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Grain Charts Are Turning Negative, Analyst Says
Beans ended the week on a weak note, as the trade continued to price in yesterday’s bearish report.
The Chinese market was under pressure on liquidation last night, and that spilled into the U.S. market as well. Macro headwinds added to the negative tones as the crude and metal markets were under liquidation pressure all session long. It seems that some of the inflationary money that had been coming at the commodity markets recently is now leaving.
With both the world as well as the U.S. balance sheets expected to get worse over the coming months, it will be hard for rallies to be sustained without a major weather issue.
The charts are turning negative and that will only add to the bearish tone. We do not expect higher prices for soybeans in the short or medium term. We suggest this market is on the path to hit $8.84 for the early-summer low basis the November contract. We do see a good chance for a rally in the July/August time frame (one that does not hold). But our key focus is on the sharply lower pricing expected over the next three months.
If you have not yet, we continue to urge sales on all remaining old crop and work on new crop. We do not want to have to bet the farm, a literal issue this year, by hoping for a summer rally by turning down the chance to sell +$10.00 beans.
Lean Hog Commentary
Hog futures did well this week, with a 45¢ gain on the books for the dominant June contract. Considering the bird flu news, three cases this week, that was good. While some would suggest bird flu is bullish from consumers turning away from poultry, the opposite is more likely. U.S. consumers generally have little actual change in meat demand based on meat safety fears.
The actual impact to pork is negative. If there are export bans enacted, then that means more chicken left in the U.S. to compete against pork. The phrase, “...sell it or smell it” is apt here.
According to USDA’s weekly estimate that comes out at 1 p.m., this week’s kill will run 2.313 million head. That would be 3.4% over last year, right next to the 3.6% gain seen over the previous six weeks. As of two weeks ago, weights are even with last year. Total supply this week, slaughter x weights, will total 491.1 million pounds. That would be 3.3% over last year. The recent six weeks have run 3.5% over.
Smithfield Foods reported that several thousand hogs in a hog farm in Laverne, Oklahoma, were killed due to the wildfires. The breeding herd farm in question housed a total of 45,000 head. If all those sows were killed, you are looking at something like 1.1 million head of potential market hogs lost on an annual basis assuming about 25 pigs per litter per year. Assuming a 5,000-sow loss, you would be looking at 125,000 head for the whole year.
It may seem heartless to say but with these events, the headlines and news stories are usually more threatening to supply than the actual loss in head from a market impacting basis.
Perhaps the biggest issue here is this week's action may have tested the support from a Head and Shoulders top formation on the charts. The potential H&S top in the cattle mentioned three weeks ago was never activated by a close below a similar support level. Next week’s trade will be important to monitor.
USDA reported the monthly meat export numbers today, converted over from the Census Bureau data. This is separate from the normal weekly export numbers that only include carcass meat, and that may be a little incomplete. The monthly meat trade release is considered the solid data. Pork exports in January ran 457.958 million pounds. That was 20% over last year. This is even better than the 9% to 15% year-over-year gains posted in the previous three months. Pork imports also held good news. At 83.878 million, they ran 15% under last year. That was better than the 4% to 11% year-over-year declines from the previous three months. More exports and fewer imports – positive news.
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