Corn and wheat were lower early Wednesday with soybeans slightly higher. Cattle also rallying.
Corn, Wheat Remove Risk Premium
Grain markets gapped lower overnight on a possible two week cease fire between the U.S. and Iran.
Randy Martinson with Martinson Ag says this also includes the reopening of the Strait of Hormuz, which has resulted in an implosion in the crude oil market.
Of course this spilled over into the grain markets which are also taking out war premium.
“The news broke about between 6:00 and 7:00 pm that a ceasefire deal had been made. That gapped the markets lower, as you mentioned, and we’re holding on to those losses. Soybeans, you know, did start a little bit on the softer side. They’ve been able to come back and
post, you know, some mixed performance, a little stronger. But overall, everything else is seeing some pretty heavy selling pressure.”
Crude Oil Collapses
The crude oil market collapsed overnight and fell below $100. So, how much war premium still needs to come out of the market?
He says, “Right now we’re down close to that $15 to $20, depending on which contract you look at. So we’re seeing a pretty good removal of the war premium that has been built in. But the market is still about $20 to $30 above where it was when the war started. So we still have quite a bit of premium we can give back out of this market or pull back out of this market. I don’t think we’ll do it short term. I think they’re going to wait to see. I think they’ve taken a lot of what they will out of it. Now we’ll see if the ceasefire holds over the next two weeks and if we can get a peace deal done.”
Have Grains Taken Out Enough War Premium?
Martinson says corn, wheat and bean oil have likely taken out enough war premium for now and will wait to see if the cease fire holds and more importantly that ships start to move through the Strait of Hormuz.
“I think we’ve taken quite a bit out of there. We need to start seeing, you know, ships moving through the Strait of Hormuz. It doesn’t sound like anything’s going to start moving until Thursday or Friday. But I think, you know, that’s going to be a key to whether or not the ceasefire is going to, you know, hold or continue. Talks start on Friday. We’ll see how the negotiations go there. But I think the market is going to, you know, right now has taken out a lot of that premium and they’ll kind of relax now and kind of see what happens with how things move going forward.”
Money Flow
Money is also flowing out of the energy and grain markets back into the equity markets.
“We’ve been trading headlines. There’s no question about that over the last couple of weeks. And, you know, we continued with that last night, of course, with the market’s gaping lower. But I do think at some point, you know, we’re getting into the 26 planting season and growing season as well. So I think the market will start paying a little bit more attention to the real fundamentals that are out there as well.”
How Soon Can Fertilizer Get Here?
If the Strait is reopened how soon will fertilizer be able to make it to the U.S. and will prices cool off at all?
Martinson says it may not be that easy to get fertilizer in place for spring planting, “I think that the priority will go to oil shipments or, you know, the crude oil coming through the Strait of Hormuz. I don’t think fertilizer will get the priority that the oil might. So it’ll take a little longer for those ships to start coming through.”
Wheat Removes War and Weather Premium
Wheat is also removing war and weather premium with rains forecasted for some dry areas of the Plains.
“I think it’s a combination. We definitely are going to see less wheat demand, you know, because now if we’re going to open up everything, you know, Russia wheat will become more available and we’ll start to see a little bit more trading take place. So I do think it has the potential to lower the demand for U.S. wheat, especially in some of those Middle East. Also, rain is in the forecast. It looks like the rain is pretty much favoring the eastern, two-thirds of Kansas, not so much the western third. And that’s going to be the big thing to watch forward.”
Why Did Soybeans Recover?
Even with bean oil getting pummeled the soybean market has recovered from overnight lows and has been trying to hold slight gains early Wednesday.
Martinson says this has to do with the hope that if the war ends with Iran it will help the outcome of the China summit.
“I mean, China even got involved with getting the ceasefire deal done. And I think that’s helping to put some support into the soybeans because it’s showing that, you know, one, that it’s going to take the pressure off Trump to be able to have his meeting with Xi at the beginning or in May, like they’ve got scheduled. And it’s likely that means that China is looking to make some announcement of purchasing more U.S. soybeans.”
U.S. China Board of Trade
USTR Jamieson Greer also mentioned that they might be looking at a US-China Board of Trade.
Martinson explains, “They’re kind of looking at putting a group together for both China and U.S. that is going to talk about trade and how trade can move going forward and how it can basically, you know, I guess be implemented. And it’ll be interesting to see if something like that can happen, but it certainly is going to help open up, I think, the dialogue between the two countries.”
Grains Turn to Weather
If the war headlines die down Martinson says grain markets may go back to trading weather.
The Northern Plains saw some pretty heavy snows the last week and moisture is going to continue for the next couple of week.
“So right now, as far as, you know, Minnesota, North Dakota, South Dakota is concerned,we’re not looking at an early start to planting this year, probably a little bit delayed. And that might shift some more acres away from early season to later season crops. And I think that is something that the market will have to start paying attention to here, especially within the next couple of weeks.”
He thinks between the fertilizer issues and weather the corn market will lose more acres and possibly fall to 93 million. USDA says only 80% of farmers have fertilizer in place, so that will trim corn acreage but not as much as some of the worst case scenarios. “I definitely think that getting down to something around 93 would be a feat for corn to be able to do just because it still shows profitability.”
Cattle Recover with Stock Market, Lower Gas
The cattle market is higher early Wednesday following the relief rally in the equity markets and the easing of gas prices.
So he thinks its possible the market could retest the contract highs hit Monday in the live cattle.
“I mean, it’s been impressive to see the fat cattle market performance the last couple of sessions. But, you know, strong performance, new contract highs, feeder cattle haven’t been able to just close the gap that was created in October. They have not traded to new contract highs. But I do think that the demand and with the JBS plant opening, that’s kind of brought some a little bit better performance to the live cattle side of things.
That is especially true if the cash market can add to last week’s $9.26 cent gains.
“I think we’re going to be flirting back with that $250 level. I think we could get up to that. But I think at that point, that’s when the consumer starts to maybe push beef away on the plate. So it’s going to be interesting to see if the consumer will be willing to pay more for it if we do get back up to those levels,” he adds.
