Grains closed mixed Friday with cattle higher.
Wheat Sees Profit Taking Friday But Higher Week
Wheat futures were lower on Friday on profit taking ahead of the weekend and with rain in the extended forecast for the Southern Plains.
Darren Frye with Water Street Solutions says this follows a chart breakout on Thursday.
“We broke out on Thursday at the $6.60 area of July Kansas City. We had proved to be very heavy resistance. And once we got through that, I mean, wheat shot up, ended up closing 28 to 30 cents higher. It did pull back here today on Friday. You know, got a little moisture coming over the weekend. I don’t know how good it will be. Those areas that are supposed to get some forecasted rains and will probably get some, but they’re pretty dry,” he says.
He says if the rains are spotty and disappointing the market will continue to add weather premium.
“I still am looking up in the July Kansas City wheat up toward that $7.70 1/2 area. That’s about 35, 40 cent higher. And I think we can do that, but we got to see a risk on situation for wheat for that to happen,” he adds.
Too Late for Some of the Wheat
Even if those areas get some rain it may be too late for a portion of the crop he says.
“You know, talking agronomists out there, talking to farmers, looking at pictures, obviously the wheat has been beaten and battered and it’s had everything thrown at it. We know wheat has nine lives, but maybe it used most of them up, if not all of them. And it really is coming a
little bit too late, in my opinion. I think if these general rains, if they are general, would have come four weeks ago, totally different story. But it’s just getting too late in the life cycle of those plants for that to make a huge difference other than some grain fill and plumping up some of
the kernels in those heads,” he explains.
Does $7 Winter Wheat Choke Off Demand
If the winter wheat market gets above $7 will it choke off demand?
Some U.S. millers have already started to import lower priced wheat from places like Poland.
Frye says, “Yeah, I think so. I’m not really bullish above $7. I think if you are bullish above $7, it’ll be after we have a big pullback. And a big pullback could easily take Kansas City wheat from $7 back to $6.50 before you build the energy to go again. So I wouldn’t be bullish at $7,
but I’d be selling into that area. That would be my opinion.”
Corn Higher for the Week
Corn futures were flat on Friday caught between higher soybeans and lower wheat.
However, corn was higher for a second week on the heels of wheat, but also trading weather according to Frye.
“I think it’s a little bit of both, and maybe you can throw in war and crude and some of those things. We know crude has a 90% correlation to corn, and obviously crude isn’t breaking out above $125 yet, but I still think crude could break out above $125 later on in the year as we see
more strain from some of the logistical issues around the closing of the Strait of Hormuz. It’s still not open, but time will tell on that.”
He also thinks corn is getting help from the dry Brazilian weather in the safrihna corn areas.
“We know the monsoonal flow ended a couple weeks early and obviously they don’t have organic matters in three and four percent down there they’re more like one and a half or so because they’re close to equator those are baked out soils and obviously rain shutting off early will have an impact on that crop. So, I think corn’s getting a little support from that and then of course wheat breaking out that is not bearish corn,” he explains.
What Will it Take Get Corn Above Resistance?
While corn is following wheat it will take some type of weather issue later in the summer to produce a chart breakout in corn according to Frye.
“I think we can grind higher because we’re in a strong seasonal, at least up through the middle of May to the end of May. We know the seasonal really turns down in the beginning part of June for the row crops, for corn and soybeans. Wheat hits its seasonal high, usually around that May 20th time frame. So we probably can grind higher, but if we’re going to get a really big rally that sustains us above $5, that’s going to have to be a weather problem, either a bigger one than what we’re seeing now,” he states.
Soybeans Range Bound
Soybeans were slightly higher on Friday on spillover from soybean meal and bean oil but have been rangebound.
July can’t get above the $11.80 mark Frye says.
“I think you’ve got a sideways chop here. We know it’s been doing that quite frequently here in the last seven months since it has turned higher. And that $11.80, we get above $11.85 and more convincingly above. you know, let’s say $12.10, then we can have a run back up to the highs.
