Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man. Ronald Reagan
While the CPI announced this week dropped a little bit from the previous month, we’re still looking at the most inflationary environment since the late 1970’s and early 1980’s. Those of us who were employed back then recall that prices went up, and wages went up, but you never seemed to have any more buying power. I went looking for quotes from the time, and found the Reagan item above, along with several about the Russians and the Cold War. We did see some bullish fundamental news from USDA on Thursday that boosted wheat prices, but it can be argued that limit up would not have been in the cards without an inflation booster. While cattle producers are fretting about the current discount of June futures to cash, I can also argue that ag and energy prices since January 1 have been quite buoyant. Just like a toy boat, they are going to bob a bit when they are hit by waves.
Corn futures slipped 3 ½ cents on the week in old crop July, but were up 28 cents for December. Corn planting progress through the 8th of May was a sluggish 22%. That should pick up with the drier weather this week, with exception to less than ideal in the Dakotas and Minnesota. Thursday’s WASDE report from USDA showed the initial 2022/23 balance sheet numbers, indicating yield at 177 bpa and projected production at 14.460 bbu. Carryout for new crop was pegged at 1.36 bbu. Old crop stocks were left unch at 1.44 bbu. Weekly export sales came in at a MY low 192,700 MT, with new crop bookings at 46,600 MT. New crop bookings were similar, at 46,600 MT. US old crop corn export commitments (shipped plus outstanding sales) are now at 58.491 MMT, 14% below last year at this time. That takes them to 92% of the full year WASDE forecast, slightly behind the average pace of 94%. Accumulated exports are 65% of the full year projection, matching normal pace. The Friday Commitment of Traders report showed specs in corn futures and options trimming back their net long position by 14,456 contracts. That took them to a net long 338,562 contracts as of Tuesday.
Wheat bulls had a really good week. Minneapolis spring wheat led the complex with gains of 9.62% on the week. KC was close behind, with a jump of 9.53% and CBT rallying 6.22%. Crop Progress data from Monday indicated 29% of the winter wheat crop in good/excellent status, up 2% from last week. The Brugler500 index (includes all 5 condition categories) was 272, up 7 points on the week but 61 points below the same week last year. Much of the spark in the market came from Thursday’s WASDE, as old crop stocks were down 23 mbu to 655 on a 20 mbu jump to exports. The new crop number came in well below expectations as production was pegged at 1.729 bbu. Stocks for 22/23 were seen at 619 mbu. Weekly Export Sales data showed a MY low 14,100 MT of old crop wheat sales, and only 124,300 MT for 2022/23 shipment. Old crop wheat export commitments are now 19.698 MMT. That is just 90% of USDA’s full year forecast of 805 mbu. They would normally be 102% by now. Shipments to date are still 23% smaller than a year ago, at 16.357 MMT. That is 81% of the USDA projection vs. the average of 91% by now. Census data (used in the official USDA balance sheet) shows shipments further along vs. Export Sales. CFTC showed managed money in Chicago wheat adding 4,641 contracts to their net long position as of 5/10 to 15,547 contracts. In KC wheat futures and options, their increased their bullish bet by 2,964 contracts during the reporting week to a net long 42,913 contracts.
Soybeans rallied 1.51% on the week for old crop July. New crop November was up 27 ½ cents. Meal was again a drag on the market, with July down 1.04%. Soy oil was back up 3.57% on the week. Thursday’s WASDE update showed a 25 mbu drop to old crop stocks at 235 mbu, with exports revised higher. The new crop balance sheet has ending stocks at 310 mbu. The weekly Export Sales report showed old crop bean bookings in the week that ended on May 5 at a MY low 143,700 MT, with new crop at 77,300 MT. US soybean exporters have either sold or shipped 58.455 MMT of the 21/22 crop, now just 5% smaller than last year’s record buying pace. Total export commitments are 100% of the USDA full year estimate, outpacing the 97% average for this date. Shipments are 82% of that projection, matching the average pace. Friday’s Commitment of Traders report indicated money managers in soybean futures and options trimming 22,592 contracts from their net long position to 130,661 contracts as of 5/10.
