Corn and wheat were lower Tuesday with slight gains in soybeans. Cattle ended lower as well.
Corn Sees More Fund Selling
Corn futures were lower for a third day with more fund selling pressure.
Dan Basse, president of Ag Resource Company, says the lack of a weather threat continues to weigh on the market.
“Seasonally, this is a time of the year that we’re most bearish. So if we look at the period following the middle of June, if weather’s not a threat, grain prices or corn prices usually come down. And I think that’s what’s been happening,” he says.
He says as the market gets into July there is more chance of forming a seasonal low and he thinks those lows will be scored early this year.
“Just because I see the world crop structure being quite bullish with the losses in Europe and also the Ukraine having struggles in terms of exporting corn longer term.”
Corn to Take Out Contract Lows?
Technically corn went down, took out a little bit of support on Monday with December falling below an old support area around $4.40.
Will the market be able to hold the contract lows?
Basse is doubtful, “We may take them out by a little. I don’t think it would be overly damaging if July corn fell to about $405.5. That would fill a chart gap on the weekly charts. And I think as you get closer to $4.05, you’re going to find a lot of support in July corn. That gives December corn good support down at around that $4.30 level. So again, we’ve got to keep a little bit of weather premium in here.”
With July looking warmer and drier he believes those levels will hold in the corn market.
Weaker Energy Market a Drag
The weaker energy markets tied to the possible end to the Iran war has also been an anchor on the corn and even bean oil market.
“Particularly in soybean oil, where we saw the big break last week. Though as I do look at the RVO and I look at the RIN Bank, if you will, I do see some bullishness for soybean oil. It’s probably the most bullish grain commodity. So soybean oil should do better and disconnect from the energy markets. But as crude oil gets closer to $70 in the nearby position, I do think some of the pressure will be relieved, but corn and the biocrops of corn and bean oil have been pressured accordingly because of it.”
Soybeans Sideways Awaiting China Buys
Soybeans have essentially been trading sideways with help from bean oil but also waiting for China to make more regular purchases according to Basse.
“China has to buy 25 million metric tons of U.S. soybeans from now till the end of the calendar year, December 31st. We believe China bought a half million tons of U.S. soybeans last week. They had a holiday over the weekend. We think by the end of the week, early next week, they’ll be back buying U.S. soybeans. So they were asking for offers here today. Let’s see if they finally make some purchases,” he says.
Last week the market was disappointed only 4.85 million bu. of new crop China soybean sales were confirmed. Basse says the market will need to see routine buying confirmed before the bulls push the market higher and above chart resistance.
“It needs regular buying. I think that we can all sit back and we’re fairly confident from a geopolitical standpoint that China will buy the 25 million metric tons. The soybean market needs to see that certainty. And so with that, if we got some regular purchases, a million, a million and a half metric tons per week, I think that’ll be a jolt in the arm of the soybean market,” he explains.
Soybean Market Awaits Acreage Data
The market is also waiting to see the soybean acreage numbers according to Basse. “Because we’re still talking about U.S. soybean planted acreage rising a million, a million and a half acres and that’s been somewhat of a cap on the rally,” he states.
So the market needs China demand and lower acreage to see a chart breakout.
Weather is also important. With longer range forecasts indicating heat and dryness in July the soybean market will closely watch weather.
“I think the day of 53 bushel per acre yield estimate is right in the wheelhouse. I don’t think we need to change that very much. But again, will that yield estimate go up or down? That’ll be July in the first half of August weather,” he adds.
Wheat Sees Harvest Pressure
Wheat also saw fund selling pressure but with winter wheat harvest at 40% done nationally that was also a factor.
“We’re in the gut slot of harvest in the central U.S. So we’re seeing movement over the scales. It’s giving some pressure on the wheat market. Funds are still adding to their short position. But we’re getting very close to something I call a narrowing of the spread relative to French wheat prices. French SRW wheat relative to the Gulf is now somewhere around 15 cents a bushel. I don’t think we need to drop underneath French wheat or we start becoming competitive,” he says.
Plus, with the smaller wheat harvest, the U.S. cannot become competitive in the world marketplace because it needs to ration demand. So, he thinks there may be only another 10 or so cents down in wheat.
