Grains were mostly lower early Tuesday with livestock higher.
Corn and Soybeans See Profit Taking on Crop Ratings
Corn and soybeans saw some early profit taking pressure on Tuesday after running into chart resistance.
Greg McBride with Allendale says the crop ratings also came in better than the trade expected on Monday’s USDA crop progress report. He says the crop is looking good for this time of the year. However, the market is entering the critical time frame of determining yields and so conditions moving ahead will be more important.
“The drop of 1% on corn when you had what was overly hot and drier conditions for the past week, that was a little bit of a surprise to the trade out there. Beans seeing an improvement was again another another slight surprise,” he says.
However, the market had had a nice unseasonal rally into chart resistance.
“We took out the highs in the beans the corn went to about $4.70 to $4.75 which is another spot,” he adds.
He says soybeans could test the contract highs but he doesn’t think that is the case for corn with a 1.8 billion bu. new crop carryout. “It does tell us that we should trade somewhere around $5. It doesn’t necessarily mean we stay there.”
There is plenty of talk about lower yields but McBride says it’s going to be tough for the USDA to really cut yields enough to warrant anything above $5,” he says.
Weather Moderates
The weather is also moderating after some heat in areas of especially the Northwest Corn Belt plus some key areas of Iowa and Illinois got rain Monday and there is more in the forecast.
“We saw, I think it was mid to low 80s for Illinois yesterday. You’ve got some cooler temperatures over the next couple of days. It does warm up a little bit as we go into the end of the week and into next week. I don’t think it’s like that oppressive heat that we were seeing before. You know, you look at what was happening in the Dakotas with some of those areas 20 and 30 degrees above normal. We’re not seeing that at this time in that forecast,” he adds.
He says some of the areas that saw heat stress last week may have been tasseling but they weren’t into the corn pollination phase.
“So this cool down might come at the exact right time, especially if we get a few rains that float through.”
European Weather
Headlines continue regarding the European heat and drought and their shrinking crop size.
However, McBride thinks much of that is factored into prices.
“We’re out there as the top exporter for corn. When you see drought in other places, it’s easy to get rolled up into the idea of, oh, man, that means they have to buy everything. They’re still going to have a crop. It’s going to be damaged. They will have to import a little more, whether that’s coming from the United States or whether that’s coming from Brazil.”
China Soybean Business Confirmed
After more rumors the last few sessions of China buying 10 to 14 cargoes of U.S. soybeans, USDA confirmed 9.7 million bu. of new crop business to China on Monday and another 4.0 million bu. to unknown.
McBride says this confirms around six cargoes and he wants to see China buying two to three flash sales per week.
“I think we’re up to about 4 million tons of that’s 25 million that we expect just out of China. So they’re they’re fulfilling what they said they were going to do. And if you go back and to before President Trump was in office and we had the tariffs previously, this. This is a normal time for China to do pre-buying. They’ll still buy from from Brazil what they need now. It’s what they’re going to buy from the
United States for like September, October and November delivery. They usually by the end of June and into July have really gotten a good start on that.”
He says that’s a good sign for the U.S. but it is already in the balance sheet. So, for the market to get really excited China will need to go beyond these routine purchases.
Adding War Premium
The markets have also been adding some war premium with the escalation of the fighting in the Black Sea region and the impact that is having on export movement.
McBride says Russia is getting attacked in that Sea of Azov, movement out of the Strait of Kerch has been slowed down.
“Its going tp be more of a wheat conversation, number one wheat exporter in the world right there. So slowing them down or even having them stop completely is a situation, obviously, that we have to pay attention to on the wheat side of things.”
The attacks on Ukraine ships or infrastructure could impact both corn and wheat exports.
“The markets will get excited about it, but I don’t know if that’s necessarily going to kind of change the game when it comes to U.S. exports or any of that stuff. That area is about 13% of overall exports for corn in the world. So it’s not the biggest area of exports.”
So corn and wheat in particular may have enough war premium already established.
Wheat Done Adding Weather Premium Too?
Has the wheat market also added enough weather premium?
USDA dropped spring wheat crop ratings 5% to 53% good to excellent. There is no major let up in the heat or dryness in the major production areas. So conditions could continue to decline.
“And that’s another one is that the spring wheat was already cut back on acres anyway. So you’ve got a smaller production than last year. Now you add in some potential for production issues this year. And we already know it’s been widely publicized about the problems down in Kansas and Oklahoma and that area for the winter wheat crop, which is... 74, 75% harvested at this point,” he says.
Still he points out that the funds can often ignore fundamentals like weather and war.
“You talk about production issues, production issues in Europe, the potential for an El Nino that comes in and potentially hurts Argentina or Australia’s crops. Those things are kind of friendly or bullish but the the tough part about that is when the funds decide they want to sell it doesn’t matter how bullish the fundamentals are the funds take charge of that market and they’ll they’ll sell it with reckless abandon,” he concludes.
Cattle Continue Recovery
Cattle futures were up for a second day after finally seeing a bounce on Monday.
The August live cattle had a record 15 down days and were oversold but will bounce hold or will the funds use it to sell more?
McBride thinks the cattle market is well supported.
“Obviously, we’ve seen retailers like Walmart and some of these others that are trying to cut or reduce prices on beef. That goes to what the administration has talked about for a while, was bringing some of those prices down. You’ve got increased imports. Now, obviously, the Brazilian tariff situation is still kind of out there. That’s a threat. But we’ve got the deal with Argentina to bring in beef and whatnot. So that is kind of following through on what they wanted to do.”
This hurts the producer and restricts herd rebuilding. “The production numbers don’t lie there we’re seeing the smallest herd that we’ve had in a long long long time and we’re not showing anything that shows expansion there was not as much heifer retention as you would expect,” he says.
So for now if the lows aren’t in they are close because the production numbers are tight. The key will be if the funds want to liquidate more of their long position.
Lean Hogs Continue Higher?
Lean hog futures have continued to see new highs for the move with funds covering short positions and the improved wholesale pork trade.
McBride says seasonally the market could be close to peaking. “So you’ve got to be a little bit careful about that if we follow the seasonals. As the summer kind of grows a little bit long in the tooth, so does obviously grilling season and pork procurement. So I wouldn’t be surprised if we do see a little more upside, but I’d be a little bit careful about getting too bullish.”
