TFM Daily Market Summary 8-26-2022


Today’s commentary by Fed chairman Powell sent equity market tumbling lower. Fed Chair Powell made a statement this morning regarding the fed needing to stay aggressive in trying to manage inflation, which signaled to the market that the prospects of a tighter monetary policy and additional interest hikes were still very likely in the future. Recently, the equity markets have seen buying strength after the latest inflation numbers were below expectation, and the feeling the fed could be ready to soften its monetary stance. The selling pressure was strong on Friday as the Dow Futures posted its worst negative trading day since June, trading over 1,000 points lower, losing 2+%. The price action on Friday was extremely poor, posting an outside trading day, and dropping to challenge the 100-day moving average. Going forward, the equity markets look weak, and the possible downside pressure will be likely going into next week as 32,000 looks like a possible next downside target.

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CORN HIGHLIGHTS: Corn futures bounced back today with strong gains to end the day and week higher. September closed at 6.68-3/4 up 11-1/4, and December added 14-1/4 to end the session at 6.64-1/4. For the week, September added 42-3/4 cents and December 41 cents. Confirmation of crop uncertainties from the Pro Farmer tour, a decline in weekly crop ratings, short covering, and growing concern for smaller crops in China and Europe had traders on the offensive this week. Strength in soybeans and wheat provided support as well as money flow may be moving back to commodities and out of equities. The Dow Jones Industrial average was 800 lower on the session as of this writing, reflecting concern interest rates will continue higher, a reflection of increasing commodity prices due to tight inventory.

The Pro Farmer estimates the total crop at 13.759 bb, well below the current USDA estimate of 14.359 bb. The Pro Farmer yield is 168.1, in line with the DTN Digital tour. The strong weekly gains are a growing reflection of a smaller U.S. crop, lack of farmer selling, and likely downgrades to European (including Ukraine) supplies. Hot and dry conditions in China may have impacted wheat and rice more so than corn and soybeans, yet some yield reductions are expected. Bullish traders have new ammunition and new life with this week’s news. Now the test will be whether they are willing to buy in front of harvest as more adequate supplies are expected to flow into the pipeline in the very near future. The likeliest scenario is prices consolidate either side of 6.50 December heading into harvest. Yet, if the bullish traders worry themselves about the macro picture on items such as fertilizer (and energy costs) for the year ahead we wouldn’t be surprised to see money flow buy into next year’s crops.

SOYBEAN HIGHLIGHTS: Soybean futures closed higher with September leading the way up and posting new contract highs, while deferred months posted solid gains as well. A new-crop sale to unknown destinations and high demand for cash soybeans drove today’s rally. Sep soybeans gained 52-3/4 cents to end the session at 16.05-1/4, and Nov gained 30 cents to 14.61-1/4.

First notice day is approaching on Wednesday for September crops, but deliveries shouldn’t be a worry in the soy complex with all three soy products trading well above their next futures month. Cash prices for meal and bean oil in Illinois are well above their futures, and crush margins remain very strong incentivizing processors to bid up for hard to come by cash beans. It seems reasonable that after September goes off the board, that Nov has plenty of room to run higher. Earlier today, private exporters reported a sale of 5.4 mb of soybeans for delivery to unknown destinations for the 22/23 marketing year, putting this week’s total at 28.4 mb, with 19.0 mb market for China. The sale today will likely be revealed to be for China as well. With export business picking up and domestic demand strong, it has been enough to pique buying interest even as the US may see near record bean production. The ProFarmer crop tour concluded and reported results of 51.7 bpa for soybeans, only slightly lower than the USDA’s last guess of 51.9 bpa. Nov beans managed to close 2 cents above the 100-day moving average and a second close above that level tomorrow would be bullish. Oct meal closed at the top of its Bollinger Band and remains near contract highs, while Oct bean oil is only trending slightly higher with the 100-day moving average acting as resistance.

WHEAT HIGHLIGHTS: Wheat futures had another day of solid gains, as the fundamental picture still looks supportive. Higher corn and soybeans likely helped elevate wheat as well. Sep Chi gained 15 cents, closing at 7.84-3/4 and Dec up 16-1/4 at 8.05-1/4. Sep KC gained 14-1/4 cents, closing at 8.83-1/4 and Dec up 16 at 8.82-1/4.

It was a good day for the grains. Soybeans led the way higher with corn and wheat following. If one was to look at the glass half empty you could say that this simply puts wheat right back in the middle of the sideways trading range. However, fundamentals still look bullish. With globally tight supplies and droughts in Europe and China (which we have discussed a lot recently), there isn’t much room for error. Here in the US, there are chances for rains in the southern Plains over the next two weeks. The drought here in the US HRW areas, though perhaps not as severe as other parts of the world, is not insignificant. These rains could help soil conditions but only time will tell how much moisture actually falls. There was not much other fresh news today, with the exception being Fed Chairman Powell’s speech this morning. The Fed seems to be leaning towards more interest rate increases to combat inflation. The stock market has not reacted well to this news with the DOW down roughly 900 points at the time of writing. There is some concern that this will affect the commodity markets as well. Additionally, the US Dollar remains close to its recent high which may provide some resistance to the wheat market if it remains elevated.

