MARKET SUMMARY 02-23-2023
Natural gas futures prices have been a talk in the market, as prices have tumbled off all-time highs from this past summer. Natural gas prices exploded higher after the invasion of Ukraine by Russia, as the world became concerned about global natural gas supplies, and the prospects of gas shortages in Europe, which relied heavily on Russian supplies. This week, gas futures fell to touch $2.000, taking prices back to 2020 levels. The gas crisis concern in Europe has been avoided, as imported supplies have become available, and a warmer-than-expected winter has reduced demand for heating fuel. Prices may have found a bottom, but lower levels are still a possibility as the COVID lows of $1.432 are still on the charts. Prices are trading firmer this week off the $2.000 low and could signal a technical turn that could lift prices higher in the near future.
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CORN HIGHLIGHTS: Corn futures plunged on front months today with Mar losing 13-3/4, May 15-0, and Jul 13-1/4 cents. Mar closed at 6.60-3/4, its lowest close in five weeks. Dec lost 6-1/2 cents to end the session at 5.85-1/2. The USDA Outlook Forum numbers were released and while no surprises may have weighed on the market. Higher acres, yield, production, carryout, and lower expected farm price may have had longs reducing positions. The recent push lower in wheat prices may have had an influence on corn as well. Charts were bruised today with closes below multiple moving averages and below the Bollinger band. This too may have contributed to today’s sharp losses.
Heavy fund selling was noted today. Without a positive story, the fund money may be starting to leave the corn market. Losses of more than 50 cents in recent sessions for the wheat market and selling pressure in equities may have traders taking a more cautious approach. 91 million acres are expected to be planted of corn this year. The 2022/2023 figure was 88.6. Yield is estimated at 181.5 bushels per acre, up from 173.3 this past growing season. Total production is estimated at 15.058 bb compared to last season’s 13.730 bb. Exports are expected to rise from 1.925 bb to 2.2 bb. Ending stocks are expected to rise from 1.267 bb to 1.887 bb. The average farm price is anticipated at 5.60.
SOYBEAN HIGHLIGHTS: Soybean futures closed lower today being led down by the Nov contract, as bean meal moved lower early in the day but recovered for a positive close, while bean oil closed 1.25% lower in Mar. The USDA Outlook Forum was bearish for corn but not friendly for beans either. Mar soybeans lost 5-1/4 cents to end the session at 15.34-1/4, and Nov lost 7-3/4 cents at 13.87-3/4.
The numbers from the USDA outlook forum were released this morning and while they were more unfriendly to corn, soybeans responded poorly as well. It was interesting that while the outlook numbers were released early before the market even opened, the sharp sell-off didn’t really kick in until 11 am, and this points to the fact that there were other bearish influences at work. The forum estimated that 87.5 million acres of beans will be planted this year which is the same as the previous year, but yields are being estimated at 52 bpa compared to the 49.5 bpa the previous year. The carryout is also expected to increase slightly. Other pressure on the market likely came from Mar options expiration tomorrow and first notice day on Tuesday. The Argentina Grain Exchange has officially cut their 22/23 bean production to just 33.5 mmt which is significantly lower than the USDA estimate of 41 mmt. Brazil’s forecast has turned drier which put some pressure on futures as they are able to speed up their harvest pace. May beans remain in their upward trend but may see further pressure as Brazilian harvest advances.
WHEAT HIGHLIGHTS: Wheat futures closed mostly lower as selling pressure spilled over from corn and beans, Russian sales continue to dominate, and the outlook forum numbers could be seen as negative. Mar Chi gained 1-3/4 cents, closing at 7.38-1/4 and Jul down 1/4 at 7.56-1/4. Mar KC lost 14-1/4 cents, closing at 8.61-3/4 and Jul down 10 at 8.51.
The wheat pit looked ugly again today, closing lower across the board with Mar and May Chi as the only exceptions. KC posted double-digit losses in the front three months, and MPLS futures were also down about four to six cents. Interestingly, Paris Milling wheat futures recovered a bit today with a gain of four euros in the May contract. There simply hasn’t been a lot of news lately to move the market, though, and gravity may naturally be pulling prices down. There was some unofficial data today in the form of the USDA outlook forum which had wheat acres at 49.5 million vs 45.7 last year. This was a little higher than the market had expected and yield was projected at 49.2 bpa. Carryout was also estimated at 608 mb vs 568 mb this year. The other thing that may be pressuring wheat continues to be the cheap nature of Russian exports and the fact that the Russian ruble recently hit a ten-month low. A lot could depend upon the Black Sea export deal which has about a month before expiration. An extension could look negative to the market, but if the corridor closes it could lend a helping hand to futures. Russia and Ukraine are said to be meeting soon in Turkey for negotiations. As an aside, export sales are delayed until tomorrow due to the shortened week. And as a final note, Mar wheat options expire tomorrow and first notice date for Mar futures is February 28.
