MARKET SUMMARY 8-4-2022
Live cattle futures have been in an uptrend since May, and increasing open interest may indicate a potential longer-term rally. Open interest in the live cattle market has been at 6-year lows, but over the past week, money flow has moved into the market as new longs have started buying. The cattle market has good fundamental support with the prospects of tighter cattle numbers going into next year. Overall consumer demand has stayed supportive, even despite concerns regarding inflation and constant recession concerns for the U.S. economy. On Tuesday, cattle prices had a strong move to the upside, which triggered technical buying into the marketplace. Funds are holding a relatively small, long position in live cattle at 37,505 contracts as of last Tuesday’s Commitment of Trader’s Report. With the room for money to push into the long side of the market and the growth in open interest, the prospects of the cattle market maintaining its trend higher is favorable in the near-term.
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CORN HIGHLIGHTS: Corn futures closed higher today after increasing steadily throughout the day as weather concerns loom and export sales came in as decent. September gained 10-3/4 cents to close at 6.02-1/4, and December gained 10 cents to end the session at 6.06-1/4.
There wasn’t much in the way of new headlines today other than export sales, which were only decent, to drive the market higher. There has been an increase in open interest as new short positions were added earlier in the week, and it is possible that there was a bit of short squeezing occurring today. Net export sales for 21/22 were 2.3 mb, down 62% from the previous week but up 31% from the prior 4-week average. Sales for 22/23 were 10.1 mb, and corn shipments now total 2.221 bb for 21/22, down 11% from a year ago. Dry weather forecasts persist in the western Plains and as far North as South Dakota, but rain is expected to fall east of Illinois with heavier amounts in Ohio and Kentucky. US ethanol production increased up to 1.043 million barrels per day last week, up 6.6% from a year ago which is helping firm up basis. Corn gained some ground back today, but there is still a gap on the Dec chart at 5.84-1/4 that traders will be watching.
SOYBEAN HIGHLIGHTS: Soybean futures rallied today and regained some of the ground lost earlier in the week as volatility continues to increase. Aug soybeans gained 57 cents to end the session at 16.15, and Nov gained 48 cents to 14.17-3/4.
Soybeans took back the majority of losses from the beginning of this week, as traders stepped back in to buy this volatile market. There wasn’t a whole lot of news to back up this rally, but open interest has made a noticeable jump, pointing to the possibility of some short squeezing. Corn premiums in Brazil keep rising and are now up 20 cents since Monday due to slow farmer selling and high Chinese purchase expectations. China and Brazil will arrange a meeting tomorrow to discuss China’s requirements. Additionally, there have been rumors that China may have bought US soybeans which comes as a surprise following the Taiwan fiasco. The export sales report showed more net cancellations of 0.4 mb for 21/22, which is down 81% from last week and 90% from the prior 4-week average. Net sales for 22/23 were 15.1 mb, and total soybean export shipments are now at 1.980 bb for 21/22, down 9% from a year ago. August soybean meal soared today posting new contract highs, but bean oil was only modestly higher as lower crude and Malaysian palm oil threw a wet blanket on the commodity. Nov beans settled just below the 40-day moving average, but there is a chart gap at 13.49-1/4. With the volatility seen lately it would not take much to push lower and fill that gap.
WHEAT HIGHLIGHTS: Wheat futures found their footing today as they were pulled higher by corn and soybeans. Sep Chi gained 18-3/4 cents, closing at 7.82-1/2 and Dec up 18-1/2 at 8.02. Sep KC gained 24-3/4 cents, closing at 8.60-1/4 and Dec up 24-1/4 at 8.68.
After a few negative sessions, wheat bounced today with help from higher corn and sharply higher soybeans. All three US wheat futures classes had double-digit gains, and Paris milling wheat futures also gained about 4-5 Euros per metric ton. Fundamentally, there is not much difference in today than yesterday, but there are unconfirmed rumors this afternoon of a purchase of US soybeans by China. This comes on the heels of heightened tensions due to Nancy Pelosi’s visit to Taiwan, making this purchase (if true) quite significant. In other global news, Ukrainian officials remain cautious about more grain shipments. Ukraine is still attempting to harvest their winter wheat crop while under fire from Russia. That crop is estimated to be about 50% harvested. So far, the shipping of grain is much slower than some had anticipated with currently only one ship having left and 17 more waiting to depart. Ultimately, it still looks like the global wheat supply outlook will remain tight into 22/23. Today the market also did get export sales data – the USDA reported an increase of 9.2 mb of wheat for 22/23. The USDA is estimating 800 mb of wheat exports for 22/23.
