Corn and soybeans ended lower on Friday with wheat and livestock mostly higher.
Corn, Soybeans Set Back Despite Final RVOs
Corn and soybeans futures ended lower on Friday fading EPA’s final Renewable Fuel Standard Renewable Volume Obligations which were the most robust in history.
Dan Basse, president of Ag Resource Company, says the news was already priced into the corn, soybean and bean oil markets.
“We had a sizable rally in the price of soybean oil thinking back to January up till today. We’re up about, you know, 16, 17 cents a pound relative to depending on which futures contract you’re looking at. So a lot of goodness had been built into the market in terms of anticipation of the numbers. When they came out, the market said, yeah, that’s about what we got. The only difference is the looking at things. There was a 70 percent SRE extension or reallocation is the best way to say it. And then we had. a full RIN given to foreign feedstocks and foreign fuels, if you will, for the next two years. So a little negative on that,” he explains.
Plus there will be legal challenges on the SRE’s and the reallocation by the oil companies because it’s not Congressionally approved.
“Today, soybean oil is ample in the eyes of the crushers and throughout feed stock availability. So if we get bullish, it’ll probably be in the third or fourth quarter of the year.”
Corn, Soybeans Fade Surge in Crude Oil
Corn and soybeans also ignored the sharply higher crude oil market taking profits ahead of the weekend.
“Yeah, there was profit taking in the grains. I think we’re thinking forward to the reports next week. There’s end of month, end of quarter forthcoming. And I think as you also looked at the news from the Trump administration or EPA today, we kept the ethanol mandate at 15 billion gallons. No change on that. And there was some hope that maybe we could see a little better blend on the
ethanol. So that was a little negative. And I think corn reacted to that. But I think the corn market is now fully starting to shift over to new crop.”
Grains Have Put in Energy Premium
All of the grains have added premium based on rising crude oil prices but do they need more?
Basse says, “If you look at December corn at around $5 a bushel we’re trading a stocks to use ratio very close to 1.4 to 1.5 billion and so there is some some some bullishness in there already. Again a lot of this is related to the war if you go back to early February we can kind of measure where the hedge funds were buying energy futures buying grain futures and kind of in tandem and that gave us the rallies that we’ve had today. So, there’s war premium, there’s weather premium. There’s inflation premium. The question all becomes is when does the war end or what is its duration? And that’s what traders will be looking at very acutely as we come back from Easter and the holidays.”
Grains Defend Long Until War Ends
Basse says the funds will defend the longs they have added in the grain markets until the war ends and then those positions get unwound, which is a risk for farmers.
He says, “By our calculations, we have about 540,000 contracts of long positions in the grain markets in Chicago. That’s the largest that we can find looking backwards to early 2023. Back then, of course, inflation was about 8%. Soybeans were trading north of $14, corn north of $7, and wheat north of $9. And we had the war going on in Ukraine and Russia. So as you take that forward, we’ve got a lot of speculative length there and all in the markets.”
If there is an end to the war he thinks there will be an unwind in the energies and an unwind in the grain markets that kind of gives you a cascading decline. After that it would take weather problems to support the market and the fund length.
Wheat Ends Higher Adding War, Weather Premium
Wheat was mostly higher Friday and for the week adding war and weather premium according to Basse.
“We are looking at dryness and declining crop condition ratings across the western plains. Kansas, Oklahoma, Texas need rain in the western portions of those states. We’ll see if we get it in the extended range forecast. Nothing for the next 10 days. And so as we start the growing season and start to see these falls in condition ratings, we are putting some additional weather premium in the price.”
He says U.S. prices are disjoined from the Russian market which since rMarch 1 is up about 8 cents a bushel. The U.S. is up around 60 cents a bushel. “So at some point, I believe that when it rains, you’ll see those levels come back together. Today, the market’s not
willing to sell just because of the war and the rain. And so that’s what traders are watching.”
Acreage Estimates
Early trade guesses heading into the USDA Prospective Plantings Report indicates less corn and wheat, more soybeans. However, will that be tempered by higher fertilizer prices?
He says, “When the acreage number comes out, especially if it’s higher than expected. Let’s say at 95 or 96, we’ll have people saying, well, farmers aren’t going to do that. But history shows us that we do plant about 2 million extra acres between the intentions and the final number. That number last year was shy, as we know, but we’ll see what all happens. I do believe that rising urea prices, and it’s not
all fertilizer, but it’s primarily in urea, is going to cause some reduction. And the intentions of U.S. corn acres are some switching to beans. But again, Mother Nature still has the biggest vote in that determination.”
