Grain and hog market were higher Wednesday with cattle sharply lower.
Grain Markets Explode, Wheat Leads
The grain markets were sharply higher on Wednesday led by wheat which saw new contract highs in both classes of winter wheat.
Randy Martinson of Martinson Ag says the winter wheat market was adding risk premium tied to the war as harvest is 70% to 75% complete and the market has a better idea of the crop size.
“What’s going on as far as the war with Ukraine and Russia, they’re starting to attack ports, they’re starting to attack ships. Actually logistics is starting to become a really big problem. And Russia even announcing that they’re going to halt the vessel movement through, at certain times, through some certain ports.”
The market is looking at conflict in three different areas. The Strait of Hormuz, the Red Sea and the Black Sea are all being impacted by war, which is helping to support the wheat according to Martinson.
What is the Threat to Wheat Exports?
How much of Russia’s exportable supplies are impacted? Martinson says just one of the ports that was bombed last week accounts for 20% of Russia’s wheat export shipments.
“So you’d be probably looking at somewhere around the area of about 30% of the wheat shipments get moved through this region right now. Not to mention, you know, with a lot of demand coming from the Middle East countries as well. So that kind of disrupts some of the flow for wheat as well,” he says.
Winter Wheat Makes New Contract Highs
Both soft red and hard red winter wheat made new contract highs on Wednesday, so how high does the market project to now?
Martinson says if the war continues to escalate there is more upside potential.
“I think we could add another, you know, 30 to 35 cents onto the wheat market.”
Spring Wheat Adds Weather Premium
Spring wheat futures have not made new contract highs but the market was still higher adding weather premium.
Martinson says the last couple of weeks have been hot and dry in the Northern Plains.
“We saw temperatures up into the 100s, very little rain and the forecast is calling for the next 10 days to be in the 90s for seven of those days. Plus, we’re looking at no rain for the 10 day forecast. That certainly is going to impact the wheat that especially the northern tier part of the state that is now looking at flowering and setting some heads.”
He says there are some reports of harvest starting next week because of the crop getting pushed.
The Wheat Quality Council has their tour going through North Dakota this week and scouts are finding some disappointing results.
The first day of the tour saw an average yield of 46.9 bushels he says. “That was about four bushels less than last year, so disappointing. That was the southern leg. You know, now they’re going to be looking at more of the northern area where it should be a little bit better. But we’re still going to be looking at less than what USDA is anticipating the crop to be.”
Spring wheat is only about 20 cents from contract highs, so he expects the market to make new highs.
Corn Makes Rally Highs
Corn made new highs for the move following wheat and putting in some weather premium.
“North Dakota, Minnesota, South Dakota were the three states that saw some pretty good decreases last week in their conditions. And with the weather forecast, it’s likely we’re going to continue to see that again this week and for next Monday’s report,” he states.
So those areas could start seeing production tighten but the market may not really take off until the national crop ratings start to see a bigger slide.
“Dr. Cordonnier lowered his expectation for the corn yield for the U.S. in his last weekly numbers. So we are already starting to see weather starting to make an impact on the national yield.”
Will Corn Make New Highs for the Year?
While soybeans and wheat have made new highs for the year this week, the corn market has not.
However, he thinks if those two markets continue to rally corn will need to follow.
“I mean the one thing that’s holding corn back a little bit is that we do have comfortable old crop stocks, But I do think that if this weather forecast gets you know, verified again for the weekend and for next week, that’ll help push that market,” he explains.
There is rain in the forecast for the Central and Eastern Corn Belt but he says if they miss those showers that could also ignite the market.
To push to new highs the corn market may also have to see demand from China or the EU due to their production problems.
“If they came in and bought some, I think that would draw some attention,” he adds.
Soybeans Make New Rally Highs
Soybeans also made new highs for the move and took out the May highs in the process, getting just a quarter cent from the contract high of $12.41 on December of 2022.
The market is starting to trade weather but the bigger play is demand with China and unknown destination flash sales driving the buying.
“Weather will get to become a little bit more of an impact here in August. That is a week away. I think then if we continue to see this forecast, then we’ll have a chance to move higher,” he says.
Soybeans Rally to $13
Will soybeans take out the contract high and move to $13? Martinson thinks there is a good chance.
“We don’t spend much time at $12.40. Once we get above that, the next level is around $13.40.”
China is also watching the weather and if they get concerned they could come in for some big purchases which could make the market explosive.
“Yeah, I think next week they could become pretty aggressive buyers if we continue to see this issue. And if they’re going to come in and try to buy that 25 million metric ton, they need to start booking a little more aggressively because if supplies start to tighten up or we
see production numbers start to tighten. That might make the price get to be a little bit dicey for them.”
Bean Oil Supportive
The soybean oil market also surged again on Wednesday following crude oil and the energy complex and adding war premium.
“I mean, that’s really been helping to support the canola market as well as the soybean oil market. Both of them have seen good strength because of crude oil rallying. And then, of course, it brings in the biofuels industry as being that much more competitive. So we will continue to see that happen as long as crude oil continues to push.”
Crude Oil Rally
There is risk crude oil could get back over $100 and energize the inflationary fears and buying in the market as well.
Martinson says the logistics problems and higher insurance for shipping are evident and fuel the energy rally.
If it continues the funds could continue to buy in the grain space.
Hold or Sell?
Producers want to know if they should sell or wait for a bigger rally.
Martinson says, “That’s the million dollar question right now. At this point, you know, I’m telling producers, just let’s be patient. Let’s see how much of a weather rally this is. We’re going to want to start looking to see where the crop progress report is Monday. But by Tuesday, that’s where I’d start looking at making some levels to advance sales. I’d be careful because, you know, you have to look at what your potential production is. You don’t want to be getting, you know, too far ahead of what you think you can produce.”
Why Can’t Cattle Bottom?
Cattle futures melted down again on Wednesday taking out last week’s lows in the process and making new lows for this move.
Why can’t we bottom this market?
He says there are still funds with some long positions that are trying to exit.
They are looking at higher crude oil and fear a push back in demand and the market will need to see the cash and cutouts stabilize first before the futures can follow.
He thinks the funds could pause and the market could hold on caution going into the USDA Cattle Inventory and Cattle on Feed Reports on Friday.
“I think until the funds get to a point where they’re comfortable, where they’re sitting with their positions, this thing could continue to see some trouble.”
