MARKET SUMMARY 3-1-2023
The Argentina soybean crop stays in the news and focus of the market. After an extremely difficult price day on Tuesday, soybean futures popped back on Wednesday. The soybean market was supported of additional analysts dropping their estimates of the Argentina soybean crop. South American crop consultant, Dr. Michael Cordonnier, cut his Argentine soybean crop estimates another 2 MMT each to 32 MMT amid persistent weather stress. The USDA recently lowered its outlook to 41 MMT. There continues to be whispers of the crop numbers dropping below the 30 MMT level. Weather forecasts are staying on the hot and dry bias, and further reductions in the crop are possibly likely. The weaker crop in Argentina continues to support the soybean meal prices, which held support levels after yesterday’s weakness. Prices for soybeans may still have room to work lower, but at least for the near-term are supported by the Argentina weather.
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CORN HIGHLIGHTS: Corn futures ended mixed with old crop recovering from a five-day skid, finishing 11 cents higher in March 5-1/2 higher in May and 3-1/2 higher in July. New crop, however, closed 0-3/4 lower in December, ending the session at 5.69-3/4. Old crop contracts posted a hook reversal (lower low and higher close than the previous day). The weekly ethanol grind for the previous week was 101 mb, in line with expectations and neither bullish nor bearish.
Is a near term low in place or is there more downside to come? The trade activity for the past several sessions is likely sending a bigger picture message that the trend for prices is likely lower unless weather or something else is a factor. Heavy fund liquidation is a likely sign that investment money is seeking other opportunities or has lost confidence that upward price momentum has been lost. While the cost of production has risen, the marketplace (in the short term) is not always responsive to this concern. In the long run, the market may care about an industry (production agriculture) that is losing money but in the short-term losses to producers may not be impactful to traders’ decisions as to whether to be a seller. The inverse relationship between price and the trend of carryout is a good barometer of potential price direction. Last week the USDA, in the Outlook Forum confirmed expectations for higher carryout.
SOYBEAN HIGHLIGHTS: Soybean futures closed higher today in a much needed rebound after five consecutive lower closes. Both bean meal and oil closed higher with crude up a bit as well. China put out some positive economic data that may have helped support prices today. Mar soybeans gained 15-1/4 cents to end the session at 14.94-1/4, and Nov gained 11-3/4 cents at 13.59.
Soybeans recovered about half of yesterday’s losses but are still down over 50 cents in the past 6 days following the selloff. Yesterday there were rumors that China has cancelled US soybean shipments in favor of Brazilian offers that are significantly cheaper, but it turned out it was Argentinian shipments that were cancelled. This still sets a potentially bearish tone because if China is willing to cancel Argentinian shipments, they should not have any qualms about canceling those from the US with Brazil selling beans at such a steep discount. The story with Argentina’s weather and significantly reduced crop has not changed but the market appears to have stopped trading that weather and instead focus on Brazil with production estimates as high as 154 mmt. Some supportive news for the day came out of China releasing their PMI data which goes over manufacturing and housing data which was positive, signaling potential growth for their economy and greater need for imports. US export demand has certainly slowed recently but the year as a whole has been good and only 143 mb more of sales are needed by the end of August to reach the USDA’s estimate. May beans found support at their 100-day moving average as they bounced off it today.
WHEAT HIGHLIGHTS: Wheat futures stopped the bleeding today and may have formed a bottom as they correct from a deeply oversold situation. May Chi gained 4-1/2 cents, closing at 7.10 and Jul up 4-1/4 at 7.18. May KC gained 3-1/2 cents, closing at 8.16-1/4 and Jul up 2-3/4 at 8.09-1/4.
