Grain and livestock ended mixed Friday.
Corn See Slight Bounce But is Fund Selling Done?
Corn futures ended just slightly higher on Friday bouncing off of new lows in both the old and new crop contracts. However, corn was down for another week taking out war and weather premium.
So how much more technical or fund selling pressure will the market see?
Jim McCormick of AgMarket.Net says the December contract got below the $4.40 area on the charts which was the August lows and closed right on it.
“So we’ve erased that whole move we’ve had. So hopefully we find a little bit of support. Technically, right here, it is only mid-June. We still have a long summer to go. The funds have liquidated a bulk of that long position, we believe. So that should be a little bit supportive,” he says.
However, on the July corn contract, he says there is a gap on the weekly continuous chart.
“To fill that gap, roughly you’ve got to go to about $4.05 1/2. We haven’t quite filled that gap. That could be a little bit of a downward target near term. But I’ve got to believe at least mid-month here, hopefully we can find a little bit of a technical bounce. We are oversold. We have the holiday weekends coming up. So hopefully that’ll at least give us somewhat of a dead cat bounce for producers to sell into.”
Corn and Soybeans Taking Out Weather and War Premium
Soybeans were also lower for the week as the markets have been removing weather premium. Plus war premium is evaporating on a possible peace deal with Iran as crude oil fell below $90 and took another bullish catalyst for the grains off the table.
He says, “I mean, have we taken the war premium out of the energy markets? I would say no. Obviously, we’re still quite a bit higher than we were before it. But if you look at the grain markets, we’ve pretty much erased the war premium, the fertilizer, not on the local level, but down at the Gulf. A lot of it’s come back down to pre-lower levels. So we’ve taken a lot of that emotion out of the market.”
McCormick adds that the agreement is not certain and could fall apart but for now the market believes the war is winding down and the Strait of Hormuz is opening up.
The second bearish factor is weather. While there is too much rain in some areas, in general, McCormick says it is hard to rally the market on too much rain in June.
When Will China Buy?
The other factor that has weighed on corn and soybeans is the lack of China buying.
McCormick says, “There was hope a few weeks ago that China would come in and buy up to $17 billion of ag goods. That’s what the White House said. The Chinese said nothing. At this point, we’ve not seen any purchases, and that’s going to be, I think, the key to maybe getting somewhat of a bounce here is to get the Chinese engaged,” he says.
So when will China buy?
The two presidents will meet again in September and in the meantime the USTR is working to implement a Board of Trade for China to buy non-sensitive products like ag goods.
“And that’s going to take time. If you look at the Chinese, if they do those purchases, call them goodwill purchases they tend not to do it until right before the meeting so they can kind of point to President Trump as to look what we’ve done. That’s unfortunately not what we want to hear as traders and not what we want to hear as for the ag community to try to get this market to rally,” he explains.
McCormick says he is concerned China will stay disengaged through the summer.
“If you look at kind of the seasonal bias, recent seasonals suggest you sell early in June. In the long term, by August, you’re a little bit
lower price. The last couple of years, we bought them in August. My biggest fear is that’s going to keep the Chinese disengaged and maybe start actually doing that buying that they say they’re going to do, but they’re going to do it on a 50 cent break closer to $4. I hope that doesn’t happen. But let’s face it, Michelle, that’s been China’s MO is to try to get it bought as cheap as possible,” he says.
How Low do U.S. Soybeans Fall to be Competitive?
U.S. new crop soybeans are starting to get more competitive with Brazil but how much lower will prices go without China business?
McCormick doesn’t think cash soybeans need to return to the $8 levels seen in the Northwestern Corn Belt to get China to buy, but they could drop another 50 cents.
“When you look at what China did last fall, they bought that 12 million metric tons of beans. There was no economic reason for them to buy it. They overpaid for those beans. It was a political buy. So if they come in and buy that 25 million metric tons that we’re hoping they will buy, it could be a political buy and they will overpay. But, you know, on the other hand, the Chinese might just try to play the long game and say, wait out the American producer, knowing that we’re going to run out of storage capacity.”
Farmers Have Very Little New Crop Sold
McCormick says currently their surveys suggest farmers have sold about 95% of their old crop soybeans and 85% of their old crop corn.
However, they have very little new crop sales on the books.
“On new crop, less than 15%has been sold for both new crop corn and soybeans. So the Chinese, I think they feel like if they can wait out the U.S. producer, they don’t feel any pressure to get it bought until maybe September when the next meeting is, that’s not the news we want to hear if you’re looking for a rally, I fear,” he explains.
Can Soybeans Hold Support?
So can soybeans technically hold support at $11 and can soybean meal hold the $300 mark?
He says, “I’m a little bit cautious of the beans because the corn market went back to the lows made a summer last summer. Are they going to be kind of the canary in the coal mine for the beans? If the bean market gets frustrated due to the lack of the Chinese purchases. Do the funds just continue to liquidate out of the beans like they’ve done the corn and the wheat?’
The bean market still has the bean oil story tied to biofuels but even that is becoming old news.
End of Quarter, First Notice Day Liquidation
The calendar is quickly approaching the end of the month and quarter plus first notice day. Often that can bring liquidation.
The market will also be gearing up for the Acreage and Quarterly Stocks report and so it could get volatile he adds.
Winter Wheat Higher For the Week
Both winter wheat classes were higher for the week. So is the market trying to bottom?
McCormick says, “I believe so. I hope it is. We did get the crop revised a little bit lower on the crop report this week. So we’ve got that
going for us price-wise. We’re getting a little bit more price competitively.”
The yields continue to be poor as harvest progresses. So, he hopes the market will buy the fact as harvest ramps up.
“So, hopefully this is the first market trying to bottom. Plus, the weather right now, has been a very tough for the wheat. You get to southern Illinois, southern Indiana, they are just getting hammered with a little heavy, heavy rain, and we’ll see what kind of damage that’s going to be done,” he adds.
Cattle Market Corrects with Plant Closure
The cattle market was lower on Friday on profit taking and news of lower cash and a beef plant closure. The JBS facility in Souderton, PA was shuttered which is a nearly 2,000 head plant.
Profit taking was also a factor says McCormick as the best demand period for beef is starting to wind down.
“The next couple of weeks tend to be a pretty good demand structure for the beef market. We obviously have Father’s Day weekend coming up. And then a couple of weekends after that, we have obviously the 250th anniversary of the United States. Three-day weekend, that tends to be price supportive. Then you also have the FIFA Cup going on. A lot of, you know, a lot of big cities have stuff going on and hopefully keep demand there,” he explains.
After that the dog days of summer could slow beef demand.
Absorbed NWS News, Now What?
The cattle market has also digested the worst news tied to the New World Screwworm. So if the futures can get above overhead chart resistance could the market retest the highs?
“You’ve just got to prove that the demand is there. The CPI, the PPI, the inflation readings this past week were incredibly bearish, showing that inflation is there. That’s going to make it very hard for the Fed to cut interest rates like President Trump wants. There’s now talk that they’re going to raise interest rates. Does that have a negative impact on the economy as a whole? If that would have a negative impact on the macro economy, that could have a negative impact on the demand for protein,” he says.
Inflationary Buying
However if the market sees higher inflation that could lead to buying interest in the grins.
“If you have inflation, you should see money come into commodities. But, you know, if you look at the gold market and silver market,
they’ve performed miserably the last couple of weeks, just like the grain market. So maybe we don’t get the inflation play we traditionally do.”
