MARKET SUMMARY 6-24-2022
The pace of beef cow slaughter continues to run historically high. The last three weeks beef cow slaughter has averaged over 80,000 head/week, the strongest levels in years. Drought and high input costs have forced some producers to cull deeper into their herd. In addition, an increase in cull cow prices have further incentivized others to do the same. Year-to-date, beef cow slaughter at 1.6 million is the highest of the previous five years at 1.6 million head; this is tracking at a 15% year-over-year level, or just over 211,000 head. Elevated slaughter is expected to continue at least through mid-summer. The high slaughter pace will have an impact on the 2022 and 2023 calf crops, further tightening the longer-term projected cattle supply.
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CORN HIGHLIGHTS: Corn futures managed to stop the bleeding to end the week. Fund liquidation was the dominant theme over the past few days, but appears like it may have come to an end for now. Technically, the charts still look harsh, but fundamentally, there are still reasons to be supportive. July corn gained 3-1/2 cents, ending the session at 7.50-1/4. December gained 16 to close at 6.74.
It was a rough week for the grain complex to say the least, but corn did manage to finish the week on a positive note with double digit gains in most contracts. Other than a somewhat improved weather forecast for parts of the Midwest, there is not much fundamentally different in the corn market this week versus last, which would have caused such a sharp selloff. It seems that the managed funds decided to liquidate positions this week; perhaps this was due to seasonal patterns, recession concerns, or changing weather patterns. One could argue that bearish pressure is coming from the harvest is progressing in Brazil where, despite some concerns about dryness this season, the crop is still projected to be a record 4.57 bb. There is also the fact that China’s corn prices fell this week too – but with a September price of about $10.98 per bushel, their corn remains expensive. There is not much other news to report, but today’s data showed that the USDA reported an increase of 26.5 mb of corn export sales for 21/22 and 14.1 mb for 22/23. As a reminder, first notice date for corn is next week, June 30. On that date, the market will also receive the Stocks and Acreage reports, which may help to provide direction.
SOYBEAN HIGHLIGHTS: Soybean futures closed higher today as yesterday’s sell-off provided a buying opportunity. Higher crude oil was also supportive of the soy complex. Jul soybeans gained 17-1/2 cents, closing at 16.10-3/4, and Nov gained 8-3/4 cents at 14.24-1/4.
Soybeans got a reprieve today after yesterday’s brutal sell-off that affected the entire grain complex. Buyers were incentivized by the lower prices and finally stepped in. Higher crude oil was the main supporting factor, pushing soybean oil to a higher close for the first time in 10 days. Soybean meal benefited as well and remains relatively range bound. Export sales were a miss with net sales for the 21/22 marketing year at 1.1 mb, down 91% from the previous week and down 88% from the prior 4-week average, a marketing year low. For the 22/23 marketing year, net sales of 9.7 mb were reported and were primarily to unknown destinations, Costa Rica, and China. Last week’s export shipments of 18.2 mb were below the 25.9 mb needed each week to achieve the USDA’s export estimate of 2.170 bb in 21/22. Biodiesel margins are very good at the moment, which should boost crush recovery. July soybeans lost 91-1/4 cents on the week, which was influenced by the lowest weekly close in September palm oil in five months as production out of Malaysia and Indonesia is expected to pick up into 22/23. Both July and November soybeans were unable to get back above their 100-day moving averages and remain in oversold territory.
WHEAT HIGHLIGHTS: Wheat futures finished both this session and the week poorly. It is difficult, if not impossible, to outguess what the managed funds will do, but heavy selling pressure was the theme this week. July Chi lost 13-1/2 cents, closing at 9.23-3/4 and Dec down 12-1/4 at 9.52-1/4. July KC lost 12-1/2 cents, closing at 9.92-1/2 and Dec down 12-1/2 at 10.08.
It was a very tough week for the wheat market, which then ended on a sour note. Chi and KC posted double digit losses and MPLS was down 9-10 cents as well. Paris milling futures also finished poorly and just could not hold onto any gains into the end of trading. Fund selling and outside market influence on recession concerns seemed to dominate this week. The bearish tone that has been set is ominous, but we do anticipate a recovery, simply due to the fact that there have been too many issues facing the market this year. Just how long that will take though is anyone’s guess. With prices now at three month lows and getting close to pre-Ukraine war levels, traders may step up to the plate and buy back into the market. The situation there has not improved, and if anything has gotten worse, which still lends some bullish support. There is also the fact that technically, wheat has become very oversold and is due for a correction to the upside. This week, there was not much fresh news to pass along, but the USDA did report an increase of 17.6 mb of wheat export sales for 22/23.