After several consecutive lower closes and the lowest close in five months for March Chicago, wheat finally managed to rebound a bit today. It is possible that this is just a dead cat bounce, but wheat futures are very oversold and due for a correction after such a strong move downward. Fundamentally, there is not much to point to that has changed in the past two weeks. But there may be bullish news on the horizon. It is now being rumored that Russia will not agree to extend the Black Sea export deal unless sanctions are lifted. While this idea was already out there, it is somewhat of a reversal from the recent thought that the deal might be extended regardless. It is still a big question mark at this point and could affect the market significantly. In any case, Russia continues to dominate exports with Turkey said to have purchased 790,000 mt of wheat from them and Ukraine. On a positive note, Taiwan did buy about 50,000 mt of wheat from the US. As far as weather goes, there are better chances for moisture in the US southern plains. It is also being said that hot and dry weather is expected to hit India’s wheat growing region which could affect their crop.
CATTLE HIGHLIGHTS: Both live and feeder cattle finished mostly lower on the day as the market is looking at seasonal weakness and waiting for cash trade to develop. Apr cattle slipped 0.350 to 165.125, and June Live cattle lost 0.750 to 160.600. Mar feeders fell 1.500 to 188.300.
The cattle complex charts are looking a little tired, and prices failed to push back to recent highs before slipping on the day. Seasonally, cattle futures are typically pressured in this time frame until May as the market works through the end of winter into early spring. This year may be different given the tight supply picture and the strong cash market tone. Cash trade is still slow to develop this week. Bids are $165 in the South and dressed bids of $265 in the North. Asking prices remain firm and current bids are being passed over. Most likely significant trading volume with wait until the end of the day tomorrow into Friday. The retail market was softer at midday as Choice carcasses slipped 0.37 to 288.58 and Select lost 2.93 to 276.32. The load count was light at 61 loads. Today’s slaughter totaled 126,000 head, even with last week, but 2,000 greater than a year ago. Feeder cattle were under pressure from the weakness in the Live cattle market and the turn positive in grain prices. The feeder cattle index was 0.42 higher to 183.04, but still at a discount to the futures. If the grain market can find some additional buying support, that could pressure the feeder market in the near-term. The cattle market looks a little tired again, failing to build of the most recent highs. The cash market will still be the driver as trade come together later in the week. Prices may be due for some pullback, but the supply picture will limit any longer-term weakness.
LEAN HOG HIGHLIGHTS: Lean hog futures remain pressured by the premium to the cash market, despite support from the retail market. Apr hogs slipped 0.225 to 84.950, and Jun was down 0.925 at 100.800.
April hogs are holding the $84.500 area, which could be a key holding point going into the end of the week. The hog market is trying to trend higher, but the cash market and hog slaughter numbers keep rallies in check. The lean hog index gained 0.29 to 78.51, and the gap between the futures and index is 6.440. That gap has narrowed in recent sessions and may be at a more historical spread. The market still needs the daily cash strength. Direct cash trade was 1.20 higher to 78.63 as the direct cash trend stays firm. In the retail sector, midday trade was firmer, gaining 1.28 to 85.64. The load count was light at 145 loads. Hogs slaughter was 468,000 head on Wednesday, up 59,000 from last week, which was impacted by a midwestern snowstorm. Slaughter was trending 13,000 under last year. The fundamentals have improved, and it feels like the hog market wants to work higher overall. Prices are challenging support, tightening the premium up in the market, but as long as the cash market moves higher to a spring/summer high, the hog market should stay supported.
DAIRY HIGHLIGHTS: Class IV milk futures accelerated their downside momentum on Wednesday as contracts lost most of what they had gained in February. Second month April lost 28c to $18.38 while May fell 35c to $17.90. After today’s move, the Class IV market has tightened up its spread with Class III a bit. Strong butter markets had kept Class IV at a premium, but the strong down move today may have traders pessimistic that butter can hold onto these high levels. There was a recent increase in butter inventories as well that could be pressuring the market. In Class III, cheese was down 2.375c as 3 loads of inventory moved. The whey market was also down a penny to a $0.4475/lb close. The dairy market holds in a strong downtrend and is searching for a reason to move higher, but isn’t finding it. Cow numbers and milk production are both increasing, the economy is shaky, global prices are weak, and each spot dairy product is under in a downtrend.
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Author
Bryan Doherty