MARKET SUMMARY 3-21-2023
July Chicago wheat has lost 27 cents to start the week. Premium priced into the recent recovery was cut by more than half. So, what happened? An agreement to extend wheat shipments out of the Black Sea region and a lack of new positive news (actual or perceived) has traders once again on the defensive. It should be no surprise if the funds were again sellers today. Wheat, a commodity grown and consumed in almost every county in the world, has had aggressive fund selling activity since mid-2022 first on the idea of high prices curbing demand and now on the idea wheat will continue to make its way to the market despite the war. As funds accumulate short positions downward, price momentum occurs until something pronounced stops the selling. Despite snug world supplies, managed money is betting on most countries rebounding in production as well as while demand is slow to recover from high prices.
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CORN HIGHLIGHTS: Corn futures rallied in the morning session, however was unable to hold gains as traders either exited long positions, went short, or both. Another announced sale to China (albeit small at 5.385 mb) may have helped to send price positive by 5 or more cents, yet wheat and soybeans retreated pulling corn with it. May lost 3 cents to close at 6.30 and December gave up 3-1/4 to end the session at 5.56-3/4. Firmer equities may be signaling less concern over recent bank closures and may have money managers buying stocks and exiting long commodities.
Unfortunately, it looks like corn was more the recipient of pressure from outside markets than from negative news or increased producer selling. Corn has upward momentum, and this was revealed today when prices, after trading more than five cents higher set back only to once again go positive. Yet sharp declines in competing markets were too much for corn to overcome late in the session. The market may also be sending a signal that a relatively sluggish tone is likely to continue in commodities. The export corridor, extended in the Black Sea region for at least another 60 days, was perceptibly viewed as less than positive. While the war rages on and the reality of the likelihood of smaller crops is real for both Ukraine and Russia, the market at this time seems content staying on a defensive tone. For corn, all of the uncertainties lie ahead between the Brazilian corn crop as well as North American crops. Yet for the moment, the market is seemingly not concerned with weather in Brazil despite anywhere from 20 to 40% of the crop planted beyond the optimal window.
SOYBEAN HIGHLIGHTS: Soybean futures closed lower today as traders stay weary ahead of the Federal Reserve meeting tomorrow where it is unclear whether or not they will raise interest rates or leave them alone for the month amid the banking issues. Meal closed lower, but the big losses were in bean oil, which lost over 3% in May. May soybeans lost 19 cents to end the session at 14.67, and Nov lost 13 cents at 12.96.
Soybeans continued their trend lower, and the Nov contract notably closed below 13 dollars for the first time since last August. The main factors pressuring the soy complex right now are the potential rate hike by the Fed tomorrow, new supplies from Brazil’s record harvest, and a surge in African Swine Fever in China that brought meal down today as feed demand becomes a concern. The market is largely expecting the Fed to raise rates by another 25 basis points tomorrow while some feel that they might hold of on hikes this month after everything that has happened in the banking sector. Last week’s export inspections report for soybeans showed things slowing down as Brazil’s harvest pace picks up. The recent surge in ASF in China has pressured meal, but today’s report from the USDA showed that China’s consumption of soybeans should continue to increase to a record high of 116.0 mmt for 23/24 and will require 97.5 mmt of imports. The trend for both May and Nov beans is down with both contracts posting their lowest closes in 2023.
WHEAT HIGHLIGHTS: Wheat futures could not hold early support and finished with significant losses. A combination of factors may have led to selling pressure, including the extension of the Black Sea grain deal and improvements to the US winter wheat crop. May Chi lost 17-1/2 cents, closing at 6.83-1/4 and Jul down 16 at 6.92-1/2. May KC lost 9-1/2 cents, closing at 8.20-1/4 and Jul down 8-1/2 at 8.06-3/4.
Wheat seems to be succumbing to the fact that the Black Sea Grain Initiative stayed open. While some might argue that it is just business as usual, the simple fact that it did not close is viewed as bearish. Russia still seems to be insisting that it is only a 60-day extension, but Ukraine claims it is for 120 days and this is causing confusion. From a technical picture, May Chicago has recently been held in check by the 21-day moving average which is currently around 7.06. Support for that contract at 6.91 (the 10-day moving average) was also violated today. There may also be slight weakness stemming from the fact that this week 53% of the US winter wheat crop is said to be in drought conditions – a slight improvement from 55% of the crop last week. There were also minor improvements to crop ratings in Kansas and Texas. Overall, though, the US southern plains are far from home free in terms of drought. In the northern plains, the opposite could be an issue. A large volume of snow could lead to possible planting delays for the spring wheat crop.
CATTLE HIGHLIGHTS: Cattle futures had a mixed to mostly higher close. Friday’s report did not provide much incentive for traders, and while fundamentals do look supportive, there are outside market concerns that may be limiting significant rallies. Apr live cattle gained 0.400 to close at 162.425 and Jun was up 0.625 at 156.150. The Dec contract lost 0.225 to 165.925. March Feeder cattle gained 0.575, closing at 188.775 and Apr was up 0.075 at 194.700.
Lower corn futures today may have lent some support to the cattle complex, with most contracts posting gains. Upside price action was somewhat limited though and Oct-Feb live cattle actually closed lower. This may be in part due to last week’s Cattle on Feed report which was essentially in line with expectations. So while it still showed supportive numbers, it has been nothing to get excited about to start the week. From a technical standpoint, both April live cattle and March feeder cattle have chart gaps above the current level, and gaps often get filled over time. Right now the overall technical picture still looks weak though. Fundamentally, concerns over the banking system, economy, and consumer demand should not be taken lightly. These could all affect the cattle market, as well as many other commodities, for some time to come. The cash market will also be important for determining the direction of futures and should be watched closely.
LEAN HOG HIGHLIGHTS: Hogs tried moving higher earlier in the day but ultimately ended lower as selling pressure and fund selling continued. Higher cutouts were unable to offer this market any support today. Apr hogs dropped 0.725 to 77.050, and Jun futures traded 0.525 lower to 91.350.
April hogs ended at new contract lows again today as the downward momentum continued, but December hogs did manage a slightly higher close and the other losses were not as significant as the past few days. It is a bit surprising that the news of surging African Swine Fever in China has not had any positive impact on futures but has caused bean meal to fall over feed demand concerns. Cash fell again today by 1.15 but remains at a premium to futures while cutouts increased by 0.69. Most of this selloff has been technical and driven by fund money, but one bearish fundamental factor comes from increasing hog weights with the most recent reports showing an increase of 1.2 pounds to an average of 287.1 pounds, showing that hog numbers are not tightening. Traders will likely need to see a trend of higher cash and cutouts before buying into this market. The recent banking problems have not helped prices at all, and tomorrow’s possible rate hike by the Federal Reserve may be pressuring things as well.
DAIRY HIGHLIGHTS: After the recent surge of bidding in the US spot trade and the slightly bullish US milk production report, the market looked to Tuesday’s GDT Auction to see if the bullish momentum could continue. The GDT results disappointed once again, as the price index softened for the third consecutive event. Overall, the GDT price index lost another 2.60% in value to an average price of $3,361 per metric ton. Within the event, the big loser for the day was cheddar, which fell 10.20% to its lowest price since July of 2021. This now puts GDT cheese at $1.84/lb versus the US block/barrel average price at $1.96875/lb. The soft GDT event kept pressure on the US market as second month Class III fell 3c to $18.99 and second month Class IV was down 8c to $18.04. There was also outside pressure from a weaker grain trade. The market now turns its attention to Thursday’s Cold Storage report.
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Author
Brandon Doherty