MARKET SUMMARY 2-8-2023
After the USDA Cattle Inventory report, feeder cattle futures posted a strong rally, supported by the tight supply picture and decreased beef cow herd. The March contract rallied nearly $10 from its January low, but the momentum may be starting to slip. The fundamentals are still very supportive in the cattle market overall, but price action may have some technical triggers that could bring some price correction. On Tuesday, March feeders failed at the Dec high trading to $188.575 before reversing into the close. The price action saw further weakness on Wednesday slipping another 0.750 into the close today, giving the market some follow-through selling pressure. This could set up the possibility of some additional price correction and a possible test of lower levels. The pullback may be healthy for longer term price support, but in the short term, the Feeder market may look to move some money to the sidelines.
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CORN HIGHLIGHTS: Corn futures continued their back-and-forth ways with gains of 4-1/2 cents in March and 2-0 in December. The WASDE report was considered a non-event. Exports were left unchanged at 1.925 bb; however, ethanol was reduced by 25 mb raising carryout to 1.267 bb versus last month’s 1.242 bb. Firmer wheat, beans, and energies were considered supportive.
We are not sure how to read today’s report other than neutral. The interesting aspect is that exports were not reduced this month, suggesting the USDA is confident that export sales will increase strongly in the months ahead. Yet, they can certainly adjust export expectations on future reports. Last week’s export sale at over 60 million bushels was supportive but the market will have to see many more weeks like this to give bullish traders confidence that exports can reach the USDA’s projections. This comes at a time when the market will focus its attention on the southern Hemisphere and crop conditions for both Argentina and Brazil for spring and second corn crop. How rapidly beans can be harvested in Brazil and second crop corn (which is their larger exportable corn crop) can be planted are paramount. Projected carryout for world supplies took a turn downward as anticipated due to crop reductions for Argentina due to drought. Today’s projected world carryout number is 295.3 mmt versus last month’s 296.4.
SOYBEAN HIGHLIGHTS: Soybean futures closed slightly higher after today’s WASDE report, which showed lowered Argentinian production but overall was a fairly quiet report. Bean meal moved higher while bean oil closed lower despite a jump in crude oil to over 78 dollars a barrel. Mar soybeans gained 4-1/2 cents to end the session at 15.19-3/4, and Nov gained 1/4 cent at 13.70-3/4.
Today’s focus was the relatively uneventful WASDE report, which included adjustments but did not have a major effect on prices. The USDA increased their estimates for the US ending soybean stocks from just 210 mb to 225 mb due to a reduction in crush estimates of 15 mb, a slightly bearish figure but did not deter prices from moving higher. For South America, trade was looking for the USDA to lower Argentinian production and they did by 4.5 mmt to 41 mmt, but that number may go lower as drought has taken a toll on the crop. The Brazilian production estimate remained the same at 153 mmt which would be a record high, but that number could increase as early yields in Mato Grosso have been reportedly higher than expected. Overall, the USDA’s estimate of world bean stocks was reduced from 103.52 mmt to 102.03 mmt, but this report was a fairly quiet event with few surprises. While bean meal finally had a close higher, bean oil moved lower despite a nice jump in crude oil of 1.30 bringing it back over 78 dollars a barrel. March beans may have put in a temporary top at the end of last month and have worked lower since but remain in their upward trend.
WHEAT HIGHLIGHTS: Wheat futures closed higher despite a fairly neutral report. US ending stocks remain at the lowest level in 15 years, which may be supporting the rally as funds exit short positions and commercials show buying interest. Mar Chi gained 15 cents, closing at 7.64-3/4 and Jul up 12-3/4 at 7.79-3/4. Mar KC gained 10-1/4 cents, closing at 8.96 and Jul up 6-3/4 at 8.70.
