MARKET SUMMARY 3-6-2023
Feeder cattle prices are shooting higher to start the week, fueled by tight supply picture. The feeder cattle market surged to new contract highs on Monday as the cash market on the countryside is pulling prices higher. Cash feeder prices have been on the climb as the tight supply picture and long-term value in the live cattle market has built competition for the feedlot replacements. The market is well aware of the tight calf crops , fueled by a sharp reduction in beef cow numbers. The Feeder Cash Index surged higher, gaining 1.41 on Monday. The Feeder Cash Index had been trending steadily higher for months, only to see a strong move in the past couple of weeks. This trend is still likely to continue as feeder supplies remain extremely tight.
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CORN HIGHLIGHTS: Corn futures saw a relatively quiet session despite wheat futures closing with double digit losses and new lows for the year. May closed at 6.37, down 2-3/4 cents and December lost 1-0 to end the session at 5.70. A lackluster export inspections figure was partially negated by more dry weather on tap for Argentina and soybeans closing 10-1/4 higher in May and 6-1/4 firmer in November. The ratio of November soybean futures divided by December corn futures is currently 2.42. If that ratio moves closer to 2.5 this could imply a shift toward more soybean acres. Position squaring in front of Wednesday USDA’s WASDE report was a likely feature today as well.
Export inspections at 35.4 million were about as anticipated. Considering sales have been on the slow side in recent weeks, today’s figure, while not tiny, is still on the slow side to meet expectations for yearly sales. While there is time for export sales to increase, the likely hood of a cut on Wednesday’s WASDE report is expected. Current annual sales are estimated at 1.925 bb with carryout at 1.267 bb. A crop of 25 to 50 mb is expected, which will push carryout near 1.3 bb. This is still a snug figure. Brazil, in part of the county, is experiencing additional rain, which will slow harvest of soybeans and delay some corn planting. Yet, probably not enough to concern the market at this time. On Wednesday, expect a reduction to the Argentine corn crop as February was considered one of the driest on record for key growing areas. There could be small reductions in southern Brazil corn producing states for their first crop.
SOYBEAN HIGHLIGHTS: Soybeans closed higher today driven by strong gains in bean meal as cash offers exceed the futures. The dryness in Argentina remains a big factor in the support of meal as their meal exports will likely be lower than needed, leaving the US to pick up that business. May soybeans gained 10-1/4 cents to end the session at 15.29, and Nov gained 6-1/4 cents at 13.79-1/4.
Soybeans were supported by bean meal today as it rocketed to new highs in the May contract. Meal has been a surprising bullish factor in the soy complex as Argentina’s drought has caused doubts as to how much Argentina, the largest meal exporter, will be able to produce. With the expansion of processing plants in the US to contribute to bean oil as renewable diesel, the amount of extra meal that would come felt a tad bearish. If the US takes over a good portion of meal exports, that would justify the recent rally in meal. This morning, the USDA said that 19.9 mb of beans were inspected for export last week, which is less than the week before, but good enough to keep total inspections up 3% from last year as the US export window begins to narrow. Brazil’s harvest is now approximately 43% complete, and expectations are for the USDA to keep their estimate of 153 mmt of production unchanged on Wednesday’s WASDE. Argentina, however, is likely getting a revision lower on their production from 41 mmt to potential analyst lows of 31 mmt. It does not seem like the market will react much to that as it has been well known for awhile now. May beans have resumed their upward trend and are above their moving averages, while Nov beans have corrected as well.
WHEAT HIGHLIGHTS: Wheat futures fell again today, with KC wheat now at its lowest levels in more than a year as funds continue to add to their long position, Russian controls the export sales business, and some beneficial rains fall in the US. May Chi lost 13-1/2 cents, closing at 6.95-1/4 and Jul down 13-1/4 at 7.03-1/2. May KC lost 18-1/2 cents, closing at 7.97-3/4 and Jul down 17 at 7.97-3/4.
