MARKET SUMMARY 5-10-2022
December Cotton futures reached new contract highs this past week. Expect that some level of switch from corn to cotton acres will occur this year. This will likely show up on the June 30, 2022 USDA Acreage report. Due to high input costs, areas such as western Oklahoma and the Panhandle of Texas will likely show increases in cotton. Water costs and fuel to run irrigators are a consideration. The point, between higher competing grain and oilseed as well as other crops such as cotton and canola, corn acres will be challenged. Bottom-line, corn supplies remain tight.
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CORN HIGHLIGHTS: Corn futures recovered today, ending the session with gains of 3-1/4 cents in July to 8-1/4 in December. July closed at 7.75-1/4 and December at 7.19. All futures contracts finished near the high of the daily trading range, a response to only 22% of the crop planted versus a five-year average of 50%. Traders were buying July near support at 7.70 and December at the 10-day moving average of 7.07.
On Thursday, the USDA will release the monthly WASDE report. Typically, adjustments to yield do not occur on the May report unless there are changes of significance in crop progress. In 2013 the USDA did lower yield in May due to a late start to the planting season. Is this likely on Thursday? Our best guess is that it is possible but not likely. Advances in technology and the ability to plant significant number of acres in short order would argue against a downgrade to yield. Yet, with the prevent plant date in North Dakota May 25, only 1% of their crop planted and more rain in the forecast, it does make one wonder if changes to yield will occur. At least, even the most aggressive supporter of yearly yield increases must be tempered this year. Much of Illinois and Indiana remain well behind the norm and are already reaching key dates where studies suggest declining yield potential is already at hand.
SOYBEAN HIGHLIGHTS: Soybean futures closed higher today after a harsh drop yesterday, which brought us to the lowest prices seen since the beginning of April for the July contract. July gained 7 cents, closing at 15.92-1/4 and Nov gained 8 cents at 14.54-3/4. Crop progress is now in the spotlight with the USDA reporting only 12% of soybeans planted as of May 8, which is well below the five-year average of 24%. Traders will continue to look at weather to determine how much that number increases next week with a favorable forecast.
Both export and crush demand remain strong, so it would appear that this recent sell-off has been due to funds liquidating some of their net long position in addition to the liquidation in meal which caused a drop of 10.80 yesterday. On the Dalian exchange, September soybean meal fell 2.5% yesterday, which brought it below the 50-day average for the first time this year. We are watching for July to hold key support above the 100-day moving average which is around 15.57. The daily chart has July soybeans in oversold territory but at this point things will boil down to weather, fund activity, and how much (if any) the USDA reduces its estimate of US ending soybean stocks on Thursday. There is the added possibility that the USDA reduces their estimate of the Argentinian bean crop following their dry conditions the past few weeks.
WHEAT HIGHLIGHTS: Wheat futures traded higher today. Not much has changed on the newswire, but the crop progress numbers were supportive to futures. July Chi was unchanged at 10.92-3/4 and Dec up 1-1/2 at 11.02. July KC gained 10-3/4 cents, closing at 11.75 and Dec up 11 at 11.83.
Yesterday afternoon’s Crop Progress report appears to still leave a supportive backdrop for the wheat market. Though winter wheat ratings improved 2% from last week to 29% good to excellent, they are still relatively poor and the worst rating since 1989. Last year at this time, the crop was rated 49% good to excellent. The dry pattern is expected to continue to stress the HRW wheat crop in the southern Plains. Texas, which has arguably had the most trouble on that front, remains with a rating of 77% poor to very poor and only 7% is rated good (with 0% in the excellent category). Looking north, spring wheat also shows delays, with 27% planted (vs 19% last week), but the average for this time is 47%. This is also well behind last year’s pace at 67% complete. The areas struggling with wet conditions in Minnesota and North Dakota don’t appear to have much change with only 2% and 8% planted respectively. This compares with an average this time of year of 50% for Minnesota and 37% for North Dakota. Apart from the Crop Progress report, there is not much fresh wheat news; Europe looks to remain hot and dry for the next two weeks, Russia is targeting Black Sea ports, and drought in the US southern Plains is likely to reduce yields.
CATTLE HIGHLIGHTS: Live cattle futures, as well as feeders, dropped sharply today as it looks like cash is not able to keep up with futures. Weak equity markets, inflation, and lockdowns in China are problematic for the meats, and beef is no exception. June cattle lost 1.15 to end the session at 132.40, and August feeders gave up 2.37 to close at 171.85, their lowest close in 7 sessions.
The cattle complex is struggling in three areas. Demand has been lackluster due to a later than usual spring for much of the U.S. keeping a lid on the grilling season. Lockdowns in China are starting demand hopes, and lastly inflation and a poor performance by the equity markets is a concern as consumers are feeling the pinch of a tighter budget. Nonetheless, a tight inventory will provide underlying support so that price pullbacks in either the live or feeder market are likely temporary. The overriding concern regarding tight world supplies of food will keep prices well supported from a macro sense. In the short term, anticipate that higher than normal volatility will remain more the norm. As we peer down the road, we can’t help but believe between demographics and high input cost, the number of people willing to take on cow calf operations will remain on the decline. It will take more economic incentives to suggest otherwise. Our big picture bias remains supportive grains and defensive cattle.
LEAN HOG HIGHLIGHTS: Hog futures closed mixed to lower, as the overall technical picture still looks weak and is unsupportive to the market. May hogs gained 0.200, closing at 101.075 and June was up 0.275 to 101.575. Deferred contracts struggled however with July down 1.225 to 102.975 and Oct down 0.700 at 90.350.
A mixed to lower close in hogs is somewhat disappointing but not unexpected given the recent weakness seen in the market. If one chooses to look at the glass half full, however, the chart gap left on the June chart above the market may need to be filled. Additionally, futures are well oversold technically and due for a correction to the upside. As we mentioned yesterday, the May contract has converged with the index but the modest gains in the front months may be an indication that packers need hogs now, not later. It is also noted that African swine fever has been confirmed in Rome. This should be watched closely as it has the potential to push prices higher if the disease spreads.
DAIRY HIGHLIGHTS: The second month Class III milk futures contract has closed lower for three sessions in a row, falling $1.22/cwt over that stretch. The market may still be reacting to last week’s Global Dairy Trade auction in which the GDT price index fell 8.50%. There also has been a noticeable demand shift in the US spot trade. In today’s session, spot butter fell 0.50c, spot whey fell 1.75c, and spot cheese fell 2.25c. A higher dollar and falling feed prices may also be adding pressure to the dairy trade. For now, the short-term trend looks to be down, after having been up for weeks. The market could be susceptible to putting in lower highs and lower lows if the downtrend continues. News this week will be light, but in the next two weeks, there will be a milk production report and a cold storage report.
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Author
Brandon Doherty