But we got some work to do. A lot of overhead resistance,” he says.
Plus mean and oil are going in opposite directions he adds. “Meal was a down week this week, but bean oil was up like 340 points. Bean oil has been certainly the darling of the complex. I think meal is valued properly here for livestock guys. If they want to be buying meal, probably a good bargain area to be buying it. But I think meal can go higher. Didn’t have a great week this week, but maybe next week will be better.”
Soybeans Sideways on China
Soybeans have been range bound in part waiting for the mid-May meeting in China.
“You know, we know the summit is supposed to happen. It hasn’t been called off. And and we know that I think a lot of the strain that China could be feeling, whether it’s fertilizer, food, security, energy. I know they’ve stocked up on energy. They built a reserve over the last couple of years for a day like today when the Strait of Hormuz has been shut. Venezuela has been now controlled by the U.S. And of course, that’s where a lot of their oil came from. Do think that ahead of the summit, this could soften them up. Maybe we can have some better negotiations as they maybe need to make a deal. And maybe that’ll mean some ag products, corn, wheat, even some soybeans. I’m less confident about soybeans as I am probably more confident about maybe corn and wheat being in that deal.”
Both USTR Jamieson Greer and well as Chinese officials have said they want a deal that does includes more than soybeans.
He adds that a strong bean oil market and record crush have also held the market together.
Double Top in November Soybeans
New crop November soybeans did try to make new highs this week and got within 1/4 cent before reversing and leaving a double top on the charts. So is that a concern?
Frye says, “Anytime you get a double top it is a concern. I don’t think we’ll start a big move down like taking us back to $11. I’m still bullish new crop beans. I think it’s too early for that. But yes, that is a concern. What we need to see happen this next week is us to build some support in this area where we pull back to and then start to move higher.”
He thinks the next time the market goes up it will break that double top.
“Whether that’s a week or two out from now or sooner. I think that probably is in the cards. But right now I am a little concerned because that action was not great,” he describes.
Cattle Market Bottoming?
The cattle market had a nice reversal on Thursday and built on that momentum on Friday but is this bottoming action?
Frye says maybe not, “I’d like to see a little higher bounce into early next week and then I would have slated another move lower probably another you know $5 to $10 down in the feeder cattle getting under the most recent low from a couple days ago. Same in live cattle getting down in the $5 to $7 range, moving under the low from a couple of days ago. So I don’t think the full correction is done, but I think a bounce to start the week and then we’ll see what happens with cash.”
He does think the market can rally again though because there is no quick fix to the tight numbers unless the border is reopened to Mexican feeders.
Cattle Rebound As Border Reopening Fear Fades
Part of the fundamental rebound in the market on Thursday into Friday was as USDA Secretary Brooke Rollins canceled a trip to Arizona and alleviated fears of an announcement about reopening the border.
He says, “Yeah that was part of it. You don’t always know what news is going to show up to give you that. But I’d accept that, that now that’s a little sigh of relief. And so we bounce, but maybe she takes a trip next week and we fall on that. But I’m still looking lower before the next rally. I think we have to make another new low for the move.”
Ag Markets Divorcing From War Headlines
Frye says the ag markets are starting to get numb to the war headlines and have gone back to trading their own fundamentals.
The same thing happened back in 2022 when the Russia Ukraine war broke out.
“I think the market’s starting to divorce itself from these headline news items that gyrate back and forth. You can’t trust them. And in the end, we bombed them really hard. They’re not going to strike back. Yes, they’re a nuisance, but I’m thinking the Strait of Hormuz is being blockaded and it’s being closed for more than just to starve Iran out. It might be an economic situation, really trying to... attack maybe better tariffs for Europe, better tariffs for China, and really taking the world a little bit hostage with us having oil and us having the fertilizer and us having the food here versus the rest of the world and getting better deals negotiated. So I can’t, you know, rule that out. And so I do think people and the
markets, markets are traded by people. They’re starting to care less about these headlines and things are getting back to normal,” he adds.
That is why the stock market is back to all time highs and other market have normalized.