EU Drought and Heat
With the extreme drought and heat in Western Europe he says the losses to the global market will around 50 million metric tons.
So far the market has been ignoring it but Basse says eventually it will be a factor. “So that’s going to be positive once we get past the U.S. harvest.”
The EU has lost around three to five million metric tons of wheat due to the extreme heat and dryness of June. In the corn the losses may be larger, from five to seven million metric tons.
“Pollination is just starting in terms of the French wheat. French corn crop. That’ll stretch across over to Hungary. So this heat and dryness is causing some real damage. I think the market just wants to see how much and then see the European grain markets act with a little more upside vigor in terms of Paris wheat futures or Paris corn futures. So watch those futures markets carefully. That’ll be the indication. But I’m optimistic that the EU may import more than 23 or 24 million metric tons of world corn. Some of that will come from the U.S. and that’ll be a supportive export feature,” he adds.
Funds Go Shorter in Corn and Wheat?
The latest CFTC report showed the funds are still selling in the grain markets and are short in corn and SRW wheat. Will they continue to push the short side of the market?
He says with the momentum of the electronic algo and AI trading, the bears keep pushing until somebody pushes back. He thinks that could happen after July 4.
“And when you look at ethanol or soybean crushers or importers, they’re looking at very strong profit margins today. I wouldn’t want to be overly bearish on corn for let’s say another 10 or 20 cents. I do see a demand story somewhere along the line. A supply bear will turn into a demand bull. It’s all about timing and trying to figure that out,” he states.
USDA Reports June 30
The USDA reports will also have a big impact on market direction and Basse is expecting corn acreage to be close to the March intentions at 95 to 95.5 million acres.
He thinks soybeans seeding might be up nearly 1 million to 86 million.
“Now, I think the question we all have to ask ourselves is, did U.S. farmers plant a million more acres of corn and soybeans combined relative to last year? That’s what the USDA will have to tell us. If there is going to be a surprise, my lean would be maybe a bullish soybean number just because farmers didn’t plant as many acres as the market’s thinking. But we’ll see how that all comes out next week. But if you really ask me where the surprise may come, it may be in the corn stocks. We’re feeding animals. whether it’s cattle or hogs or poultry to much higher weights that could be consuming more corn. That third quarter feed residual estimate will be very key,” he explains.
Will China Buy Corn? Wheat?
If corn acres don’t go down as much as expected in the report the only bullish trigger left for a rally would be China demand.
Basse thinks the Chinese will buy corn based on his cash connected sources, exporters and such.
“We believe that China will take anywhere between five and 15 million tons of U.S. corn. Specifically, I’d be in the number of 10 to 12. So with that in mind, I think the U.S. corn export number needs to move higher. I do think China can also buy a little SRW wheat for quality issues That they’re having with their crops. So whether it’s a million tons of SRW wheat or 10 million tons of corn or 25 million tons of beans. I am bullish of these markets,” says Basse.
Cattle Correct
Cattle futures ended lower after hitting new highs for the move early Monday.
Cash was higher last week with the five area weighted average steer price at $269.63, up $3.55 and boxed beef was higher at noon with Choice cutouts above $400.
Still he says the cattle market fell due to routine profit taking and worries about beef demand.
“We’re in that seasonal period where as it gets warmer and hot, people will consume less beef. We’re at a very lofty price. Disposable income may be in a little bit of jeopardy,” he says.
Yet Basse thinks long term it is still a bull market with tight numbers and futures trading at a big discount to the cash market.
Milk Futures Pressure by Milk Production Report
Class III milk futures were down about a quarter Monday and saw some follow through selling on the July contract on Tuesday.
Basse says the market is trying to digest the higher milk production in the USDA milk production report.
“Really, more milk is a theme. And as you talk to farmers, it’s all about the calf, that bull calf. Sometimes it’s a cross bull calf that’s bringing as much as $1,500 to $1,700. Milk seems to be a residual. And so with that in mind, we just have too much milk in this country, and it does lean on the market,” he says.
So those numbers need to change to sustain a bullish milk market longer term.
