MARKET SUMMARY 3-23-2023
It has become very evident the managed funds are liquidating their net length in the grain markets. Funds have been net short wheat futures for weeks, recently moved net short corn, and this week, seem to be liquidating their net length in the soybean complex. Since Tuesday, soybean futures have been under strong selling pressure as July soybean futures have lost 62 ¾ cents so far this week. The selling has turned the technical picture on the charts very negative. This week, prices closed under the 200-day moving average, today, closed under the $14.00 psychological level. Beside the technical concerns, the soybean complex has been pressured by fundamental issues. Weekly export sales for soybean were below analyst expectations, and the ongoing Brazil soybean harvest is pressuring global markets. The soybean complex is looking for a near-term bottom, but the momentum and trade still points to further downside.
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CORN HIGHLIGHTS: Corn futures closed weaker with small losses. Prices raced higher after strong exports sales were released in addition to another announced China purchase of U.S. corn. Today’s China buy was 123,000 mt (4.85 mb). May traded 10-1/2 cents higher by mid-morning before retreating to 6.31-3/4; December lost 2-1/4 and closed at 5.52-1/4.
Export sales for last week totaled 121.9 mb, bringing the year-to-date total to 1.376 bb or 74.3% of the total expect sales of 1.850 bb. This suggests export sales need to average near 21 mb per week. This seems doable but the issue will be how much corn is available from Brazil and when. One wonders if part of the recent Chinese purchases are “just in case buys” as about 35% of the Brazilian crop is planted is less than an ideal window of time. A small reduction in initial margin from the CME group is noted today reflecting lower price and volatility. The inability to hold daily gains is discouraging to bulls and a reminder to bears to keep selling. The CFTC will release the COT (Commitment of Traders Report) tomorrow and will finally be caught up after several weeks of no date due to cyber security issues. Despite today’s setback, the technical picture suggests that an inverted head and shoulder formation point to May moving up to 6.77 area. USDA Crop Acreage and Quarterly Stocks are due for release on March 31.
SOYBEAN HIGHLIGHTS: Soybean futures closed sharply lower again today along with large losses in both bean meal and bean oil as fund long liquidation continues. Soybean export sales were poor as expected with Brazilian harvest over halfway complete. May soybeans lost 29 cents to end the session at 14.19-1/2, and Nov lost 14-1/2 cents at 12.58.
Soybeans continued their downward trend brought lower by a sharp selloff in bean oil with lower crude. May bean oil lost 4.52% today bringing prices to their lowest levels since December of 2021. While there are a number of other factors adding to the pressure in beans, the main influence is heavy fund selling in the soy complex. The funds hold a very large net long position in beans compared to corn and wheat and makes it the most vulnerable to a large selloff. Last week’s CFTC data showed funds long over 100,000 contracts and Monday’s report will likely show that number significantly smaller. Soybean export sales were poor at just 5.6 mb last week while shipments of 25.9 mb were above the 16.8 mb needed to meet the USDA’s estimates. Brazil’s harvest is underway, and most analysts expect a record crop of 153 mmt. With the new supplies on the market, Brazilian beans are now at a 1.50 discount to US offers. China’s soybean futures fell again today with ASF spreading there, and palm oil futures fell by over 2.5% which pressured bean oil. Soybeans are becoming extremely oversold, and the Nov contract has closed lower for 13 days straight. Both old crop and new contracts are in a sharp downtrend and far below their moving averages.
WHEAT HIGHLIGHTS: Wheat futures closed mostly higher and held well in the face of several negative factors. HRW futures did outperform SRW, likely due to the ongoing drought issues in the southwestern plains. This may be supporting the market in general too. May Chi lost 1-1/2 cents, closing at 6.62 and Jul down 3/4 at 6.74. May KC gained 8-1/2 cents, closing at 8.19-3/4 and Jul up 7-1/4 at 8.06-1/2.
After vacillating on both sides of neutral throughout the day, wheat managed a higher close. The only exceptions were the May and July Chicago contracts which posted small losses. Besides those two contracts, all three US futures classes were in the green. This is also despite the fact that Paris milling wheat futures were lower again (for the sixth day in a row). There is talk that China may be trying to buy French wheat for their reserves, with those prices tanking recently. Additionally there are rumors that the president of China agreed to buy wheat from Russia during their recent meeting. Russian exports continue to be very cheap and are acting as an anchor on US markets. That is evident with today’s US export sales data also on the weak side with the USDA reporting an increase of only 4.6 mb for 22/23 and an increase of 0.5 mb for 23/24. Today’s mostly higher close in the face of some of these issues is encouraging. However, there are still outside market pressures that have been weighing on commodities and will likely not be going away any time soon.
