Ag markets were mixed Wednesday. Corn, wheat, bean oil and hogs were lower with higher action in soybeans, meal and cattle.
Markets Unwind on Possible Iran Ceasefire
Ag and outside markets were all in unwind mode with a possible two week Iran ceasefire and reopening of the Strait of Hormuz.
Ted Seifried with Zaner Ag Hedge says markets were removing war premium and the biggest correction came in the energy sector with crude oil down over $20 at one point and falling below the $100 mark.
The biggest moves came in the overnight session with the day trade seeing more uncertainty about the terms of the deal.
“Where do we go from here and does this ceasefire stick? There were a lot of conflicting things being said by by both countries. Right now there seems to be a bit of a disconnect between what the agreement is actually. Iran believes that the U.S. is fully committing or agreeing to
their 10-point plan, while the U.S. seems to think Iran is fully agreeing to our 15-point plan. And the two are very, very different, Michelle. In the meantime, there were still some attacks in the Middle East happening in Israel and surrounding countries.”
Opening the Strait of Hormuz the Key
The real key for all the markets going forward is does the Strait of Hormuz open to shipments.
Seifried says, “Yes, that’s all very, very much the case. And you hear different things about that, right? You have the U.S. saying that, well, we’ll be there to help ensure that traffic flows smoothly. Read between the lines, that sounds like we want to have a military presence there in case Iran is not allowing ships to go through or attacking ships that we’re going to attack back, meaning we’re not really backing down. While at the same time, Iran’s saying, okay, some ships can flow through Iran, but there’s going to be this $2 million toll that’s going to need to be paid, that’s going to be used to rebuild Iran. And it doesn’t sound like there’s an agreement on both sides on part of that. So this, it seems
like a very, very tenuous.”
If the Strait Opens Do Markets Further Correct?
So if the Strait of Hormuz is opened and trade is normalized do the markets continue to take out war premium, especially crude oil and will that pull down corn and bean oil?
Seifried says there is still more war premium that could be taken out in energy markets but he is more unsure about the ag markets.
“Recently we’ve seen corn and soybeans kind of disassociate themselves from the energy or alternative energy trade. I think the markets kind of realize that you can’t put corn in a gas tank. You can’t put soybeans in a gas tank. These are products that need to get processed in order to make them into fuel. And we are limited by that capacity. However, you do see soybean oil reacting to that lower crude oil here on Wednesday. So there is an aspect there in soybeans, but then we’ve got the geopolitical aspect of our relationship with China. It’s a very, very complicated matter.
Funds Defend or Liquidate Longs in Corn and Other Markets?
The funds are now long in most of the grain markets but especially soybean oil and corn as those markets followed crude oil higher.
So do managed money traders unwind or liquidate those longs as energy markets fall?
“Yes, and a lot of that is technical. You look at corn and early on in the night session, Tuesday night, we were breaking some very, very key support levels in the form of the upward trending channel that we’ve been in since the beginning of January or middle of January in the form of the 50 day, 100 day and the 200 day moving averages that were all clustered between $4.40 and $4.47 and $4.48 1/2. We gapped below those but we we managed by the end of the day on Wednesday to get back and basically close right on top of that or right in the middle of that cluster.”
So he says that saved potential technical liquidation from this newly found long position funds have in the corn of over 257,000 contracts or so. The vast majority of those were put on after March 1st, which means a lot of them were well underwater at one point and probably still are. So there is that risk of that fund liquidation.
However, Seifried adds that funds were trading corn like an energy and now they may hold on to those long positions on the lack of fertilizer and how that could hurt this year’s crop.
“When those of us in the know, Michelle, really realize that that probably is a bigger story for next year, but that has gotten the fund’s attention as well.”
Soybeans Hold on China Optimism
Soybeans gapped lower in the overnight session but rallied back 20 cents off the lows to end slightly higher, holding up better than corn and wheat.
Soybeans got some help from meal but it was more about the idea that if the Iran war is over it will improve U.S. negotiations with China and they might buy soybeans.
“Hey, China got involved with this war in Iran they helped kind of broker this this two-week ceasefire maybe that means relations between the U.S. and China is getting better. So now maybe this means that that opens the door for that meeting to happen sooner rather than later and
honestly we need it to happen sooner rather than later if we have really any chance of getting additional Chinese soybean business within this marketing year. So I do think the market was encouraged by that.”
Interestingly enough, he says the soybean market brushed off a Trump post says that any country that supplies or sells Iran military goods is going to get slapped with a 50% tariff without exception.
“And that is directly pointed at China but soybeans did not react to that, at least not as of now.”
Wheat Also Removes Weather Premium
Wheat removed war premium but was also extracting weather premium with rains in the 7-day forecast for parts of the hard red winter wheat belt.
“We’ve got the crop conditions, which were really bad, sort of out of the way. You know, that’s behind us now. And now looking forward, there’s more rain in the forecast. And there’s actually a pretty significant amount of rain in the forecast for parts of the winter wheat crop. So, you know, with that sort of ceasefire trade or conflict trade coming off, on top of a weather forecast, the idea of the potential for improving conditions, again, that was sort of the double whammy for wheat,” he explains.
Cattle Rally Disappointing?
The cattle futures ended higher with held from lower corn, the soaring stock market and lower gas prices.
However, Seifried says the action was almost disappointing. “You feel like this was a day that cattle could have been absolutely flying, like really sharply higher, go and challenge those previous highs. However, it didn’t really do that. I mean, it stayed on the positive side for the vast majority of the day. So, I mean, it wasn’t a bad day, Michelle, but I think a lot of people felt like it could have been better.”
He points out that technically the live cattle have respected the relative strength index in the mid 70s.
“And that really kind of goes to show how involved the funds are or your technically trading speculators, in the price movement of these markets,” he adds.
Cattle Market Tired or Waiting for Cash?
Seifried doens’t think the market has a whole lot more upside potential even with higher cash as the $9.26 cent gain from last week is already in the market.
He says, “How much higher would it go this week? It really makes you wonder if the news of the strike breaking and JBS really going back to work. How much was known about that by the majors at the end of the week last week? Were they bidding up or making a grab on cash cattle, knowing that they were going to have more competition coming this week? You have to feel like that might have been the case.”
Seifried adds that packers bought over 81,000 head last week and may have a good portion of their needs covered for now.
