Grain markets ended mostly lower except new crop soybeans, cattle were mixed with hogs lower.
Corn and Wheat Take a Breather
Corn and wheat both ended lower on Thursday.
Allison Thompson with The Money Farm says wheat made new highs on Wednesday and was overbought and due for a correction.
Corn made new highs for the move in the overnight session before seeing some pressure from the lower wheat market and profit taking as it was end of the month, plus the start of the delivery period for May contracts.
“I think there was a lot of that definitely at play with the session here to obviously to finish the month. We know the funds have definitely been buyers here again. So seeing them take some profits here after a really strong move is good to see as long as we’re holding support. And so far that seems to be the case. We did have some healthy retracement levels tested during the session. But so far we haven’t seen any meaningful changes fundamentally. And I think that’s going to keep support here under the whole grain complex,” she explains.
The crude oil market also corrected after spiking in the overnight session which may have weighed on corn and wheat as well.
She says, “Yes, crude had losses today too, but there too, we had a very strong overnight session and pushed to some new highs for the move.”
Corrections Are Healthy
She says the corrections in corn and especially wheat are healthy.
“We can’t go in a steep climb forever. You’re going to have to have pullbacks. And honestly, just after the beginning of this week, or even looking back the past three weeks, we’ve had some phenomenal rallies. Wheat, for instance, rallying over $1 in most contracts across all three exchanges. So having a first pullback here, you know, with some double digits is actually healthy for the market. And again, we haven’t
seen anything fundamentally change the story here today. Makes me think it’s more technical,” she adds.
Farmer Selling
With the big run up in prices there was likely some farmer selling as well.
Thompson says she hopes farmers took advantage of the rally to do some pricing.
“We’ve been definitely pushing to be making some sales, especially on a strong run that’s, again, a lot of weather and momentum traded. So it always makes you a little leery, especially this time of year. There is risk ahead, don’t get me wrong, but you’ve got to be rewarding the market when we’re getting rallies and strong moves to some new highs, of course, that producers haven’t seen for a couple of years,” she states.
Weather Change?
There was also some rains in the forecast for HRW wheat areas like Texas. In the past those rains have been disappointing and if the pattern stays the same wheat could add back weather premium according to Thompson.
Plus, she says it may be too late for the rain to help some areas.
“Yeah, at this point, I think a lot of the damage has been done. I’ve talked to producers down there. I’ve also talked to some custom harvesters who’ve been moving or trying to talk to clients who’ve been all the way down to Texas. And unfortunately, one person even commented that they weren’t able to get any farms that were willing to book for wheat anywhere South of South Dakota. So I think that there’s definitely some production issues there,” she says.
There is some replanting taking place but with 34% of the U.S. crop heading it is going to be too late for rain to make a difference in her opinion.
How Big Are the Production Losses?
So are all of the losses priced into the market and what production cuts could be expected?
Thompson says, “Well, that’s the million dollar question is where is final production going to be? But ultimately, the market’s pricing in where these production losses are going to be. And ultimately, it depends what the USDA does. We know they’re kind of notorious for kicking that can down the road. So it could take a couple months before we really start seeing what production is going to be like. And it probably will wait
until we get further into harvest. So end of May, beginning of June, when we normally see winter wheat starting to harvest that we start really building something here on this market.”
She reiterated that wheat markets have a history of going further in extreme times than a lot of people would think.
“And I think we’re in that environment now where we could see prices continue to spike higher.”
Spring Wheat Planting Slow
The spring wheat market was down from the contract highs hit on Wednesday.
Prices have finally moved above $7 and hopefully are profitable enough to entice farmers in the North to continue to plant.
But is the market concerned about low acreage or yields?
“A fair question. You know, South of me, you don’t have to go very far an hour closer to Fargo. And there are guys who are already done planting spring wheat, getting beets in the ground. And then up in my area, just an hour North and beyond, there isn’t any real equipment moving. We really haven’t turned anything yet. And even this morning, we had snowflakes falling in the area. So spring isn’t exactly here yet. And that’s, you know, just keeping things a little bit at bay,” she says.