As on any given report day, traders are aware that the USDA could be packing a surprise or two. Today was not that day. US 22/23 wheat ending stocks came in at 568 mb, up 1 mb from January, but below the average pre-report estimate of 579 mb. Exports were left unchanged at 775 mb. Additionally, the estimate of world wheat production was pegged at 783.8 mmt, which was up from 781.31 last month. (However, the International Grains Council has a higher 796 mmt estimate). The world carryout was said to be 269.34 mmt, up slightly from January’s 268.39 mmt. As far as Russia and Ukraine are concerned, the USDA raised exports by 0.5 mmt for each of them. On that topic, Russia has indicated that they will increase attacks on Ukraine, which has the potential to further disrupt grain production and shipping. Reportedly, Russia has also been complaining that the wheat being shipped out of Ukraine is going mostly to Europe instead of north Africa where it is most needed. Russia’s wheat production was raised by 1 mmt to 92.0 mmt, which is still well below some previous numbers out of that region claiming a 100+ million-ton crop. Today’s report did not address US winter wheat conditions, however the HRW crop is still the concern. It is worth noting that the 6-10 day forecast shows chances for precipitation in that region.
CATTLE HIGHLIGHTS: Mixed to mostly lower trade in cattle markets on Wednesday was noted, as the market is watching for cash trade to develop and was pressured by the weak price action from the close on Tuesday. February cattle were 0.225 higher to 160.800, and April cattle gained 0.100 to 163.700. In feeders, March feeders lost 0.750 to 186.400, leading feeders lower.
The price action in the cattle market was weaker overall after the turn lower on the close Tuesday. The market is fundamentally supported, but the momentum at this point seems to have slowed. The development of cash trade could wake the market back up, but that news is still developing this week. The countryside cash trade was quiet again on Wednesday and bids are undefined, but asking prices remain firm at $161-162 in the south. The Fed Cattle exchange had 7 lots on the sale today and saw one lot sell today from TX at $159. Most reserve prices were not met. Cash trade will most likely build as the market moves through the end of the week. Retail carcasses were mixed at midday. Choice carcasses added 0.07 to 266.79 but Select was 3.38 lower to 253.95. The load count was light at 55 loads at midday. The feeder market saw some long liquidation after the technical turn on Tuesday and a firmer corn market on Wednesday. The feeder cash index traded .06 higher to 182.29 but is still a discount to the futures. The trend in the cattle market is higher overall, but the price action Tuesday and Wednesday brings some caution. The market is overbought and could be due for some pullback on the technical side due to loss of momentum and the strong money flow over the past couple of weeks. We still like the upside longer term, but the cattle market may be due for a pause. With that, a strong cash trade this week could change the momentum very quickly.
LEAN HOG HIGHLIGHTS: Lean hog futures finished mostly higher, supported by indications the cash market may be trying to build a seasonal low. Feb hogs gained 0.550 to 75.925, and April hogs added 0.800 to 84.075.
The hog market saw some follow-through strength after Tuesday’s gains on the front end of the market. April closed the day above Tuesday’s high, signaling a potential turn higher in the charts. There is still a lot of work to do to trigger short covering in the hog market, and it will take the market fundamentals to help be the trigger. The cash market is looking to turn higher, and that helped support prices on Wednesday. Direct cash trade at midday was 3.23 higher to 75.45, after a positive close on the Tuesday afternoon trade. That cash strength is working into the cash index, which was .22 higher to 73.51 as the index continues its steady climb off its January low. The gap between the Feb futures and the index has narrowed but is still trading at a 2.415 discount. Hog slaughter numbers are still at a comfortable pace for the packer with estimated slaughter today at 482,000 head, down 8,000 from last week, but still 6,000 over last year. Retail values were firm at midday today, gaining 3.76 to 82.32. The load count was light at 158 loads. Weekly export sales totals have been supportive in recent week, and the market will be anticipating the report on Thursday morning. The hog market again is trying to find a bottom. The price action the past couple days could resemble a blow-off bottom with a move higher, but it will still take the fundamentals to sustain any rally.
DAIRY HIGHLIGHTS: Buyers returned to the global market on Tuesday and took the GDT price index up 3.20%. This was the largest up auction for the GDT since September. Global markets had been under pressure for nearly 10 months straight, so the turnaround auction is helping to support the milk market in the US this week. On Wednesday, most Class III futures were bid up double digits and October 2023 milk was able to close with a $20.00 handle. Second month Class III added 21c to $17.62, while third month Class IV added 7c to $18.83. The spot trade was quiet with butter, powder, and whey all unchanged. Cheese blocks added 3.75c, while barrels fell 1.50c. In the USDA Supply and Demand report, the USDA had a bearish tone to milk and dairy product prices. The USDA lowered its all milk price to $20.70 for 2023. They did also cut expected 2023 milk production forecast as well.
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Author
Brandon Doherty