Wheat fell apart today in large part due to heavy fund selling causing May Chi to close below its 7-dollar support to its lowest levels in a year and a half. May KC wheat was the biggest percentage loser, losing 2.27%. There is not really any fresh news in the wheat complex other than that funds continue to add to their large short position of approximately 72,000 contracts and Russia keeps their grip on exports with cheap wheat offers. Global wheat supplies are at their lowest in 15 years and the Russian and Ukrainian crops keep being revised to be smaller, so once they are running low and other countries get some of the export business, prices should increase. Right now, the price of wheat is below operating costs and it is just not sustainable and doesn’t make much sense when looking at wheat ending stocks. Both Chi and KC wheat broke through their support levels at 7 and 8 dollars respectively, and are significantly oversold. Funds theoretically should exit some of their short positions soon.
CATTLE HIGHLIGHTS: Cattle futures closed higher as a strong feeder cattle market buying strength spilled over into the live cattle market. Strong cash markets in both helped fuel the rally in the complex on the day. April cattle gained .675 to 166.100, and June Cattle added .325 to 161.000. The feeders were the strength of the day ans the March feeders jumped 2.075 to 192.075 and April added 2.575 to 198.600.
After just looking like the market was ready to take a pause, strong cash markets for both live and feeder cattle helped push prices higher. In live cattle, front month contracts are still under the influence of last week’s price reversal, but deferred contract reached out to new highs. In feeders, prices surged higher and closed with new contract highs across the board. The strong cash stays are a driver of the futures prices, even though Monday’s trade was not developed, but last week’s strength and the strong feeder market kept the cattle market optimistic. Bids and asking prices were undefined to start the week, and live cattle cash trade will likely hold off until the end of the week. Retail values found strength at midday with Choice gaining 1.21 to 290.53 and Select adding .89 to 277.25. The load count was light at 34 loads. Cattle slaughter last week totaled 629,000 head, which was 9,000 more than last week, but 30,000 below a year ago, down 4.6%. The feeder market was the strength in the complex today as prices broke to new highs. The Feeder Cash Index up 1.78 at 187.21. The index is still at a discount to the front-end futures, but talk on strong countryside cash markets have been lifting feeders. The cattle market looked a little tired early last week as charts posted some top-side reversals, but the price action today in both live cattle and feeder cattle have either removed those reversals or put them in challenging range. We have said all along the cash is king and that was the case on Monday.
LEAN HOG HIGHLIGHTS: Lean hog futures traded mixed as hog slaughter numbers and premium to cash keep the April contract pressured. Apr hogs dropped 1.075 to 83.475, but Jun was unchanged at 100.625.
April hogs were pressured, but a heavy slaughter run last week, causing the contract to close at its lowest point in nearly a month. Last week, inspected slaughter totaled 2.520 million head, up 145,000 head or 6.1% over last week. Versus last year, hog slaughter was up 4.2%, as the market is still working through more animals than expected. This heavier run pushed pork production up 6.0% week over week. That trend just makes it difficult for the market to move higher. On Monday, direct cash hogs trade was 0.02 higher at midday to an average of 77.87. The Lean Hog Index traded 0.06 higher to 78.71, as the cash market gains may be slowing. Retail values were 1.85 higher at midday to 87.42. The load count on Monday was light at 142 midday loads. The afternoon retail value close could be key for strength in the hog market on Tuesday morning’s open. The fundamentals have improved, and it feels like the hog market wants to work higher overall, but the large slaughter run acts as a headwind to the market. The cash market and its discount to cash is still a limiting factor. If slaughter numbers stay heavy, which is likely, it may be difficult for any sustained rallies.
DAIRY HIGHLIGHTS: After pushing to nearly a 40 cent premium in blocks over barrels last week, the spread narrowed 9.75 cents today on a 6.25 cent jump in barrels and 3.50 break in blocks to close at 27.75 cents. The overall average finished at $1.77625/lb as it attempts to breach the $1.80/lb mark for the first time in two months. Class III futures were mostly higher to start the week, whereas Class IV action was muted. Tomorrow’s GDT Auction will look to set the tone for the week as the overall index tries to break a 12-month downtrend, but the most recent auctions have seen cheddar and butter bid higher. Wednesday is a busy day as well with January Dairy Export numbers being released along with the March WASDE report on grains.
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Author
Amanda Brill