But it is still early and so she thinks the intended acres will get planted but none beyond that especially with higher fertilizer prices.
Fertilizer Crunch
She says any farmers that have booked fertilizer are more likely to use it on corn acres instead of wheat.
Many industry analysts believe corn acres are dropping but Thompson thinks in the North the acres will be close to intentions.
“A lot of guys booked fertilizer early. Talking with producers where I think those acres are kind of locked in I don’t foresee a big switch coming from our area. I think a lot of guys are intending to plant acres again, just based on what they produced last year. They had a very good season. So I think guys are really going to try and get the corn in the ground, especially if they have the fertilizer booked. If they don’t, might be a different story case by case. But I do think that we’re going to get a lot of the corn going in the ground this year,” she adds.
$5 Dec Corn
With a cut in acres and high fertilizer prices the December corn is flirting with $5. Will it get above that level?
She is optimistic it will for several reasons.
“You know, demand has been very strong for corn. And I know we’re starting to talk about the U.S. growing season and not really seeing, you know, a lot of risk there yet necessarily. I mean, planting pace is going good. Conditions are going to be around the corner here and there’s no hiccups. But we also have to remember South America is a big one right now. And over the next couple of weeks, a lot of their top producing areas further north are going to be starting to go into a dry and hot season. And I think that could have more of an impact on the global corn market, especially with ending stocks at 10-year lows, stocks to use ratio at 10-year lows. We can’t afford a problem. And of course, we have the growing season ahead here yet. So to see the risk appetite in the grains that we have right now, I think it definitely leaves the door open,” she says.
Technically if Dec corn can get about $5.03 she thinks there is a good chance to go to $5.25.
Soybeans End Mixed But Off Lows
Soybeans were under pressure early but did come back with the rally to new contract highs in bean oil even though crude oil reversed lower.
She says a biofuel report show an increase in usage which helped push bean oil.
“So I think that the demand on the oil side could step up some more. But ultimately, that’s what’s leading the market. I mean, we hit three and a half year highs today, and that certainly helps the idea for soybeans. And that complex is really split. It’s obviously a product market. We’ve been following meal for the last couple of weeks. Now it seems like it’s switching over to the oil side. And oil, when that’s leading, can definitely create volatility. So I expect that we’re going to stay range bound here unless soy oil can really kick it into another gear.”
Soybeans Attempt Chart Breakout
The soybean market attempted to break out of its sideways trading range and got above $12 but could not close above that level.
November soybeans made a new high but then closed back under that level.
She says, “It’s really good to see the market really probing those resistance levels and really trying to break through them. But until we can get a close above $12 or above in July, you know, $11.75 in November, it makes it really difficult. You know, the market ultimately is still looking for a catalyst. We have supportive elements there. They’ve been there for a while and they’re keeping us at the top of the range, but the market clearly wants more to get there. So it’ll be interesting to see as we go forward.”
China Deal or Crush?
The one catalyst the market may be waiting for is the results of the China meeting on May 14 and 15 as record crush alone has not been able to get the market above current trading ranges.
“Crush margins remain very strong. So, I think domestically we’re definitely set up and we’ve seen that shift we’ve been talking about it here for several months that you know soybeans used to be a dominantly export market and we’re really starting to see it shift to the product side and so to see that strength build I think it’s just a switch happening within the complex and soybeans are obviously reacting to it and I think it does give us a very good floor under soybeans,” she further explains.
Live Cattle Consolidate
Live cattle futures were mostly lower after hitting record highs on Wednesday on the heels of record cash.
She chalks it up to month end profit taking similar to the grain markets.
“We’ve had a healthy run you’re gonna have to have healthy pullbacks too. It’s good for the market so we’re obviously going to be trying to find support here grains as well same with the livestock just finding where that level of support is going to be where buyers are going to step back in and I think that’s the environment we’re in across the board,” she says.
Funds have been eager to buy on breaks which should also keep the market supported.
