Is a Bottom in the Grain Markets Finally In?
USFR-RT1-030924
On the heels of China announcing plans to build up its grain reserves, USDA announced a slew of export cancellations from China. Export sales data from USDA shows Beijing cancelled 18.5 million bushels of soft red winter wheat.
Analysts on U.S. Farm Report roundtables this weekend say China’s cancelations seem to be a pure economic play, and the fact the markets were able to shake off such bearish news this week could signal a bottom in the grain markets is in.
“I do think they're playing games with the market here. But they are good at that. And they are canceling some wheat, probably stuff that they bought and now want to do better on as far as pricing,” says Darren Frye of Water Street Solutions. “They also have canceled some cargoes of French wheat as well. I don't think this is the start of a lot of cancellations, but I think this is something that does hit the market does mess up people's minds and emotions around it.”
As China looks to book cheaper exports, with more cancelations possible in the coming weeks, Frye still doesn’t think the grain market has much more downside risk from current price levels.
“It's digesting a lot of negative news around cheap FOB prices out of Russia. and as we turn the corner, we're going to be focused more on Northern Hemisphere weather. This could be scoring a bottom here with all this negative news. So, I'd be watching closely to see what action is coming out of this. Not good news, obviously, but the market is taking it pretty well,” says Frye.
DuWayne Bosse of Bolt Marketing also thinks China’s cancellations are rooted in finding cheaper wheat elsewhere around the globe. He says the market’s price action this week is a strong signal the lows could be in.
“I sure think so. We have to remember we have the funds already in these massive short positions. And we rebounded last week off of these cancellations really well, technically,” says Bosse. “I think China's just doing an economic thing, like they always do, they can cancel these previous purchases, and they can go out two weeks from now and buy it again here at these lower levels.”
Some bullish news out of Brazil this week as CONAB cut its estimate for both Brazilian soybeans and corn. The soybean projection was a cut to the tune of 2.5 million bushels.
“USDA is quite a bit higher, about 8 million metric tons higher,” says Frye. “Time will tell who's going to be closer to the mark, but I do think the beans were supported a little bit by that, as well as the fact last Friday, we saw record positions of shorts held by the funds.”
Frye says with May soybeans almost $1 off the bottom, that could be a technical sign the funds are a little uneasy about.
“Whether we can keep them short covering or not will depend on a lot of other factors. But this has been a good rally and would imagine it uncovered some farmers selling from the old crop standpoint,” says Frye.
“I don't know how much higher we can go on short covering alone with the farmer selling that's going to be out there,” says Bosse. “I think it's going to take a U.S. weather problem to really keep an upward trend going. We've gotten maybe a little bit overbought earlier this week, and then that started another pullback here. We're probably range bound until we start really trading the acreage report up here in the U.S.”
