively quiet day, though traders may still be trying to figure out the impact that the Chinese balloon will have on the markets. The initial reaction may be bearish, with the thought that an increase in tensions will only lead to reduced export business to China. While the impact to wheat on its own might be negligible at this point, this event could weigh on soybeans and corn, pulling the complex down as a whole. In other world news, there was a significant earthquake in Turkey, but it was on the opposite side of the country from the Black Sea. It is unknown at this time how (or if) this will affect the logistics of the Black Sea grain deal and the shipments that are inspected in Istanbul. And as for today’s export inspections data, the USDA said they came in at 19.7 mb for wheat, brining total 22/23 inspection to 506 mb. While this was an ok figure, inspections are currently running just slightly above the USDA’s pace to met the 775 mb export estimate. As a reminder, the next WASDE report will be released this Wednesday, but major changes are not expected for the US numbers. There is, however, a divergence on the 22/23 world production estimates though. The USDA is projecting a 28.71 bb crop while the International Grains Council is at 29.25, so they may make adjustments on this week’s report.
CATTLE HIGHLIGHTS: Both live and feeder cattle saw buyers stay active to start the week as the futures markets posted moderate gains. Mixed to firmer cash trade last week and demand in the face of tight cattle supplies keeps money flowing into the market, triggering new contract highs in live cattle futures. Feb cattle hitting first notice day today gained 0.550 to 160.825, and April cattle added 0.350 to 164.475. In feeders, March feeders added 1.600 to 187.700.
Live cattle futures pushed to new contract highs, and the longer term deferred futures are posting new lifetime highs. April live cattle future all-time high was 171.100 in January 2014, and today April 2024 futures push through that level trading to 172.150 on the close. The cattle market is still looking at the tight supply picture and that has the money flowing into the long side of the market. The trend is still higher at this point, and the fundamentals are staying supportive. The cash market was slow to develop last week but did see light trade after the close on Friday, with dressed trade settling $2 higher than last week’s averages, supporting the market. The cash market was quiet to start the week as usual as bids and asking prices were not defined. Beef cutout values saw good strength with Choice adding 1.62 to 266.36 and Select adding 1.70 to 253.31 at midday. The load count was light at 67 midday loads. Beef cattle slaughter last week was at 641,000 head, down 2.73% from the previous week, a trend that is likely to continue. The feeder market saw strong gains using the strength in live cattle and a quiet corn market, to see some follow-through buying. Feeder cattle markets look strong and are looking to challenge the most recent contract highs. The trend in the cattle market is still heading higher fueled by strong money flow and technical buying, back by tight cattle supplies. seasonality may be a factor soon as April Live cattle futures have a tendency to peak around the Valentine’s Day window.
LEAN HOG HIGHLIGHTS: Lean hog futures came under the weight of strong selling pressure as the market is still looking to take the premium of the futures market to the cash market out of prices. Feb hogs are closing in on expiration gained slightly adding 0.025 to 75.050, but April hogs saw strong triple digit losses dropping 3.750 to 82.725.
April futures started the day at a $10+ premium to the cash index and nearly a $15 premium to the direct cash hog price, and with February expiration right around the corner, the hog traders decided to tighten the spread. This triggered strong liquidation through the complex, pushing the April contract to a nearby contract low, pushing through the low established in early October. The market looks very susceptible to further pressure, especially given the premium the futures market still holds. Fundamentally, pork retail values were strongly higher at midday with a gain of 8.87 to 87.96. The pork belly primal jumped 34.18 higher to support the retail values. The load count was light at 145 loads. The retail afternoon close will be key today to see if the jump in value holds. Prices are likely to soften and the move at midday to be an anomaly. The direct cash hogs trade at midday was softer, dropping 0.84 to 71.81. The lean hog index traded 0.20 higher to 73.05. Weekly hog slaughter last week was estimated at 2.575 million head, up 1.54% from last week as hog slaughter pace stays active, pressuring the cash market even more with ample supplies. The hog market was still holding that premium to the cash market and that will be a limiting factor and move on Monday makes the market technically challenged as well. Again, the hog market might be looking for a low.
DAIRY HIGHLIGHTS: The March Class III contract held above last week’s low but did bring the rolling second month chart to its lowest close since November 2021, dropping 27 cents to $17.46. Spot cheese dropped 2.25 cents on 10 loads traded on Monday as demand reports continue to give up some ground. Class IV action was unchanged to higher for the nearby months with spot butter and powder both gaining a half cent. Friday’s Dairy Product Production report showed a trend higher for cheese, butter, and powder to close out 2022 which may be cause for concern given the weaker demand news. For now, keep an eye on how the March Class III contract trades near last week’s low of $17.35.
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