CATTLE HIGHLIGHTS: Strong selling in outside markets, recession fears and a strong grain market triggered long liquidation in the cattle markets to end the week. Aug live cattle slipped 0.300 to 140.880 and Oct was 0.600 lower to 143.050. Feeders saw strong losses as Sept lost 2.050 to 182.200 and October dropped 2.125 to 183.400. For the week, October live cattle posted its first down week in the past three weeks losing 2.200, and September feeders lost 2.550.

Equity markets posted its worst performing day since June as Dow Jones dropped over 700 points during the day after Fed Chair Powell was more aggressive regarding monetary policy. The fear of recession spilled over into the cattle market, building a potential longer-term demand fear. Time will tell, but the weak equity markets aided in the selling pressure on Friday. Cash trade looked complete for the week. Cash performance this week added to the weakness as southern live deals were marked at mostly $142, generally steady with last week’s averages. Dressed sales in the north have been at $232 to $233, about $1 to $2 lower than last week’s totals. The softer tone was disappointing after cash firmness the past few weeks. October futures are at a premium to the cash trade, leaving it vulnerable to selling pressure. Today’s slaughter totaled 123,000 head, 1,000 more than last week, and 7,000 greater than a year ago. Saturday’s kill is estimated at 56,000 head, bringing the weekly total to 678,000 head, 17,000 above the prior week, and 25,000 above last year, which was reflective of the current cattle numbers. Retail values are trending slightly lower on the week but found and were mixed at midday as choice carcasses slipped .19 to 263.35 and select was 1.04 higher to 238.58. The load count was light at 71 midday loads. Choice carcasses holding the $260+ level is still supportive of the beef market. The strong move in grain markets had feeder market dropping to test most recent support levels with triple-digit losses. The feeder cash index traded 0.50 higher to 181.00, but with Sept taking over as the new lead month and was trading at a premium to the index aided the selling pressure. Price action in the cattle market was very disappointing to end the week. The cattle market looks supported by the fundamentals and the longer-term view still looks friendly, but the market may be seeing some seasonal weakness which could limit the near-term view, but the uptrend is still intact.

LEAN HOG HIGHLIGHTS: Lean hog futures were mixed to end the week and hog futures are trying to forge a bottom after the most recent selloff. Oct hogs were 0.450 lower to 90.650, but Dec hogs gained 0.325 to 82.950. For the week, October futures dropped 2.475, while Dec dropped 1.200 as the selling pressure slowed but stayed intact.

October failed to push back through the 200-day moving average over top the market, which led to selling pressure. Oct futures has yet to fill the price gap from July 5 at 89.750, and that looks like a downside target, as well as near-term contract lows, and trading under the 200-day keeps the chart negative overall. December has posted two consecutive higher days, but trade today was more consolidation versus strength. This week’s strong selling pressure was triggered by a mid-week drop in retail values. Those retail values are trying to find footing, but at midday today traded 3.00 lower to 99.66, crossing under the $100 barrier. Today’s midday load count was moderate/good at 226 loads as the value may have triggered some buying strength. The retail market is looking at a shift in demand after the Labor Day holiday, and that seems to be pricing itself in. The cash trade was soft again as midday direct cash trade was 0.88 lower to 110.31 and a 5-day rolling average of 121.78. The Lean Hog Cash Index was sharply lower on the day, dropping 1.95 to 116.05. For the week, the index traded 4.55 lower. The index is still trading at a strong premium to the Oct futures, closing at 25.400 premium over the futures on the close, but the question in the market is whether futures will meet cash or cash drop to meet futures. The hog market is trying to find a bottom, but the strong drop in retail values and cash markets this week is alarming. With the front of the futures contracts trading under the 200-day moving average, the technical picture is still defensive.

DAIRY HIGHLIGHTS: Buyers have returned to the dairy markets and are pushing contracts higher off of recent lows. Several further out Class III contracts have closed over their 50-day moving averages while some of the late-2023 contracts finished the week at new all-time buys. There seems to be a strong influx of capital working its way back into commodities at this time with grains, dairy, and fuel all rallying higher. This week’s trade saw December Class III add $1.15 to a $21.75 close, while December Class IV added $1.77 to $23.10. A bullish factor driving prices higher is the fact that spot butter hit new multi-year highs on Friday, closing at $3.0825/lb. Butter demand is high, while inventories stay about 20% below a year ago. A slightly bullish milk production report on Monday fueled buying support throughout the week.

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John Heinberg

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