MARKET SUMMARY 5-13-2022
Gasoline futures have pushed back to new all-time highs on Friday, as buying strength stayed in the energy markets. Current tight global supplies as well as talk that Shanghai would be ending COVID lockdowns and reopen the city by May 20 helped support crude oil prices on Friday. For gasoline and its close running mate, diesel, the lack of global refining capacity has led to tightness in finished fuel supplies. In the U.S., refining compacity has fallen to 1.0 million barrels/day. Globally, refining capacity has shrunk by 2.3 million barrels/day. On the latest EIA report, gasoline, heating oil and diesel fuel supplies remain extremely tight, which is under-pinning the strength in prices. As of May 6, gasoline inventories were 5.9% below a 5-year average, and distillate inventories were 23.2% below the 5-year average. Regardless, finished fuel supplies are extremely tight from a historical perspective, and the current supply situation will keep energy prices generally supported.
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CORN HIGHLIGHTS: Corn futures fell slightly today, while equities climbed higher. July lost 10-1/4 cents, closing at 7.81-1/4, and Dec was down 4-1/4 at 7.48-3/4. For the week, December corn added 28 cents, reaching a new contract high this morning at 7.58-1/4. It’s possible that there was some profit taking before the weekend followed by money injection into stocks, potentially coming out of commodities, corn included. May expiration, which stopped trading at 12:00, was a factor as well with the rest of the market trying to firm up. Markets are still digesting yesterday’s USDA report, which was mostly in line with estimates yet indicated carryout for the year ahead is now forecasted lower than the current year.
While yesterday’s report was mostly as projected, there was a bearish surprise with unexpected production increases in Egypt, Nigeria, and Pakistan. Traders were looking to see numbers potentially lower than analyst estimates, so the relative neutrality for corn along with that bump in production may have spooked some buyers today. The Buenos Aires Grain Exchange said 26% of corn has been harvested and 16% is rated good to excellent, which is down from 19% last week. Here in the US, strong winds of over 100 mph swept through the northwestern Corn Belt last night, damaging farm structures. Apart from some wetness in some northern states, planting weather looks favorable going into the next week. Yesterday’s export sales numbers were disappointing, but this morning a sale of 24.1 mb to China was announced, a reminder that China still needs corn.
SOYBEAN HIGHLIGHTS: Soybean futures closed higher with May expiring at 17.23-1/4, up 63 cents on the day. May expiration bolstered the rest of the contracts with July gaining 32-3/4 cents, closing at 16.46-1/2, and Nov gaining 17-3/4 at 14.98-1/4. July closed just 2 cents below the 50-day moving average. Both soybean meal and oil closed higher as well, providing a boost and showing the strength of demand. For the week November soybeans gained 27-1/2 cents.
Between a bullish USDA report yesterday, good demand, and a tightening world supply, soybeans are looking strong. The Buenos Aires Grain Exchange said 65% of soybeans have been harvested so far and only 10% is rated good to excellent. This morning, private exporters reported sales of 132,000 metric tons of soybeans for delivery to China during the 21/22 marketing year, again showing the strong demand. July soybeans on the Dalian exchange were up 1.8% today which is the equivalent of 20.93 per bushel. The combined crush values of meal and oil are 2.88 above the cost of soybeans, which is a generous incentive to keep processing soybeans. Technicals are showing strength with July just barely coming out of oversold territory, and a close above the 50-day moving average next week would add to bullish sentiment.
WHEAT HIGHLIGHTS: Wheat futures were a mixed bag with losses in Chi but gains in KC. After yesterday’s strong rally, profit taking today likely put the market under some pressure. July Chi lost 1-1/4 cents, closing at 11.77-1/2 and Dec down 1-1/2 at 11.85. July KC gained 12 cents, closing at 12.82 and Dec up 11-1/2 at 12.85.
Chi contracts September onward made new highs before setting back. Out of the three US classes, only Chi posted losses (with the exception of May KC which expired today). With May futures going off the board today, July will become the front month. Paris milling wheat futures also closed higher today, (but off from earlier highs). Yesterday’s report was supportive to wheat prices and is perhaps validates some of the concern on trader’s minds about not only US but world wheat supplies. The heat and dryness in the southern Plains and wet conditions in the northern Plains are still critical and should keep prices supported at a minimum. Globally, weather concerns exist as well, with heat waves in India and the EU potentially reducing their crops. Interestingly, the USDA estimated India’s wheat production at 108.5 mmt on the report despite some private estimates below 100 mmt. As we mentioned yesterday, not much has changed in the news – the Ukraine war continues, weather is an issue, and the high US Dollar may reduce upside movement of wheat prices.
