Wheat ended higher Tuesday, with soybeans lower and corn mixed. Cattle made record highs, hogs new lows for the move.
Ag Markets Impacted by Money Flow
Grains and livestock markets were mixed on Tuesday with influence coming from the unwinding of positions in crude oil and the rallying stock market with the U.S. back talking to Iran to work out a deal.
According to Tommy Grisafi of Nesvick Trading money flow the last two sessions in the outside markets had a huge impact on ag markets.
“Looking at where stocks in the S&P were on Sunday night. I came into work early, got off the couch from watching the Masters. I said, these markets are going to rock. Crude oil had a big gap higher open on the Trump administration saying we didn’t get a deal done.”
From there he says fast forward to Tuesday.
“The stock market closed higher yesterday. It had a big run up Friday. It closed up higher yesterday and it exploded higher today. The United States stock market is just a few percent from all-time highs in some of the markets. The Dow Jones is 3% to 4% away from all-time highs and the S&P is just 1% to 1.5% from all time highs.”
Wheat Leads the Rally Adding Weather Premium
Wheat futures rallied on Tuesday and were the price leader in the grain sector adding weather premium but also seeing some short covering by the funds.
“The wheat market, impressive on the charts, starting to really pique people’s interest as wheat closed on the dead high tick in Kansas City.
Impressive market, both from the charts and what’s happening. All eyes on weather when it comes to wheat, Michelle.”
Corn Follows Wheat
Corn tried to follow the wheat higher but was held back by lower soybeans and crude oil.
Grisafi says, “Crude oil at one point traded down $8. If you’re trading corn, you’re saying corn, third of it’s ethanol. Looking over at the crude oil market, looking over at the stock market, stock market exploding higher. And you say, yeah, maybe things are getting better over in Iran. So look at all the markets that ramped up. There’s a massive unwinding of whatever was affected by crude oil going up is now being affected by it going down.”
Funds Liquidate More in Corn?
If the crude oil market continues to cool will it trigger additional fund long liquidation in the corn market?
Grisafi says there is risk of that in both corn and soybeans.
“And especially keep an eye on soybean oil as the funds had gotten really long soybean oil. So keep an eye on soybean oil, soybeans, corn. Watch what those funds do.”
How Low Could Corn Prices Fall?
Funds extended their long position to over 200,000 contracts over the course of five to six weeks but as of last Tuesday had sold over 45,000 contracts week over week.
So, if they continue to liquidate those positions how far could corn prices fall?
Grisafi doesn’t think the market can fall that much farther though because demand has been so strong.
“If corn was to break 20, 25 cents in the new crop, if $4.70 corn turned into $4.50 we would see foreign buying interest.”
Soybeans Fall on Record Brazil Soybean Crop
Soybeans have been down the last two days on fund selling and profit taking but it has been triggered by several factors.
One is Conab’s record Brazilian soybean estimate, says Grisafi, pegged at 179.15 MMT, up 1.3 MMT from last month.
“That didn’t help. You know, a bull market needs to be fed every day. And those numbers were showing that they have a good crop down there. Typically, they’re a big hedger in March. And, you know, their harvest, right? The boats are loading. Talk of quality issues, some rain down there. But nonetheless, they grew a crop, right? And the balance sheet isn’t super tight,” he adds.
Soybean Oil Correcting
Second is the correction in the soybean oil market in tandem with crude oil futures cooling.
He says, “The funds were 110% long in soybean oil as their percent of normal. So, as you see an unwinding of the soybean oil/soybean meal spreads I believe that the meal leg is what’s really kept us up here the last few weeks. If meal was the rollover and crude oil was keep coming down and you watch what’s happening in soybean oil, you’d see the funds take off an incredible amount of length.”
China Meeting Jeopardized
The third is the fear of the mid-May meeting with China being delayed or canceled.
The soybean market has been holding premium due to the hopes for soybean purchases but the recent developments with Iran have put that meeting in jeopardy, especially as China has been providing weapons to Iran and President Trump has threatened tariffs.
Grisafi is hopeful the meeting will happen and he says soybeans have had a decent rally but China may buy other crops.
“So, if you’re putting all your eggs in one basket that Trump and Xi are going to meet and that China’s going to commit to buying a bunch more commodities, I had a chance to talk to Deputy Secretary Stephen Vaden. And he said, everyone focuses on soybeans but we have other great crops we want to talk to China about including corn and wheat, sugar and other products like rice, pulse crops and edible beans. He mentioned a whole bunch of things.”
He says China could agree to buy other products and that may be why wheat and other commodities are doing better.
Cattle Make Contract Highs
Live and feeder cattle futures exploded into new contract highs on Tuesday.
Grisafi says the combination of record high cash trade and the surge in the stock market has helped propel cattle higher.
“Again, we may also open up China to keep an eye on that. We don’t have cattle coming in from Mexico, so we’ve pretty much written off those cattle that used to come over. We watch the weather and we watch other things and we’re producing a lot of beef. The numbers aren’t there, but the tonnage is, right? And we got through the strike. That strike ended, I believe, a few days ago. Demand is good.”
More Upside in Cattle?
Grisafi says he is concerned that the market can’t hold at these levels forever as the market has been in a six year bull run off the COVID lows.
“If you’re out there and you’re raising cattle, I definitely would suggest setting some floors, buying some LRP. We’re one true social post away from being $20 lower in live cattle and $30, $40 lower in feeders,” he adds.
