MARKET SUMMARY 8-2-2022
Weekly hog slaughter has been running under year-ago levels, and that trend is expected to continue. This is a time window when pork supplies hit an annual low, due to the combination of low hog numbers and the impact of hot weather on hog weights. That is the trend again for 2022. June hog inventory shows 180+ pound hogs down 0.8% below last year and estimated weekly slaughter last week was at 2.277 million head, down 1.4% from last year’s levels. As the market moves into the fall, hog slaughter numbers are expected to ramp up but should still trend under last year’s levels. The key for pork supplies will be the carcass weight and how they seasonally get larger going into the fall and winter months. The impact of cooler temperature and fresh feed supplies adds pounds to the hog weights. The pace of slaughter and hog weights over the next few months will be key for hog prices.
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CORN HIGHLIGHTS: Corn futures weakened into the close, finishing with double-digit losses. Rain on the radar and some moderation to the European weather model in both temperatures and precipitation amounts, along with sharp losses in soybeans and wheat, all weigh on prices today. September gave up 15-3/4 cents to close at 5.91-3/4 and December lost 15-1/2 to end the session at 5.94-1/4. Today’s disappointing close may have also been predicated on a high level of stress between the U.S. and China. Congresswoman Pelosi landed in Taiwan despite harsh criticism and condemnation by China. A ship which recently left Ukraine with corn was also viewed as potentially negative.
Yesterday’s crop progress numbers were unchanged with 61% good to excellent. The poor and very categories were also unchanged at 14%. With crop ratings stabilizing and a potentially less fearful forecast, outside political news seemed to have a more dominant impact on commodity prices today. The stock market traded off nearly 300 points for much of the session, which also suggests that traders had a risk adverse mindset today. Timely rains continued to fall in parts of the Midwest, yet blanket coverage is needed. With temperatures expected to reach near triple digits in parts of the western and northwestern corn belt, we can’t help but think crop ratings could be down next week. For now, however the lack of export activity and geopolitical tension are more dominating factors. Weather related markets typically don’t begin in August but with the crop behind schedule this year timely rain will be needed over the next several weeks. Bottom line, bulls may yet have their day.
SOYBEAN HIGHLIGHTS: Soybean futures closed lower again today on improved crop progress, mixed weather forecasts, and concerns over Chinese tensions. Aug soybeans lost 25 cents to end the session at 15.69-1/4, and Nov fell 19-1/2 to 13.86-1/2.
The selling continued today as the weather worries that caused markets to rally last week have softened, causing traders to switch up and become sellers. The selling was softer compared to yesterday, as hot and dry conditions are still forecast over the next two weeks for the western Corn Belt and South Dakota. Nancy Pelosi visited Taiwan today, stoking tensions with China and causing traders to be spooked out of the soybean market as possible retaliation looms. Yesterday, the USDA reported that 60% of the soybean crop was rated good-to-excellent, up one percent from last week with higher ratings in Illinois and Kentucky offsetting modest drops in Iowa, Kansas, and Nebraska. The crop is 79% blooming, with 44% setting pods, down from the 5-year average of 51%. Soybean oil was lower pressured by a 5.4% drop in October palm oil, and not much help from crude oil which was only modestly higher today. Soybean meal was the only soy product higher, and crush margins are strong incentivizing processors to buy cash beans. November soybeans closed 1 cent below its 200-day moving average, and there is a gap on the chart at 13.49.
WHEAT HIGHLIGHTS: Wheat futures closed with losses in all three US futures classes today. The Taiwan trip by Nancy Pelosi and grain starting to ship out of Ukraine pressured the market today. Sep Chi lost 25-1/2 cents, closing at 7.74-3/4 and Dec down 25 at 7.94. Sep KC lost 24-1/4 cents, closing at 8.42-1/4 and Dec down 23-3/4 at 8.50-1/4.