CATTLE HIGHLIGHTS: Live cattle futures finished the week mixed to mostly lower as the cash market supported the front-end June contract, but demand concerns and available cattle supplies pressured deferred contracts. A softer tone in corn and wheat markets supported feeder cattle futures on Friday. June live cattle gained 0.425 to 132.075, but August Live cattle dropped 0.425 to 132.350. In feeders, August feeder were 1.500 higher to 168.025. For the week, June live cattle lost 0.675, and Aug feeders dropped 6.675, despite Friday’s gains.
For the second day, June live cattle still held above the most recent lows, holding support at $131.000, but deferred contracts broke to new contract lows as long liquidation and technical selling pushed the market. The June contract is trying to build a “double-bottom”, so price action early next week will be key. The cash market was quiet on Friday, and business was done earlier in the week. Cash prices traded mostly steady with last week. In the South, light $140, and the North saw $144 and $225-230 dressed trade, again, mostly steady with last week. The cash market tried to support the front-end of the futures market, given the premium of the cash market. Retail beef demand has seen Choice beef cutout values fall to nearly an 8-month low. At midday, prices were mixed with Choice gaining 1.23 to 258.43 and Select was 0.52 lower to 243.84. Load count was light movement at 59 midday loads. Choice carcasses trade was softer for the week after a strong start on Monday, closing at 258.29, but midday trade today was still $2.80 above last Friday’s close. Feeders found some footing, finishing with modest gains. he direction of grain prices will likely dictate the money flow into the feeder market, and the softer price action in the wheat and corn market triggered some buying into the feeder market on Friday. The premium of front month contracts to the feeder cash index looks concerning, with August trading at a $10 premium to the index. Feeder cash index was .25 lower to 156.36. The cattle market still looks concerning despite some buying support in the feeder market on Friday. The downside looks to be the easiest path in the near-term, until the market gets some news to turn the money flow. The sellers are still in charge of market direction in the short-term.
LEAN HOG HIGHLIGHTS: Hog futures finally saw some buying strength with end of the week profit taking, and optimism on softening of the COVID restrictions in China. May hogs lost 0.100, closing at 100.000, staying tied to the cash markets, but June hogs jumped 3.275 higher to 100.750, closing back above the $100.00 level. For the week, May hogs were 2.200 lower, and June hogs dropped 3.350, but finished 3.650 off the week’s lows.
June lean hogs are still showing a downward trend as prices on Friday traded within the trading range of Thursday as prices consolidated. The more favorable price action to close the week bring some optimism. Prices may still have more downside room as prices while prices are trading under the 200-day moving average at $102.000 above the market, the first top-side resistance barrier. Talk of softening the COVID restriction in China may have helped bring buying support into the hog, soybean, and crude oil markets on Friday, but that may be a headline driven type trade. Demand is still a big concern as retail prices have struggled, pushing under the $100.00 level this week. Midday carcass values were 0.39 lower to 98.21. Movement was moderate at 175 loads. Friday’s midday trade was nearly $6.00 under the close on Monday afternoon, showing the softening trend in pork values. The CME pork cutout index has also been trending lower, down 1.56 to 101.41 on Friday, and down 3.99 for the week. Midday cash market was weak with morning direct trade, dropping 3.68 to 101.27 and a 5-day average at 104.93. CME lean hog index was 0.22 lower at 101.41 on the day and traded 0.08 higher on the week. The technical picture is still weak, and buyers are still absent in the market despite the bounce on Friday. This main bring some optimism for additional short covering to start the week, but the trend still looks lower in the near-term.
DAIRY HIGHLIGHTS: The second month Class III milk futures contract finished the week at $23.83 per hundredweight. This is $1.96 off of its mid-April high. A higher U.S. dollar, a falling soybean meal feed market, and a steady rise in cow numbers to start the year are all pressuring the market lower at this time. The U.S. whey price is also over 38% off of its high of the year and is nearing 2021 lows. Per this week’s U.S. central whey report, “end users say the only thing they are in need of is more space in their warehouse, as they are currently full in regards to whey supplies.” High inventory levels are weighing on that market. The U.S. whey price fell 5.25c this week, cheese was down 1.375c this week, and powder fell a penny. Butter posted a nice week overall, adding 6.50c to $2.7050/lb.
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