Grain and cattle futures were lower on Thursday with hogs mixed.
Grains See Risk Off Selling
Grain markets were all lower on Thursday seeing some profit taking after Wednesday’s rally and with a risk off tone to the market place.
Mark Schultz of Northstar Commodity says grain markets also saw some position squaring by traders heading into a three-day weekend as the markets are closed on Friday for Juneteenth.
Weather Weighs on Grains
The weather forecasts are also non-threatening, according to Schultz.
“You’ve got below normal temperatures. You’ve got normal to above normal precip in a large portion of the Midwest, more of the Eastern Corn Belt than it is the Western Corn Belt but the noon maps indicating that maybe we’ll see that rain now shifting further to the West than what it was the previous day,”
The Western Corn Belt still has dry areas stretching from Southeast South Dakota into Iowa and down into Nebraska that would welcome rain, while the Eastern Corn Belt would love to see some drier conditions.
Still, he says there is going to have to be some type of weather scare develop in the U.S., Europe, India or China and so far that hasn’t unfolded.
Iran Peace MOU Signed, Energy Falls and Dollar Climbs
With the Iran peace deal signed the energy markets continued to fall and the dollar saw a strong rally, which also spilled over into the selling in the grain.
He says, “The energy going down of course, put some pressure on the soybean oil, which was up there at some very lofty levels, second highest only to 2022. And we saw the bean oil start to decline. You saw the meal start to decline, which started to erode on the crush margins, even though they’re still at very lofty levels, they have been in decline sharply.”
So that takes away from the commercial entities looking to buy corn and beans and basis has also weakened around processors.
Market Fades China’s First U.S. New Crop Soybean Buys
The other big headline for the week was the talk of China in looking to buy U.S. soybeans and even corn and wheat.
The market faded the confirmation of export business to China as USDA reported a flash sale of 4.85 million bu. In addition to a 4.4 million bu. sale to unknown destinations.
Schultz says the amount was too small to get excited about. “I would say the amount was not very significant. And when you look at what China would typically do, I mean, the reason why you have The market gets more excited about China when they buy. It’s usually in large quantities. That was not the case. So we’ve got a lot of work in front of us there,” he explains.
The weekly sales for corn and soybeans were still very good at 45.6 million of old crop corn and 20.4 million bu. new. Soybeans totaled 15.6 million bu. old crop and 11.2 million bu. new.
Will China Buy More or Wait for Tariff Cuts?
So does China continue to buy or wait to see the 10% tariff dropped before sales pick up?
“Well, I think if you can get the tariffs to come off and reduce the 10% tariff that’s on by China, then I think you would have more buyers from China. Right now, likely the only people buying would be their state-owned agency buying the U.S. beans. So I think you need to see that happen first, and then hopefully we start going in there,” he says.
However, U.S. beans are now, with the setback in the markets, at least,competitive in the world market which should mean a pick up in demand.
“And I think that’ll be the case as we move into the fall months and right on into the January time period,” he adds.
Market Looking for Big China Sales
The market will need to see proof of some big sales of soybeans to China, plus other commodities to get excited and get the funds back buying corn and wheat.
“The funds are back to the short side in both wheat and corn. So that’s good. They still own a rather sizable long position in soybeans, meal and oil. So, we have to be a little careful there,” he states.
Funds Need Catalyst to Buy, Rally Market
He thinks demand is just part of the equation to getting the grain markets to rally.
“You’ve got to get a weather scare and we just don’t have it yet. Maybe the Indian monsoon is a little late but that has time to recover. You’ve got hot dry weather over in Europe but if you’re going to have hot and dry it needs to last through the 10th or 15th of July to make an impact on production,” he adds.
Higher Weekly Closes in the Grains
Grains still closed higher for the week but did not score any big outside weekly reversals to bring more technical traders into the market or get the funds to buy.
“We had the higher closes across the board, corn, beans, and wheat. So, Chicago wheat has an outside week higher and we were building on outside up week for corn, beans, and wheat but the corn market needed to be up at $4.52 on the December contract, and didn’t do it. The soybeans needed to close above $11.30 on the July beans, unable to do it,” he details.
Cattle See Profit Taking Ahead of Cash and Report
The cattle futures saw profit taking heading into the weekend and some positioning ahead of the USDA Cattle on Feed Report.
The lack of cash trade was also a factor according to Schultz.
“I think the packer is going to sit back and wait it out to see what he gets on the Cattle on Feed report for starters,” he says.
Plus boxed beef also took a setback.
“Boxed beef choice was moving back up, getting back to some very lofty levels in here. But we saw a significant setback on the choice cutout on Wednesday. And then it looked like, again, some more decline on Thursday. So the packer margins, which were still in the red, went a little bit deeper in the red, which therefore they became a little bit reluctant about making any additional purchases,” he says.
Most of the feedlots were holding out for $260 to $262 live sale prices.
Higher Weekly Closes in Cattle
Despite a plant closure and NWS news the market shrugged all that off and closed higher for the week.
“That was a big move up. In fact, it’s a big move in the last nine days. I think we went up $13 on cattle futures. So, you know, so corrections, nothing’s wrong with that.” he says.
In addition to the Cattle on Feed report he is also watching for the monthly cold storage report.
“So, we’ll see if our domestic demand has slowed down. I think that is possibly the case at high-end steakhouses is what I am hearing through my sources. That has been on the decline here for the last 30 to 40 50 days. So, we’ll see whether or not we get something where beef starts to increase in the coolers,” he adds.
August Hogs Post Higher Weekly Close
The August hog futures were up for a second week and had a higher weekly close.
So are the funds done selling and can the market build on it?
Schultz says, “The funds have worked themselves back to the short side. Maybe we get something to turn. Poor cutout has still been a struggle. And it’s not just even in the U.S. it’s globally. We had a little bit of a pop a week ago in China, gave it all back this week.”
He says in Brazil cash hogs finally closed higher for the first time in a month.
“So it’s just been a depressing market around the world in here, which just would tell you that we’re just producing too much pork
globally.” he adds.
In the U.S. he think consumer demand needs to see an uptick and if it can’t with the comparison to beef prices the industry has tough times ahead.