CATTLE HIGHLIGHTS: Live cattle futures shook of early session weakness to finish mixed on Thursday, and cattle prices consolidated after Wednesday’s strong gains. Aug live cattle closed 0.200 lower to 137.700, and Oct slipped 0.300 to 143.650. Deferred contracts finished with mild gains on the day. Feeders traded mixed to mostly lower with August slipping 0.275 to 179.075.
October cattle held the top of yesterday’s trading range, which was encouraging given the strength in grain markets on the day. Money flow is supporting the market as open interest has been growing, showing the flow of new money into the cattle market. Cash trade is still building with the $135.50-$136 range in the southern areas and $145 in the northern market. This was trading mostly steady to higher with last week’s totals supporting the market. Most trade is likely wrapped up for the week. Retail values at midday were firmer as choice carcasses added 0.27 to 268.21 and select was 0.13 higher to 241.43. The load count light at 52 midday loads. The choice/select spread stays wide at a $26.78 difference between the two. This reflects the tightness of the beef lots and packers bidding up to find choice beef product to meet the demand. Weekly export sales were light with new net sales of 12,000 MT for 2022 were down 52% from the previous week and 30% from the prior 4-week average. South Korea, Japan and Canada were the top buyers of U.S. beef last week. Feeder cattle held firm with mild losses despite the strong move higher in grain markets. The Feeder Cattle Index softened, losing .29 to 173.75 and is still at a discount to the August futures. The price moves in cattle this week reflects the support in the market given the tighter supply picture and a firm retail demand. The market holding these gains into the weekend will be key. The technical picture looks supportive of higher prices, and the steady climb in deferred futures shows the strength and anticipation of a tighter cattle supply in the future for this market.
LEAN HOG HIGHLIGHTS: Hog futures rallied from a difficult start to finish with moderate to strong gains. Front month hogs stayed tied to the cash index with expiration around the corner. Aug hogs slipped 0.350 to 120.650, but Oct was 1.750 higher to 97.600.
The most actively traded October gapped lower on the open with triple-digit losses as a drop in afternoon retail prices on Wednesday triggered selling pressure, but prices rallied off those opening lows to finish with a strong close higher, trading outside the trading range from Wednesday. The strong price action will be supportive into Friday. A strong week of export sales helped turn the market. Weekly exports sales posted new sales of 31,000 MT for 2022 were up 43% from the previous week and 35% from the prior 4-week average. Most noted was the strong sales to China at 16,800 MT last week to lead the group. Mexico and Japan were also top buyers of U.S. pork last week. Secondly the large spread between the August and October contract finally saw some correction. The spread traded to a high of 26.500 before tightening over $3.000 on Thursday at the close. August futures expire on the 12th, and October looks undervalued. The strong cash market tone is the fuel in the market for the August contract. Midday direct hogs on Thursday softened losing 2.28 to 127.04 and the 5-day rolling average trended higher to 126.04. The Lean Hog Cash Index was softer on Thursday, slipping 0.63 to 120.94. With August expiration soon, the index is tied to the August futures. The retail market is trading at its highest levels for the year, and at midday, pork carcasses were firmer gaining 3.43 to 128.92. The load count was moderate at 147 loads. The strong export sales and China business helped support the market. Add in the widespread between August and October reflects a discrepancy. The hog market looks supported in the near-term.
DAIRY HIGHLIGHTS: The US spot cheese block/barrel cheese average closed today down at $1.75625/lb, which is its lowest close since January 27, 2022. Near record cheese inventories and weakening demand are weighing on the market. After today’s drop, cheese is about 70c off of the recent May highs. The selloff in cheese is keeping pressure on both Class III and IV milk futures. Even though Class III futures remain in oversold territory, the daily drop in cheese is preventing the market from rallying. On the other end of the spectrum, the butter market remains bullish with tight inventories and a price at multi-year highs. If butter can hold here, it could limit the downside for Class III and IV.
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Author
John Heinberg