There will likely be a some sizable changes going into the June 30th report, depending upon whether.
He says, “If farmers are able to plant very quickly, I would imagine we’ll get more corn. If not so, we’ll get more beans. But, you know,
there will be sizable changes.”
Quarterly Stocks
Basse says on the quarterly stocks they are looking for more grain than a year ago in all cases, but especially corn.
“We’re looking for about a billion bushels of additional corn stocks this year versus last year. So I’m about 100 million bushels above the trade estimate. The problem that I have, Michelle, is if you look at the annual feed and residual on corn, it’s up 775 million bushels.
Now, some of that is because of the record large crop last year. But I also don’t believe the feeding demand has been as great as maybe what USDA is expecting. So our estimate on feed and residual for the crop year is down about 250 million bushels. I then end up with the U.S. corn end stocks around 2.4 billion bushels. And I do think this stocks report will be important because of that. Farmers are looking at record on-store supplies. I think they’ve done a good job marketing beans, but not as good a job in marketing corn. So with that in mind, the market will look at that corn stocks number almost as importantly as it does plantings.”
China Meeting
The market is also awaiting the China summit which has been rescheduled for May 14th and 15th. The market will be watching to see how much of the 8 MMT of old crop soybean business China does or if there are other crops they buy.
Basse says the 8 MMT of soybeans was not mentioned at the trade meeting in Paris a couple of weeks ago.
“I think a lot of that is because it’s something that the Chinese probably don’t want to do. The Chinese have adequate or surplus supplies of soybeans from many sectors, and they’re trying to slow Brazilian arrivals through phytosanitary measures like weed seeds. In saying that, I’ve, as an analyst, have gone from 8 million metric tons down to 3. So I now think China will take 3 million metric tons in an old crop position. It’s not to say they don’t kind of spill that 5 million tons of the aid into a new crop position, but I think getting
more than, let’s say, 3 or 4 million tons out the door by the end of summer, with the meeting now happening on the 14th and 15th of May, is going to be difficult. So I’ve paired my number back. Some people in the industry are at zero, but I don’t know many anymore that are holding on to a number larger than, let’s say, six. So I’m in the middle of that range, as it seems.”
Cattle End Strong Despite Lower Equities
Live and feeder cattle futures were higher on Friday on follow through buying and ignored the plunging stock market and higher crude oil futures. Why?
Basse says, “Cattle didn’t care. They rallied sharply on the last couple of days. Some of this is related to the bullish Hogs and Pigs report that came out on Thursday with fewer breeding sows and less numbers there. A lot of it also came, of course, because of retail beef
demand still staying relatively strong and packer margins coming together. So as I think about why the seasonality in cattle is still up, I still believe it’s related to strong seasonal grilling demand.”
He’s not sure cattle can sustain a bull trend. “I just think we’re going to go test the upper range, and then we’ll see how the beef demand holds in if the war is still ongoing.”
Steady Cash and NWS Case
The other supportive feature was steady cash, which was a victory for the producer, and another NWS case.
Basse says, “Cattlemen are doing a fairly good job of marketing animals. We are hearing some reports of animals being heavier than packers would like, but I do believe that the ability to move animals is good.”
He says his APHIS sources reported there was also another NWS case only 77 miles from the U.S. border.
“We had another incidence of screw worm that was only 70 miles from the U.S. border. So I think some of this rally is also related to that screw worm keeping that border closed probably now heading into maybe the month of June or July. Again, we’re missing those 120,000 feeders per month. And I think that’s adding some bullishness to the feeder cattle market.”
Hogs Trade Bullish Hogs and Pigs Report
Lean hog futures were higher trading the bullish Hogs and Pigs Report. However, did it show all of the disease problems in the country?
Basse says USDA in the past hasn’t done well picking up on disease but it may be starting to be reflected in the report.
“That’s the big question, which if they didn’t pick it in the numbers, that disease even gets more important going forward. So I think we’re in a bullish phase, at least on the supply side and the pork side, at least going forward. I know June hogs are... Fairly fully valued already, but there’s still going to be another $4 to $6 up before we make a seasonal high. But I think USDA is trying to do a
better job in catching those diseases that are out there and counting snouts, if you will.”
