Grains ended mixed Friday with livestock mostly lower.
Markets React to Strait of Hormuz Reopening
Ag and outside markets reacted Friday to the possible reopening of the Strait of Hormuz and some resolution to end of the war in the Middle East.
The stock market hit new highs, with crude oil dropping over $10, as the market unwound and removed war premium according to Matt Bennett of Agmarket.net.
Grains initially saw pressure in tandem with the plunge in the energy markets on Friday he says.
“You came in on from the overnight and certainly had some pressure you know beans trading down double digits, corn trading down four
five six cents and so you know definitely some pressure that was spilling over from a crude oil market that was down double digits most of the day. So, you know ten dollars lower and clearly we’re trading energy. We know we’ve traded energy but we’ve held to it more on the way down than what we have on the way up, which is the unfortunate thing that we’ve seen as far as corn and soybeans go.”
However, the grain markets closed well off their session lows which was encouraging.
Will Grains See Further Pressure?
Still Bennett says if crude oil continues to extract war premium the grain markets have more downside risk.
“Yeah. You probably could see some pressure here. My gut tells me you’re going to see pressure, which is problematic because, Michelle, the fertilizer situation, for instance, as we look forward towards 27, I don’t think we’re going to be straightened out enough to feel good about what fertilizer prices are going to be. When we look at some of the natural gas facilities that have been taken offline, just the disruption and flow of urea, I’m afraid you’re going to be looking at very high prices for fertilizer once again this year, particularly nitrogen source, which none of us can get around if we’re planting corn.”
He says it is reflected in the higher prices for corn in the far deferred contract as Dec 27 corn is trying to get above $4.90 which doesn’t work with $1,200 anhydrous.
Wheat Sees Profit Taking But Higher for the Week
Wheat saw some profit taking on Friday but ended well off its lows and was up for the week in all three exchanges.
Bennett says the move was justified with the weather issues the hard red winter wheat crop is facing as 68% of the U.S. crop is not facing D1 to D4 drought.
“I mean, there’s certainly a dire situation from a drought perspective in a lot of wheat country, and now you’re talking about potential freeze coming in over the weekend for a lot of people, and unfortunately, that’s not what you want to see for this wheat crop that’s already been through just a pretty tough set of circumstances.”
If the frost materializes over the weekend will wheat see a sharply higher opening on Sunday night?
Bennett says it depends on how far South the freezing temperatures go and how much damage comes as a result.
Corn Follows Wheat, Trades Weather
Corn futures ended mixed on Friday but well off session lows and were higher for the week.
The market clearly got spillover support from the wheat market and held the 200-day moving average support on Friday according to Bennett.
“Which was a good thing to see definitely got some support from the wheat market in my opinion this week but I think there’s also you know a little preemptive concern if you will about cold and wet conditions. And so obviously quite a few folks in Iowa are sitting, Northern Illinois, you get much North of me, there’s not been anything done, you know?”
He says it’s too early for a late planning discussion. “Especially with the kind of equipment we’re all running. Let’s be real about it. But if you get out here another 10 days to two weeks and you still have a wet forecast, that becomes an issue. And so in my opinion, there’s a little bit of that in the market.”
There is also some talk about drier conditions in Brazil for the second crop corn but he isn’t concerned yet.
“But again I think we’re pretty early in the stages there the NDVI maps look really good on that crop right now and you’re going to have to throw quite a bit of dry weather at it to really hurt it,” he explains.
Any losses in Brazil may be offset by a record crop in Argentina. “And if and if it’s a 65 to 67 million ton record crop Michelle, that’s bearish. I mean, there’s no way to look at it unless you would happen to lose 10 million tons off the Safrihna crop.”
Can Corn Build on the Higher Week?
Funds have been liquidating in the corn market but with the 200 day moving average support area holding and a higher weekly close can the market technically build on it?
Bennett says, “Boy, that’s a tough call, Michelle. I mean, the chart doesn’t look great. Let’s be honest. It looks like we’ve probably put a high end for the time being. But at this stage of the game, you know, it’s going to be make or break time over the next eight to 10 weeks. You know, what does this crop go in like, first of all? Second of all, how do we go into pollination from a moisture standpoint? Do we get it in later than what we want to get it in?”
He says that is important because the U.S. still grows the biggest corn crop in the world, eclipsing Brazil by three times.
“And so the markets can be paying very close attention to what happens here in the U.S. over the next few weeks.”
Soybeans Lower on Rising Acreage?
So if corn is losing acres did soybean prices fall this week because of the idea those will be shifted over to soybeans?
Bennett thinks that is the case. “And, you know, the last two weeks, corn’s closed lower on the week and beans have closed higher on the week.
And so I do think that some of this has kind of come back a little bit. There’s probably some folks that maybe decided to spread that somewhat. But at the same time, I’ve got to think that the acres discussion is something that people are looking at closely.”
He says while the market is buying it just yet if the forecast stays wet for a couple more weeks it will get more attention.
Soybeans Still Sideways
Despite the lower weekly close soybeans are trading withing a trading range held for a several week.
“The old adage that beans don’t typically like to spend a lot of times in the $11s. I mean, shoot, $11.50 to $11.80. You know, that’s been an area where the bean market seemed perfectly comfortable this time around. And so are we going to break out of that range? I think at some point
you do. The problem is if we see increased acreage you could loosen up the balance sheet,” he explains.
Crush is at record levels with over 200 million bu. crushed every month so domestic use is good and Bennett says the strong RVO number is helping.
Crush margins at $3 a bushel should keep the market well supported and basis has narrowed around soy processing plants.
Cattle End Lower on Border Reopening Fears
Cattle were lower on Friday but ended well off session lows.
The market tanked around 10:00 am on fears USDA Secretary Brooke Rollins might announce the border was reopening to Mexican cattle at a ground breaking for the NWS sterile fly production facility in Texas. When she didn’t make the announcement the market rallied off the lows.
Is the High In?
So it the top in the cattle market especially after the market made record highs and then ended lower for the week?
“I’ve thought the top was in more than once on this cattle market,” he says, “And then we come in here recently, of course, put a new high in this week. It looks like kind of a double top that we potentially have put in but at the same time, we know from a fundamental standpoint, this market strong as an ox,” he adds.
He says if the border does reopen to Mexican imports the market will correct as it frees those cattle up to come into Southern feedyards.
“And some people, quite frankly, are clamoring to have those cattle come in. Now, most people don’t like it, but if you’re in that part of the world, it’s been awfully hard to source your feeders. And so, yeah, I don’t know what’s going to happen. Once the opening happens, you’re probably going to see a short-term drop, but at the same time, is it going to fix anything from a long-term standpoint? No.”
Cash is King
Fed cash trade was mostly steady for the week at $248 live but a disappointing encore when there was some record $250 trades in the North last week.
However, if the market is higher next week he says you can’t rule out that the futures could retest the highs.
“Whether you’re talking fats or feeders, there’s no bargains right now as far as on the buy side. If you’re on the sell side, you’re smiling as big as you can smile. And so, you know, you see even in our part of the world, $250 plus fats. And I mean, that’s just pretty salty money, you know, for a lot of folks. And fortunately, it’s one of those situations that a lot of people have been waiting for this for a long time. And then they continue to think, hey, this is going to go away sooner or later. And it just hasn’t yet. And so could we make new highs? Yes. I think we can still make new
highs. Am I betting on it? Not necessarily.”
