Grains end mostly higher Thursday, livestock lower.
Corn Ends Higher
Corn ended higher on Thursday. Oliver Sloup with Blue Line Futures says funds were in buying on a combination of higher crude oil futures and money flow.
“What prompted the corn rally has been the move that we’ve seen in the crude oil complex. But recently, I think corn has kind of been doing some of the heavy lifting on it’s own, which is encouraging to see,” he says.
Corn Makes New High Close for the Move
Corn had a strong day making a new high close for the move. Technically corn held better than soybeans Monday and has recovered all of those losses and then some.
Sloup says, “We saw corn really struggled to start the week, but tested and held that 20-day moving average almost to a T on Tuesday and Wednesday, and then kind of used that as a springboard to get back towards the upper end of the recent range, as you had mentioned, new high close for the move. So I think you’re continuing to see funds and money managers look for places where there might be under priced commodities and the agricultural space is certainly one that has been under loved.”
He says volatility has been low in the grain markets the last couple of years so seeing this type of movement is encouraging.
“So you’ve seen this money flow come into the market funds piling into their net longs in corn to just shy of 200 000 contracts as of last week. Now now if you kind of zoom out and look where we were last year they i think maxed out around 360 000 long contracts in February so potentially some more room to add to that exposure if the money flow and overall technical landscape continues to firm,” he explains.
How High Can Corn Rally?
Now that corn has retraced Monday’s losses how high can it go if it manages to have another higher weekly close?
“Well, you’re looking at last year’s high, $4.88, and that’s going to be the big line in the sand. And potentially, you know, you can start to move towards $5 in those old crop contracts. And from there, the momentum just kind of takes hold and feeds on itself.”
Inflation Fears?
If crude oil continues to trade near $100 is that the catalyst that could bring inflationary buying into the grain markets?
Sloup says, “We’ve been talking about commodities and potential for a commodity super cycle for the better part of the last year with a lot of clients. And typically those moves start with the precious metals, work into the base metals, then the energies and then the agricultural market. So I think that’s really what we’ve seen play out. Obviously, we’ve had a big shock with everything going on in the Middle East. It has maybe spurred a lot of that. But here we are crude oil trading at multi-year highs. And that certainly put some gas into the tank for these grain markets.”
Corn Market Concerned About Lower Acres?
New crop December corn is inching towards $5 with the tailwind of lower acreage estimates heading into the USDA Prospective Plantings Report.
With some of the estimates cutting corn acres by 5 million, is the market starting to get concerned? Sloup says, “I think that you’re seeing that priced in. We’ve gotten some estimates out over the last couple of days. S&P Global put out theirs yesterday, 95.2 million acres of corn. And so those acres coming down a little bit, certainly adding a tailwind to prices, but still a lot of uncertainty out there.”
He says many farmers thought $5 corn was unattainable so hopefully producers will do something to protect the price.
“If you’re a producer, you know, I think it’s very prudent to protect the downside from these levels, especially going into that report where you really never know what you’re going to get. Historically, it’s one of the more volatile reports out there,” he adds.
Soybeans See Relief Rally
Soybeans were higher again Thursday on a relief rally according to Sloup, but can the market fully recover from the limit down losses on Monday?
Sloup says, “We’re right back near that 20-day moving average in the May soybean contract, $11.77 and a quarter. Again, that kind of coincides with the highs that we saw last November. So previously important price points. You’ve got a key moving average that seems to be growing in popularity. Until we can see consecutive closes out above that or a strong conviction close out above that. I think rallies are probably going to be sold into.”
He says the soybean market will continue to monitor outside markets and headlines around China. With the meeting between President Trump and President Xi pushed back he thinks there are potentially some headlines that could move that meeting up or back even further that could really shake this market up.
Is the 8 MMT Off the Table?
With the meeting being pushed back to the later part of April does that dash the hopes for the 8 MMT of old crop soybean sales going to China?
He says, “It feels like that’s probably off the table right now. And even hearing President Trump’s remark about the meeting being pushed back, it really didn’t sound like there was really a definitive answer to when that might be. Four to five weeks doesn’t really give me the conviction that it’s actually in the books yet. So I think there’s probably a higher probability that that continues to be pushed down the road rather than moved forward. But again, things happen very rapidly in this market.”
If that meeting and those sales don’t take place he thinks the market will fall. “I think you’re talking 50 cents lower from here would be the next line in the sand for support. And below that, you’re talking about psychologically and technically significant support at $11.”
Are the Highs in Soybeans?
Sloup says realistically new crop soybeans may have a better chance of putting in a new high than the old crop contracts. Some of that will hinge on the reports at the end of the month.
“Potentially they come in lower, potentially we get a weather scare. So I think there’s some catalysts out there that could keep propelling the new crop a little bit higher. But we’ll kind of see what the USDA says at the end of the month,” he adds.
Wheat Grinds Higher
Wheat futures were slightly higher on Thursday following the rally in grains and crude oil. However, Sloup says the wheat market has also seen technical buying.
“I think a lot of it has been technical. The funds have been net short wheat since June of 2022. They have not held a net long position since then. We got to, I think, funds trimmed their net position to about 17,000 a few weeks ago, currently net short about 21,000. So short covering has been a big reason and catalyst behind the move. Higher technicals have kind of followed suit,” he says.
Wheat is also following the 20-day moving average according to Sloup. “That’s worked up to $5.89. We tested and held that a few times earlier this week. A break and close below there, and that’s when you might start to see funds pile back in on the short side. Downside objectives in the near term would be $5.60. On the upside, $6.20 is a bit of an inflection point, really going back to last May, June, and July. If we’re able to get out above there, $6.45 to $6.50. So kind of some binary trading levels to keep an eye on.”
Cattle Set Back With Equities
The cattle futures saw risk off selling with the lower equity markets. Sloup says the stock market sold off following the Federal Reserve meeting and then saw follow through selling.
“And when you get that, it’s really tough for the cattle complex to rally on its own. Not to mention that the technicals, we really weren’t able to get out above some resistance levels earlier in the week. Again, that 20-day moving average continues to be a key indicator for a lot of these agricultural products. That comes in at 235.05 today. So until we’re able to see consecutive closes out above there, I think rallies are meant to be sold,” he says.
The seasonals also turn weaker into the the first week of April, according to Sloup, and turn choppy through April.
The other key will be where cash ends up for the week.
Hogs Consolidate
Lean hog futures were also lower on Thursday in a consolidation day following cattle but with technical weakness lingering in the mariket.
Sloup says, “Hogs have kind of had a little bit of a technical breakdown over the last few weeks, breaking below the 20 and 50 day moving averages and really on the verge of retesting last month’s low for June. That’s $104.50 If we continue to roll over from here, maybe another $2 lower at that point.”