CATTLE HIGHLIGHTS: Live cattle futures finished mixed on the day with cash trade complete for the week and the market positioned for the USDA Cattle on Feed Report. Feeders saw selling pressure on Friday as the grain markets recovered after a strong week of selling pressure. Jun cattle gained 0.100 to 135.350, and Aug cattle were 0.500 lower to 133.375. In feeders, Aug feeders were 2.350 lower to 172.500. For the week, June cattle traded 2.675 lower, while August slipped 3.200. n feeders, August feeders were 0.450 lower on a choppy overall week.
The market was positioning for Friday afternoon’s cattle on feed numbers for June. The report showed that total cattle on feed as of June 1 at 101% of last year, just slightly below analyst estimates. Placements were 99% of last year, also 1.7% below estimates, and Marketings at 102%, just below expectations of 103%. The overall numbers were slightly friendly, trending below market expectations, which should help support prices on Monday. Total cattle on feed at 11.846 million head is still very large and the largest June 1 total on record. In daily fundamentals, weekly export sales were reported on Friday morning, and new net sales for beef were 11,200 MT for 2022 were down 36% from the previous week and 39% from the prior 4-week average. Japan, South Korea, and China were the top buyers of U.S. beef last week. At midday, beef carcass cutout values were firmer with Choice values adding 0.45 to 265.11 and Select was 0.19 higher to 245.13. The load count was light at 59 loads. On the week, Choice carcass values trade softer, reflecting a pause in the demand pace before the July 4th holiday. Cash trade was completed for the week with $138 catching most southern deals, steady to lower than last week, but northern dress trade was mostly complete at $234, which traded higher than last week. The grain markets recovered on Friday, putting pressure on the feeder complex. The cash market in feeders has been supportive, but on Friday, Feeder Cash Index values slipped 1.52 to 163.71, but was still 1.54 higher on the week. The fundamentals were mixed this week in the cattle market. Monday will be the reaction to Friday’s cattle on feed numbers. While cattle supplies stay heavy in the near-term, the lower placement total should be supportive in the deferred cattle and feeder market to start the week.
LEAN HOG HIGHLIGHTS: Hog futures closed higher today and nearly erased yesterday’s losses. Technical buying was in play as the 200-day moving average acts as key support. Jul hogs gained 2.375 to 110.925, and Aug hogs gained 3.100 to 106.775.
Hogs recovered from yesterday’s sell-off and came close to erasing those losses as technical buyers surfaced. Cash was down 1.63, and the cutout lost 1.38, but both remain in an uptrend. Slaughter was revised to be 20k head lower than expected at 450k head, and slaughter pace continues to run below last year’s levels while keeping sufficient supply available to meet demand. The May Cold Storage report showed belly stocks at 56.4 million pounds, up 55% from a year ago, and pork supplies are the highest that they have been since April 2020. Frozen pork supplies were up 2% from the previous month and up 17% from last year. It is unlikely that there will be any major moves ahead of next week’s Quarterly Hogs and Pigs report, as trade will look there for reassurance and a direction to go in. Pork export sales were not as good as had been hoped at 25,400 mt for 2022, down 8% from the previous week and down 10% from the prior 4-week average, with primary destinations to Mexico, Japan, and China. Hogs are relatively range bound with the 200-day moving average acting as support and the 100-day acting as resistance. July hogs lost 0.075 on the week, while August lost 1.100. The Hogs and Pigs report on the 29th should provide the next catalyst for the direction of the hog market.
DAIRY HIGHLIGHTS: On Thursday, the USDA reported that total natural cheese in refrigerated warehouses as of May 31 totaled 1.512 billion pounds – which is a new record. This was up 2% from April and was up 4% from the same month last year. This put a bearish tone back into the market because even though milk production across the country is down year-over-year, cheese inventories are still building. The rising inventory levels could be a detriment to current cheese prices that still hold up at an elevated price of $2.11875/lb. Additionally, if the recession talks pan out, cheese demand would likely begin to weaken. The US cheese trade saw sellers offer blocks 1c lower and offer barrels 2.25c lower in response to the USDA report. The drop in cheese along with the fact that the US butter price fell 4c to $2.9150/lb kept pressure on milk futures on Friday.
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Author
Bryan Doherty