Grains started mixed and moved mostly lower early Friday. Cattle were trying to bounce, with hogs lower.
Grains See Profit Taking Ahead of the Weekend
Grains are mostly lower early Friday seeing some profit taking heading into the weekend, especially in corn with a new high close for the move on Thursday and with funds recently establishing a long position.
Mike Minor with Professional Ag Marketing says, “Yeah, these weekends have been pretty wild, Michelle. Sunday nights included going into Monday. Last Monday, we saw a limit lower move on the first couple months on soybeans. So definitely some position taking going into this weekend, Michelle, just based on risk tolerance here.”
Money Flow Dominates Commodities
Minor says money flow has been dominating the commodities as money rolls out of the equities and currencies into commodities.
“There’s an inflation hedge, which they’ve been buying mainly crude oil. They’ve been buying corn, soybeans alongside of that as well, buying the U.S. dollar. And then on the other hand, you have risk off trade. You’re seeing a little bit lower price action and things like cattle, equities.”
Crude Oil Driving the Bus
However, the biggest commodity move has been in crude oil since the Iran war broke and that will drive whether or not the funds continue to pile into commodities, especially as a hedge against inflation.
“So the funds have been quite aggressive to get into this corn market as of late here they first kind of got into the soybeans but now lately they they started to pile onto the corn and this is dependent upon whatever this Iran conflict does. Looking forward it depends on the length of the length of the war,” he says.
With a regime change and energy infrastructure being damaged its seems as though it will impact global energy production for a while he adds.
Starting the Next Super Cycle?
Is this the trigger to start the next super cycle in the grains or not?
Minor says there are a couple of ways to look at it. “The one thing would be we have the room for grains, especially corn, to add a lot of long contracts still and really push prices into the high $5 if it wanted to. Soybeans, we’ve been running up against a near record position, so they’ll probably have to take a new record long if they’re going to want to push that market too much more, which is possible. They could do that. But really, the cutoff I keep hearing is $120 on crude oil, WTI, you start to talk about recessionary risks, concerns.” And he doesn’t think President Trump wants a commodity super boom.
Still if the Iran conflict escalates he thinks there could be the potential for major fund buying activity.
Acreage Battle, Weather
The other factors influencing the markets will be the acreage mix this spring with early estimates for more soybeans and less corn and wheat.
Minor thinks the fertilizer price hike will play a role on the last acres. “On the corn side, when you talk about acres, the likelihood of us having sub-95 million corn acres now in the U.S. is realistic. Before, I didn’t think there really was. You start to talk about very low ownership of fertilizer in the United States for what needs to get planted on corn. And sure, that price risk is probably going to keep people from planting any extra corn at this point.”
Wheat may also be adding some premium tied to the weather extremes in the Plains.
“I mean, the southern plains are very, very dry. The winter wheat didn’t have enough cover. Then you had some extreme cold temps. So there’s a weather problem down there for sure. When you talk about that, sure, that helped some short covering,” he adds.
Soybeans Still All About China?
Minor says soybeans are trading three factors including the 45Z tax credit getting implemented, China and the Iran conflict.
He thinks with the connection between crude oil and soybean oil there is a bigger influence from the Iran conflict but admits you can’t deny the limit down reaction in old crop soybeans on Monday with the delay of the China summit.
He thinks the delay of the meeting means China will not buy the 8 MMT of old crop beans.
“We are $2.50 more expensive than Brazil soybeans. So, I mean economically speaking there’s no real advantage to them buying U.S. soybeans. It’s all geopolitical if they are going to buy something, it’s because of the leverage that we’ve created on them between Venezuela and Iran with the Strait of Hormuz now. Nearly 38% of the oil that goes through that Strait of Hormuz goes to China, and then the rest of it basically goes to surrounding Asian countries. So we have very good leverage on them from an energy standpoint, and maybe that helps us longer term with leverage that maybe they’ll feel like they need to buy some U.S. soybeans. But in my opinion, that 8 million metric ton extra soybeans should not be considered. And I think that’s why we saw Monday, you know, they were pretty specific about non-soybean exports going to them. And I think it’s realistic.”
Cattle Try to Recover
Cattle futures are trying to recover Friday after a tough down day Thursday.
Minor says the market has been sensitive to the outside markets but the packers have also gained leverage.
“Yeah, so the cattle market, we’ve seen a little bit of a shift lately. I think it’s very interesting that now you’ve had a massive rally and cut out again, over $400 on choice. And at the same time, you’ve had cash cattle go down. At the same time, we’ve had a packer that’s been shut down in Greeley,” he explains.
He says in the past when cutout values have popped and packer margins have improved slaughter rates have increased and so has cash.
“Packers have been losing quite a bit of money for a while now. And I think the packers do want to participate going into spring longer term, but we’re killing 8% less cattle year over year. I mean, weights are up 4%, so that’s still helping. But the producer does not have the leverage that we did recently,” he says.
Cash Steady This Week?
Minor says without producer leverage he thinks stead may be the best they can hope for in the cash market this week.
Hogs See Technical Selling
Lean hog futures were lower early with follow through technical selling. Minor says the market had a good run and was due for a correction.
“It’s some technical. We ran up pretty hard. It’s just easier for a market to go down after it’s at really high levels. But we are seeing some supply situations. I’d say let’s start with the cutout. It seems to be the leader here. So if you look at the ham primal, that’s been pretty weak lately. It’s normal seasonal, but that one’s maybe led to a little bit of a sideways lower pattern. That’s normal this time of the year on cutout until really we get to May then we better start seeing that thing move higher. That’ll be where we decide.”
When cattle started selling off with the lower equities hogs were insulated he says.
“It was pretty boring actually watching hogs trade 20 or 30 cents difference when you’ve got $6 swings in feeder cattle,” he explains.
However, he says liquidation could pick up by funds going into next week’s Hogs and Pigs report. “And some of the private analysts are calling for just a smidge higher supply. So maybe that’ll have a little bit of an impact here as we head into that as well,” he adds.
