Grains were lower except soybeans, with a nice rally in cattle and hogs.
Corn, Wheat See More Fund Selling
Corn and wheat futures saw more fund selling and long liquidation end of month but it was triggered by war headlines.
Chuck Shelby with Zaner Ag Hedge says those markets continue to remove risk premium.
“I think the funds decided to, liquidate some corn and wheat positions, you know, whether or not the ceasefire holds and all that and crude oil being down seem to impact our decisions. It’s also going into the end of the month. So a lot of times funds will try to, you know, rebalance their positions and start back over as we get into the month of June.”
Fast Corn Planting Progress
Corn planting progress at 86% was ahead of the 83% five year average so that was a bit bearish as well for the market he adds.
“Things are going pretty well, although the last part of this crop might be a struggle here in the Eastern Corn Belt as we have a lot of wet areas of Southern Illinois, Indiana, and Ohio especially,” he explains.
What About Replant?
Shelby is seeing a pretty good amount of replant in areas of the Corn Belt like his own farm near Lafayette, Indiana. So progress may be a bit misleading.
“There’s still crops that need to be planted and replanted in the wet areas. The cold spring we had in parts of Eastern Corn Belt really caused some problems. There’s corn that would need to be replanted. That was the most amount of corn we ever replanted on our farm. So it was an unusual pattern we were in. I guess the good news is, Michelle, even though we replanted last week, it’s still fairly timely.”
So he says the market does not see any problems because the crop is getting planted. The key will be weather in early to mid-summer.
Corn Chart Damage?
The corn market did do some technical damage to the charts. The July contract held the $4.50 area and December held $4.75/
“I was watching the December contract and $4.75 was kind of a breakout point for the December. We got towards $5 and now we came back down near $4.77 today. So certainly would like to end the week and hold above $4.75. So that was kind of an important day,” he says.
However, he isn’t sure if the funds will liquidate more or not.
“And also, you know, what’s tomorrow’s headline? Is the weather okay? Is the war on? Is the ceasefire on? So those are factors that are, you know, every day it’s something new and driven by news headlines.”
Wheat Uptrend Still Holding
The wheat markets are still holding the uptrend lines in all three classes according to Shelby.
“Psychologically, staying above the $6 level is always important. So it may be a little more pressure here. But overall, I think we found some support. And if the funds have decided enough is enough, then we’ll maybe stabilize here and get back to some different fundamentals as we move forward in these markets,” he states.
Wheat Market Ignores Crop Ratings
The winter wheat market ignored the crop ratings which were at 26% good to excellent, down 1% from last week and poor to very poor is at 44%, up 1%.
And Shelby adds, “And and the other part of it too is there’s potentially some moisture coming in out West and that wouldn’t be a good thing when you’re trying to harvest that wheat crop. So, wheat really has some upside momentum as we go forward but right now you know with the movement of the funds and everything it’s certainly going to be an interesting harvest.”
Still, he thinks the markets will have to respect the smaller crop at some point moving forward.
Soybeans Held Up by Product Values
The soybean market ended off its highs but held up better than corn or wheat due to the rally in the soy products.
“Again, kind of an unusual combination. A lot of times we’ll see oil up and meal down or vice versa. But today they all held together. Not exactly sure what was going on there. Maybe again it has to do with the end of the month position squaring or maybe we had some purchases we don’t know about,” he adds.
China Buying?
He says China may be buying the products at low enough volumes to support futures but not be detected by flash sales.
“That’s always the unknown that really can drive this market. I know they’ve talked about buying more products going forward and a lot of those in the trade thought that would be potentially corn and wheat but maybe they bought a few more beans here or meal and oil,” he says.
China purchase agreement is another wild card that could lead to more sales and it will be a big positive once they do show up.
But it may be likely China shows up to buy when prices fall going into harvest.
Shelby says, “They know the seasonals, if this crop turns out to be OK and we have a decent crop coming, you know, that August time window. going forward would be an ideal time for them to buy. So, I think they’re aware where prices are and potentially that could be a motivating factor for them to buy if the crop turns out to be as good as a normal crop.”
Soybean Processing Margins
Soybean processing margins are still running over $3 per bushel so that is the other underlying demand factor supporting the soybeans.
“And products are profitable. So as we sell our grain to end users, that’s always what we need to see them do is be able to make some money. So that’s a good thing and that’s a positive for this market going forward,” according to Shelby.
Soybean Technicals
From a technical standpoint, soybeans are still holding long term support and bounced off it this week. So will the soybean market stay range bound?
Shelby thinks that is possible. “You know, we were above $12 for a while and, you know, couldn’t break out to the upside. You know, we’re in the range here. We’ve fallen back and we’re headed towards the lower end of the ranges. So, you know, no real damage is done. It’s just the gyrations of the market. So I think it’s, you know, still range bound.”
The big market mover may also be the June 30 Acreage Report.
Can Grains Retest the May Highs?
Can the report or weather alone push the market up to retest the May highs?
Shelby says, “One thing you can say about this weather at this point, I think it’s been a lot more extreme than we’ve seen in previous years. You’ve seen areas that are really dry. You’ve seen areas that are above normal temperature. You see below normal. You see frost. It’s a different pattern we’ve been in. So I think those that are aware of the weather and what the yield potential could be are going to give this market some time because it’s just not the same pattern we’ve been in the previous few years when we had record crops.”
Cattle Rally on Short Covering?
Live and feeder cattle futures were higher with a strong close after impressively digesting the Cattle on Feed Report.
Some of the action was end of month short covering but the higher boxed beef valued also contributed some strength says Shelby.
“The boxed beef, being strong shows your consumer demand is still there. The cattle on feed report really didn’t hurt us the other day. Probably a little bit of fund money coming back into these markets,” he states.
He thinks the futures are at fair value. “We see these gyrations where the funds jump in and out or, you know, a headline driven news really pushes us one way or the other. But, you know, a pretty decent day. And as long as the cash is leading the way, that’s still a strong market
and looks good.”
Shelby is optimistic that holiday clearance was good and packers are buying for a long week, which will support cash.
Beef Demand Holds
Beef demand is also strong as it’s the start of the grilling season.
“Memorial Day was early this year,” says Shelby, “So as temperatures look to warm up around the country, I think the demand will be there as we move into the month of June.”
Cattle on Feed
He adds that the Cattle on Feed Report was not as bearish as it looked on the surface.
“We were comparing to such tight numbers a year ago. We are starting to retain heifers and try to improve the breeding herd. So, you know some of that is going to eventually show up. In the long run yeah we’re going to have more cattle on feed but right now you know saving heifers back is what we need to see in the long run.”
Hogs Bounce or Bottom?
Lean hog futures also had a strong day on a combination of end of month short covering and correcting an oversold market.
Is it possible the bottom is in?
Shelby says, “It’s been in a downtrend for quite some time. The downtrend line, we didn’t penetrate above it. It was the first attempt to come back around. I would look for maybe, if we’re going to make a bottom here, kind of a choppy bottom for a while, but hopefully this is the first attempt to try to turn the market around. But can’t go down every day, maybe end of the month here. And if we build a base here, something we can build on as we go forward in time.”
He says the pork cutouts also need to stay above $100 and cash needs to appreciate with better demand.
“You know, the consumer is still willing to put his money into beef. I thought, you know, with pork prices where they were and consumers, you know, maybe spending more money on gas that they would be more, drawn to pork market. But that so far hasn’t really developed like I thought it would,” he concludes.