CATTLE HIGHLIGHTS: Cattle futures saw choppy and mixed trade on Thursday as prices consolidated above the most recent lows. Feeders were mixed as grain markets were choppy as well. Futures are looking to establish a floor after this price correction. Apr live cattle slipped 0.150 to 162.150 and Jun lost 0.100 at 155.800. March Feeder cattle gained 0.775 closing at 189.025, and Apr added 0.625 to 195.000.
Cattle futures consolidated on Thursday, holding above the most recent lows. April futures have traded on each side of $162 the past seven sessions, and June cattle look undervalued compared to the cash market. June cattle tested and held key support at the 200-day moving average yesterday and consolidated at the top of that trading range on Thursday. The cattle position is relatively long and susceptible to additional selling pressure. Cash trade started building yesterday afternoon. A light to moderate trade took place yesterday, with southern live deals marked at mostly $163, $1 lower than last week’s levels, and northern dressed trade was marked at $264 to $265, steady to $1 higher. The trade looks mostly complete, but some additional light trade could develop into Friday. Retail values were mixed at midday. Choice carcasses were 1.95 higher to 283.25 but Select lost 0.32 to 269.50. The load count was light at 71 loads. Weekly exports sales posted new net sales of 18,600 MT for 2023 were up 5% from the previous week and 59% from the prior 4-week average. South Korea, Japan and China were the top buyer of U.S. beef last week. Feeder cattle saw mixed to moderate gains, as corn markets turned more negative during the session. The Feeder cash index was 0.10 higher 187.88, holding a discount to the futures, but trending lower. The cattle market is in correction, but prices are looking to hold a bottom. The longer-term fundamentals are still friendly, but the deflationary trade and seasonal weakness still pressure the cattle futures. The next few sessions will be very key.
LEAN HOG HIGHLIGHTS: Lean hog futures saw the selling pressure slow on Thursday as the market finished the day with mixed to lower trade. Apr hogs slipped to new lows, losing 0.325 to 75.750, but Jun futures traded 0.025 higher to 91.375.
April hogs ended at new contract lows again today as the downward momentum continued, but trade was choppy and two-sided during the session. June hogs found a way to climb off session lows and finish with the narrowest of gains. This may be an indicator that the sellers may be drying up and the hog market could be trying to find a bottom. Most of this selloff has been technical and driven by fund money keeping the pressure on the market, and buyers are looking for a reason to step in. Lean hog futures are oversold, and with cash trade over the front-end April contract, the market may be hitting value territory. The cash market saw direct trade 0.79 lower to 76.50. The lean hog index lost 0.84 to 77.83 as the index trend is slowing or rolling over slightly. The index is now trading at a $2.08 premium to the futures. Hog retail values were 0.83 higher at midday to 80.69. The load count was light at 113 loads. Traders will likely need to see a trend of higher cash and cutouts firm back up before buying into this market. Weekly export sales last week posted new net sales of 38,000 MT for 2023 were up 7% from the previous week and 8% from the prior 4-week average. Mexico, Canada, and Japan were the top buyers of pork from the U.S. last week. Hog markets have a tendency to want to V-bottom or V-top on strong moves. That could be possibility with the market in such an oversold condition, but prices need to find that bottom yet, and that has not been established.
DAIRY HIGHLIGHTS: While the second month Class III chart pushed to a new 2023 high, sellers were active in the second half of the year as the Q3 and Q4 averages fell to new lows for the move. Spot cheese pushed over $2.00/lb for the first time since early January with blocks gaining 4 cents, while barrels rallied 2 on 10 total loads traded. The cheese market would benefit from some additional buying in the futures market vs. just the spot trade as usually it doesn’t bode well for the spot price if it gets too far ahead of futures, but it can take some time for them to catch up. Both spot butter and powder were lower and the Class IV market was even to down to close out Thursday’s trade.
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Author
Bryan Doherty