CATTLE HIGHLIGHTS: Live cattle futures finished higher, as the market cash trade and bids are firmer this week, as packers are looking to pay up for tight supplies. Feeders finished moderately to strongly higher on the firm tone in live cattle and weaker grain trade. Feb cattle were 0.250 higher to 165.150, and Apr cattle added 0.250 to 165.325. Mar feeders added 1.250 to 189.225.
Another day and another new contract high in Feb and Apr live cattle as prices reacted to the building cash trade. Cash trade this week has been slow to develop overall, but what trade has occurred has stayed firm over the last week. On Thursday, the packers ticked higher with $164 bids in the south. Asking prices have stayed firm with $165+ in the South and Northern dress trade asking for $262+. Trade will likely build more this afternoon into Friday. A new headline of China suspending beef imports from Brazil due to a Mad Cow case in Brazil seemed to have little impact on the market. This may be a wait-and-see headline to see how the story develops, but the potential impact of increased export demand would be supportive of the market. Retail values have been the backbone of cash trade as prices have climbed with tight overall supplies. Choice carcasses traded 0.63 higher at midday to 288.54 and Select beef added 2.84 to 276.48. The load count was light at 40 midday loads. The feeder cattle market was supported by the firm live cattle tone and weak grain markets, as prices broke out of the most recent trading range, and charts look friendly technically. The Feeder Cash Index was down 0.03 on the day to 182.57. Mar feeders are holding a premium to the cash index which could be a limiting factor. The grain market may be the biggest driver in feeder prices in the near future and today’s price break represents the crossover impact on the feeder market. The market will be looking to the USDA Cattle on Feed report on Friday and could be choppy with some position squaring. Expectations for the report are – total cattle on feed as of February 1 at 96.1%, placements at 97.2%, and marketings at 104% of last year. The market will be watching for more confirmation of a tighter cattle supply. Cattle futures overall look strong, fueled by the cash market being the driver, as front-month futures moved to new contract highs again on the day. Be cautious, the market is getting overbought, and may be due for some correction if the fundamentals were to cool.
LEAN HOG HIGHLIGHTS: Lean hog futures finished mixed to higher on the session as the premium to cash market limits the Apr contract, but deferred futures posted moderate gains. Apr hogs lost 0.350 to 86.200, but Jun hogs added 0.150 to 103.950.
The Apr hog contract consolidated at the bottom of yesterday’s trading range as the premium of the Apr contract to cash limits the near-term upside. The CME Lean Hog Index is trending higher trying to close the gap, adding 0.77 to 77.53. Despite the strength, Apr futures closed the day with an 8.670 premium over the index. Direct cash trade was unreported yesterday due to confidentiality, and at midday were unable to show a comparison. The weight average was 77.37, which is firmer than a couple days ago, as the cash market is still working higher overall. Pork retail prices found strength again at midday today, trading back 3.58 higher to 86.63. The load count was light at 103 loads. The estimated slaughter on Thursday was 371,000 head, down significantly from last week as the winter storm is likely impacting animal movement. A factor the market is watching is the trend in Chinese hog prices, which continues to track higher. The Chinese domestic hog price is trading 27.7% higher year over year. The higher price levels could lead to potential import demand, which the market can gauge on the USDA Export Sales report tomorrow morning. Last week was a friendly export report. The premium of the market to the cash market is still a big limiting factor in the Apr futures, and today aided in the selling pressure. Even though Apr futures looked like they have turned the corner higher, the trade will likely stay extremely volatile.
DAIRY HIGHLIGHTS: Class III milk futures closed the afternoon out with losses ranging from four to 16 cents in the 2023 contracts as barrels fell 3.25 cents on 8 loads traded. With blocks unchanged on no trades, this extends the premium in blocks to 38.25 cents as spot cheese continues to flounder in the mid-$1.70’s/lb. Class IV action was quiet with both underlying spot markets unchanged. The most notable mover for inputs today was corn, in which the front month fell 15 cents to $6.6025, a 6-week low that broke a short-term upward trendline. As the South America news quiets a bit, grains may start to look over-priced as spring nears, although soybean meal continues to hold near 9-year highs and the Russia/Ukraine war remains a powder keg.
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Author
Bryan Doherty