Live cattle finished the week with June down 67 cents from last week. Cash trade was steady at $140 in the South and $144-145 in the North. Feeder cattle slipped $1.67 per cwt or 1.05%. The CME Feeder Cattle Index was down on Friday @$156.36. Wholesale beef prices were mixed this week, widening the Chc/Sel spread to $15.05. Choice boxes were up $4.1 (+1.8%) per 100 pounds, with Select $1.16/cwt lower (-0.5%) from Friday to Friday. USDA’s Export Sales report showed a MY high in bookings at 28,400 MT in the week of 5/5, with 12,000 MT for South Korea. Export shipments were 19,700 MT. The Commitment of Traders report on Friday afternoon showed spec traders in live cattle futures and options backing off another 8,948 contracts from their net long to 29,949 contracts as of Tuesday.
Lean hogs collapsed this week, with 3.22%, with Friday gains helping to ease the pain. The CME Lean Hog index was up slightly this week to $101.04. The pork carcass cutout value was down $3.53 (-3.4%) this week to $101.17. Ham primals were down more than 12% as the main influence on the carcass value. USDA’s Export Sales report showed pork bookings at 26,300 MT for the week ending May 5, a 10% jump from the week prior. Mexico bought 9,600 MT, with China jumping in at 4,700 MT. Shipments were 33,100 MT in that week, a MY high. Friday’s Commitment of Traders report tallied managed money in lean hogs let long 20,608 contracts by 5/10, a drop of 8,934 contracts on the week. That is the lowest that position has been since August 2020.
July Cotton futures clawed back most of last week’s losses from Friday to Friday, with gains of 159 points. Outstanding cotton sales are 56% larger than year ago at 5.794 million RB. Total commitments are 106% of the full year WASDE projection, vs. the normal 106%. Catch up is still needed on shipments with 64% of the expected number shipped, vs. the 72% average pace. On Thursday, USDA projected a US crop of 16.5 million bales. With stout expected exports of 14.5 million bales, projected ending stocks are seen shrinking to 2.9 million vs. 3.4 million in the current MY. Average cash price is seen at 90 cents, just below this year’s 92 cents. USDA’s FSA set the week’s AWP for cotton at 140.82 cents per pound! That is in effect through next Thursday. Commitment of Traders data showed cotton spec traders cutting 1,968 contracts from their net long as of 5/10. That net long position stood at 70,727 contracts on Tuesday.
We’re past the May WASDE report, and back to looking at export demand and crop production potential. We’ll get the usual Export Inspections report on Monday morning and the NASS Crop Progress report in the afternoon. NOPA will also release their monthly soybean crush and bean oil stocks numbers on Monday. Skip ahead to Wednesday and EIA will release ethanol production and stocks data. Thursday will feature the weekly Export Sales report in the AM. USDA/NASS will release their monthly Cattle on Feed report on Friday (May 20). Friday will also mark the expiration of June serial grain options.
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Be sure to see Tech Talk on Page 4!
Tech Talk: November Soybeans
November soybeans formed a small double top in late April and failed to take out the February spike high. They sold off due to ideas that planting delays in the US would result in extra soybean acres, particularly after the Biden administration opened up an additional 600+ counties to be eligible for crop insurance on double crop beans. That said, they stopped going down where they should have, hitting the lower Bollinger Band and 61.8% retracement support at $14.50 on Monday. Stochastics and RSI (not shown) were oversold on that bottom, conveniently 3 days before the USDA report. Let the bottom picking and short covering begin!
Going home on Friday, prices were above the 18-day moving average centering the Bollinger Bands, and not overbought yet. Odds are decent for a re-test of the upper Bollinger Band and possibly the double top. Since triple tops (almost) never hold, reaching $15.42 or thereabouts would inspire at least an attempt at $15.55. What’s the bear story? Sunday/Monday weakness pulling prices back below the Bollinger midline. Support would be expected at $14.50 again, followed by $14.255 and $14.21 (100-day moving average).
There is a risk of loss in futures and options trading. Similar risks exist for cash commodity producers. Past performance is not necessarily indicative of future results.
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