MARKET SUMMARY 3-20-2023
The latest Cattle on Feed report released last Friday was mostly in line with expectations and still reflected a tight future cattle supply. Feeder cattle placements have been below last year’s levels for six consecutive months, and cattle on feed was down 5% from last year. Despite the tight cattle numbers, June live cattle futures traded to their lowest point for the year 2023 during the session on Monday. The market is concerned about the outside markets and economic concerns relating to the banking issues from the past couple of weeks. This has seemed to create some risk-off mentality in the commodity markets, and that has spilled over into the livestock complex. The trend currently is still lower, but with the tight supply picture, the cattle market could become a value if prices slip further.
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CORN HIGHLIGHTS: Corn futures end quietly and with small losses. May lost 1-1/4 cents to finish at 6.33, 8 cents of the low for the day and 1 cent below the high. December gave up 1-1/4 to close at 5.60, a 0-1/2 cent from the day’s high. Economic uncertainties and “risk off” may have been a feature today as was rain in Argentina and weaker wheat prices. Also likely adding some pressure is continued exports (corridor extension) out of the Black Sea for at least another 60 days.
Export inspections at 47 mb were considered supportive and at the high end of estimates. There is a concern that banking issues could create a black swan economic event. The most recent economic concerns of similar distinction were the Covid market downturn in 2020 and 2008 economic collapse, both of which had prices falling despite little fundamental reason. As the CFTC catches up on the Commitment of Traders report, it appears funds have nearly shed all longs. We are not sure if the intent is for the CFTC to be caught up by Friday. Export sales of 83 mb to China were supportive yet may only be able to get some much buying interest if additional sales are not noted soon. Is it a case of too late? Maybe. Time will tell. There will be more interest rate information as well as the FOMC meets on Wednesday. There is feel that rates will not rise more than a 0-1/4% after the current disruption of bad bank news. Today’s late session climb is encouraging to bulls.
SOYBEAN HIGHLIGHTS: Soybean futures managed to close higher in the front months but lower in Nov, while meal closed lower but bean oil higher along with higher crude. Trade was volatile with prices down sharply across nearly all commodities and equities this morning before recovering after news broke that UBS was buying out Credit Suisse. May soybeans gained 9-1/2 cents to end the session at 14.86, and Nov lost 4-1/2 cents at 13.09.
Outside bearish factors to do with the banking and finance sector have been causing the ag markets a lot of volatility and downward momentum, and last night’s announcement that UBS would be taking over Credit Suisse brought more instability. Equity markets and commodities were down hard this morning with soybeans down as much as 14 cents before swinging largely around to turn positive. The Dow had nearly a 900-point range today as it was down almost 500 points in the overnight before ending up 400 points higher. The fundamentals have not been particularly bearish with export inspections coming in from last week at 26.3 mb, Brazilian harvest delayed due to wet conditions, and an increasingly poor Argentinian crop. Putting pressure on the bean meal market are cases of African Swine Fever surging in China, while bean oil has mostly followed crude oil which ended slightly higher. Traders are on edge with the recent news regarding the banks as well as anticipating what the Federal Reserve will announce for rate hikes this week. Non-commercials hold a large net long position of over 100,000 contracts which could be vulnerable if more bad news is released. The May contract was unable to cross back above the 100-day moving average today, while Nov beans continued to make new lows and closed at the bottom of their Bollinger Band again today.
WHEAT HIGHLIGHTS: Wheat futures traded lower today as an export deal between Russia and Ukraine was reached in some form or another. May Chi lost 9-3/4 cents, closing at 7.00-3/4 and Jul down 11 at 7.08-1/2. May KC lost 6 cents, closing at 8.29-3/4 and Jul down 7-1/2 at 8.15-1/4.