Wheat drifted lower today – likely for a few reasons. First and foremost, Nancy Pelosi’s trip to Taiwan acted as an anchor on commodity and financial markets. China stated that there will be consequences for this visit, which has traders nervous about US relations with them and what it will mean for our exports (especially soybeans). Chinese president Xi Jinping, in a phone call with President Biden, reportedly said regarding the Taiwan situation that the US should not “play with fire”. From a global perspective the Ukraine situation is still at play as well. The vessel that left Odessa was carrying corn and the quality (as one might have expected) was apparently not good. But the fact that they are starting to export adds to a bearish perception in the marketplace. There are perhaps 20 vessels that have been sitting in port since the war began, but there is talk that empty boats are coming in to be loaded, offering resistance to corn and wheat. Here at home, yesterday afternoon’s Crop Progress report showed that spring wheat was rated 70% good to excellent vs 68% last week. The trade was expecting perhaps a drop of 1% so this weighed on prices today. The report also showed winter wheat is 82% harvested.
CATTLE HIGHLIGHTS: Live cattle futures finished softer on Tuesday as cash trade has been slow to develop; the thought of steady to weaker trade held the market in check. Aug live cattle closed 0.200 lower to 136.575, and Oct slipped 0.500 to 142.125. Feeders saw some profit taking as Aug dropped 1.525 to 178.125.
Cattle futures continue to consolidate overall with the 100-day moving average supporting the market under the Oct futures, now holding this support level for the seventh consecutive day. Cash trade was undeveloped. Packer inquiry is very light this afternoon, and significant trade volume is likely to be delayed until Wednesday. Asking prices are starting out around $137 in the South but have yet to be established in the North. Retail values at midday were softer, adding to the selling pressure. Choice carcasses slipped 1.45 to 269.15 and Select was 0.59 lower to 244.31. The load count improved at 79 midday loads. Feeder cattle saw some profit taking despite the grain market trading lower again on Tuesday. Feeders fell back to fill the gap from Monday’s open. The weak price action will keep the market open for more selling pressure on Wednesday. The Feeder Cattle Index stays firm, gaining 2.43 to 174.74 but still at a discount to the August futures. Cattle markets are in an uptrend overall as price slowly climb reflecting a favorable demand tone, and prospects of tight supplies overall. This trend will look to continue well into 2023.
LEAN HOG HIGHLIGHTS: Hog futures were mixed again on Tuesday with light bear spreading pressuring the front end of the market. The firm cash and retail market helps support hogs in general. Aug hogs slipped 0.600 to 119.850, and Oct was 0.600 lower to 96.225.
The most actively traded October futures are still in an uptrend, but momentum may be slowing. Prices are still well supported, and if the cash and retail market stay strong, October will be poised to work higher, but the market may be looking at the seasonal window as hog slaughter numbers increase and weights follow along. The strong cash market tone is the fuel in the market. Midday direct hogs on Tuesday were firmer, gaining 0.70 to 115.63 and the 5-day rolling average trended higher to 124.15. The Lean Hog Cash Index still trends higher and adding another 0.45 to 121.87, supporting the Aug contract higher. August expires on August 12 and is currently trading at a discount to the futures, which should stay supportive. The retail market is trading at its highest levels in a year. Prices were higher at midday with pork carcasses gaining 2.52 to 130.22. The load count was moderate at 165 loads. The cash market and retail demand are still the underlying support in the market as the market is trending higher overall. The light supplies are expected to continue into the end of the year even though hog numbers are growing in general.
DAIRY HIGHLIGHTS: CME spot butter hit a new high for the year by jumping 4.50 cents to $3.0325/lb, besting the high from July 1st at $3.01/lb. This is the fifth trading day in the last two months where the closing price was at or above the $3.00/lb mark and has been met with selling every time as of yet. Class IV futures reacted with moderate gains in the remaining 2022 contracts while Class III futures were down but off their morning lows a decent amount. The early weakness was likely tied to another negative GDT Auction on the low volume trade. Overall, the Class III market is still hanging onto support at $20.00 on the second month contract while Class IV prices have gotten comfortable on the heels of strong butter and powder levels.
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Author
Brandon Doherty