Ahead of the Open | June 24, 2022

GRAIN CALLS

Corn: 4 to 15 cents higher.

Soybeans: 10 to 12 cents higher.

Wheat: HRW and SRW 11 to 19 cents higher, spring wheat 8 to 11 cents higher.

GENERAL COMMENTS: Grain and soy complex futures climbed overnight but are still heading for sharp weekly declines on improving crop weather and recession concerns. Malaysian palm oil futures sank nearly 2% and posted a decline of nearly 15% this week amid soyoil weakness and an expanding production outlook. Front-month crude oil futures are up over $2. U.S. stock futures signal a stronger open, while the U.S. dollar index is down about 140 points this morning.

Two rain events expected in the U.S. Midwest over the next two weeks will provide some relief from dryness in the eastern crop areas, World Weather Inc. said today. The first event is expected Sunday into Monday, though rainfall may be disappointing due to a lack of moisture from the Gulf of Mexico. The first few days of July may bring “the most important rain event for the drier areas of the Midwest,” the forecaster said. “Early indications suggest partial relief is expected, but some areas will not do as well as they need to.” Cooling is expected this weekend into early next week in the Plains and Midwest.

Lawmakers on Thursday pressed Federal Reserve Chairman Jerome Powell over how the central bank would manage trade-offs it could confront if its interest rate increases slow the economy sharply but don’t reduce inflation quickly. Powell said that in such a scenario, the Fed would be reluctant to shift from raising rates to cutting them until it saw clear evidence that inflation was coming down in a convincing fashion. Fed governor Michelle Bowman said the central bank would need to raise interest rates aggressively this year to combat inflation.

Federal Reserve stress test results indicated big Wall Street banks could weather a severe recession. The banks tested demonstrated they had enough capital to handle market turmoil including surging unemployment, collapsing real-estate prices and a plunge in stocks, the Fed said in a statement Thursday. Major banks including JPMorgan Chase, Morgan Stanley and Goldman Sachs Group also faced a made-up market shock that tested the resiliency of their trading operations. The results effectively give large banks a go-ahead to return billions of dollars to investors in dividends and share buybacks.

Mortgage rates reached the highest level in more than 13 years for the second straight week. The average rate on a 30-year fixed-rate mortgage rose to 5.81%, mortgage-finance giant Freddie Mac said Thursday, the highest level since November 2008. Some lenders are already quoting rates of 6% or more. The latest increase in home buyer borrowing costs comes after the Federal Reserve last week raised interest rates by the largest margin since 1994 and said it planned future increases.

Ethanol prices have risen steadily this year, boosted by a Biden administration mandate to blend more of the biofuel into gasoline and some of the highest U.S. consumer inflation in decades. The price of ethanol, the corn-based fuel that is a common gasoline additive, has risen 14% so far this quarter, outpacing crude oil, the Wall Street Journal reported.

The U.S. Drought Monitor showed 62% of the country covered by some form of dryness/drought as of June 21, up five points over the past week. “Precipitation was lacking in many locations that experienced excessive (in some cases record) heat, leading to widespread expansion of abnormal dryness and moderate drought conditions along the Mississippi and Ohio Valleys, the Southern Plains and the Southeast.”

USDA’s Cold Storage Report Thursday showed beef stocks declined less than normal in May and totaled a record for the month, while frozen pork inventories climbed contra-seasonally. Beef stocks in storage as of May 31 totaled 519.8 million lbs., down 12.3 million lbs. (2.3%) from April but shy of the five-year average decline of 34.5 million lbs. during the month. Beef stocks rose 103.2 million lbs. (24.8%) from year-ago and were 96.8 million lbs. (22.9%) above the five-year average.

CORN: USDA reported net 2021-22 U.S. corn sales of 671,900 MT for the week ended June 16, up nearly five-fold from 140,900 MT the previous week and above trade expectations ranging from 300,000 to 600,000 MT. For 2022-23, net sales totaled 358,400 MT, up from 138,900 MT the previous week and within expectations ranging from 200,000 to 600,000 MT.

December corn futures are on track for the contract’s first weekly decline in the past three weeks after dropping 38 1/4 cents Thursday to $6.55 1/2, down from $7.31 at the end of last week and the lowest close since March 29. July corn plunged 21 1/4 cents to $7.46 3/4.

SOYBEANS: Net weekly soybean sales totaled 29,300 MT for 2021-22, down 91% from the previous week, down 88 percent from the prior four-week average and a marketing-year low. For 2022-23, net weekly sales totaled 265,000 MT, with lead buyers including “unknown destinations” at 105,100 MT. Expectations ranged from negative-100,000 to 300,000 MT for 2021-22 and 50,000 to 500,000 MT for 2022-23.

November futures are poised for a steep weekly decline after sinking 61 cents Thursday to 14.15 1/2, down from $15.37 1/2 at the end of last week and the contract’s lowest close since April 1. July soybeans tumbled 59 1/2 cents to 15.93 1/4.

WHEAT: Net weekly wheat sales totaled 477,800 MT for 2022-23, led by Japan (163,900 MT) and Mexico (163,900 MT, including decreases of 2,100 MT). Sales exceeded expectations ranging from 150,000 to 400,000 MT. Nearby winter wheat futures are heading for sharp weekly declines as harvest pressure accelerates. July SRW wheat sank 39 1/4 cents Thursday to $9.37 1/4, the contract’s lowest settlement since Feb. 28. July HRW wheat fell 34 1/4 cents to $10.05, its lowest close since March 1.

LIVESTOCK CALLS

CATTLE: Steady-weaker

HOGS: Steady-weaker

CATTLE: Live cattle futures are heading for a weekly decline on cash market weakness and concern a possible recession could curtail beef demand. USDA-reported live steers averaged $140.62 through Thursday morning, down from last week’s average of $143.67. Choice beef cutout values fell $1.91 Thursday to a four-week low at $264.66. Movement totaled 104 loads. But cattle carcass weights are the lowest for the week since 2019, which should limit near-term pressure on the cash market with supplies near a seasonal peak. USDA reported net U.S. beef sales of 11,200 MT for 2022, down 36% from the previous week and down 39 percent from the average for the previous four weeks.

USDA’s Cattle on Feed later today is expected to show the June 1 feedlot inventory up 1.4% from year-ago, while May placements are expected to be down 0.4% and marketings up 3.0%. Placements will be the focal point after that category topped the highest pre-report estimates the past two months.

HOGS: Lean hog futures may face followthrough pressure from Thursday’s sharp declines, which sent summer-month hog futures well below the CME cash index. July hogs finished $2.12 below today’s cash index quote (as of June 22), while August hogs ended at a nearly $7 discount. The cash index is down 7 cents today to $110.67 but remains near a 10-month high, which should limit near-term pressure on summer-month hog futures. Pork cutout values fell $1.38 Thursday to $109.77, led by a drop of nearly $15 in bellies. Movement was relatively light at about 242 loads. USDA reported net weekly U.S. pork sales of 25,400 MT for 2022, down 8% from the previous week and down 10 percent from the prior four-week average.

USDA’s Cold Storage report showed pork stocks totaled 543.1 million lbs. as of May 31, up 9.7 million lbs. (1.8%) from April. Over the past five years, pork stocks declined an average of 28.7 million lbs. during May. Pork inventories rose 80.6 million lbs. (17.4%) from May 2021 but were still 11.2 million lbs. (2.0%) below the five-year average.