There appear to be a few factors affecting wheat right now. First and foremost, the Black Sea Grain Initiative was extended. Granted, there is some confusion as to the duration of that extension. Russia is reportedly insisting that it is only for 60 days, yet Ukraine is saying that it is a 120-day addition. In either case, traders may find themselves right back where they were in about two months if this does not get sorted out. Regardless, the fact that any extension took place will be perceived as negative to the market. This is evident in the case of Paris Milling wheat futures which gapped lower. Also affecting wheat (and other commodities) are the continued concerns about the banking system. News outlets are reporting that UBS purchased Credit Suisse for $3.2 billion. However, while this news and the measures that the FDIC are taking may ease concerns a bit, the fear is that more problems could crop up. In other news, wheat export inspections came in at 13.8 mb, bringing total 22/23 inspections to 598 mb. While this was a decent number, Russian and Ukrainian wheat exports continue to dominate and cut into US exports overall. As a final note, drought remains an issue in the US southern plains and may provide support to prices down the road.
CATTLE HIGHLIGHTS: Cattle futures saw mixed to lower trade as the cattle market saw additional long liquidation, pressured by the cattle on feed numbers and a softer cash market last week. Apr live cattle slipped 0.300 to 162.025, and Jun cattle slipped 0.875 to 155.525. Feeders were mixed as Mar feeders slipped 0.650 to 188.200 and Apr lost 0.025 to 194.625.
A neutral Cattle on Feed report as numbers came in within expectations wasn’t enough to support the cattle markets. The total cattle on feed came in just slightly above analyst expectations, and that, with the combination of softer cash trade last week, pressured the futures. Add in the economic concerns and a deflationary environment, it was difficult for cattle futures to find footing. Technically, charts are weak and supported by soft price action open the door for additional long liquidation. Cash trade was undeveloped to start the week, and the market is hoping for some improvement on last week’s softer tone. Retail values were firmer at midday with Choice carcasses gaining 0.19 to 283.54, and Select added 1.17 to 273.16. The load count was light at 38 loads. The Choice cutout edged $0.65/cwt lower this week with the Select cutout decreasing by $4.29 as buyers remain comfortable with positions and not focused on the spring demand window. Last week’s slaughter totaled 631,000 head, down slightly from last week, and down 5,000 head from last year. Year over year beef slaughter is down 2.4% in total head. The cattle market is still trending higher overall, but prices have further room to push lower technically. The futures market is now trading at a discount to the cash market, which could provide some support to the front end of the market. Charts are still vulnerable, and the outside markets may be the key as the market acts cautious.
LEAN HOG HIGHLIGHTS: Lean hog futures saw the sellers continue to push the market lower on long liquidation and additional technical selling as hog futures broke to new nearby lows. Apr hogs dropped 2.100 to 77.775, and Jun futures traded 1.450 lower to 91.875.
April hog futures set new contract lows at the start of the session and closed with weak price action. Sellers dominated the market as the April futures have traded lower 5 out of the last 6 sessions. April has moved to a discount to cash and looks undervalued, but the technical trend and price action have yet to show a low is in place. A firmer cash index helped support the Apr contract. The CME Lean Hog Index was 0.05 higher to 80.01 but has slowed its recent climb. Direct cash hog trade was 1.37 lower to 76.44. The hog market is still processing a larger supply of hogs than anticipated. Weekly slaughter was 2.492 million head last week, just under last week, but 2.4% above last year. Year over year, hog slaughter is running 1.6% higher. This larger than anticipated hog numbers are pressuring the market and the cash market. Retail values were firmer at midday with the carcass value adding 1.30 to 82.25 as retail values have trended softer recently. The load count was good at 180 loads. The hog charts broke technically this week as the seller are driving the market. The money flow and technical trade will likely outweigh the fundamentals in the short term as the market is searching for a new bottom, at this point, that bottom still looks to be in the future.
DAIRY HIGHLIGHTS: After pushing to multi-month highs in the morning trade, Class III futures softened as the day moved along, particularly for the Q2 contracts. April futures traded to an intra-day high of $19.44, the highest the second month chart has traded since January 3 before closing down 15 cents at $19.02. After last week’s rally, today’s action in-and-of-itself is not a major red flag, especially with the spot markets hanging in there and likely some profit-taking before the February Milk Production report release. Without a continued push higher in spot cheese, nearby Class III futures getting back near $20.00 may take some time.
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Author
Amanda Brill