Grains and cattle close mostly higher Tuesday, with milk mixed.
Bryan Doherty, Total Farm Marketing, says grains extended gains for a second day with wheat seeing the biggest gains.
The rally in wheat has been driven by short covering and weather concerns.
“Northeast China is seeing excessive heat and drought and dry conditions will persist for the next 10 days. Plus there are disease issues with the U.S. winter wheat crop and states like Texas could see harvest delays with the wet conditions,” he explains.
The U.S. winter wheat rating fell 2% to 52% good to excellent on Monday, with Texas seeing a 10% drop in condition score.
Funds are massively short in all three classes of wheat and hard red winter wheat just made new five year lows last week, so the market also got too cheap and is seeing some value buying by end users.
A lower dollar index also supported wheat and grains in general.
Corn was higher following the strength in wheat but is also getting support from short covering and fund buying.
While corn planting pace nationally stands at 78%, Doherty points out that there are some areas, like in Ohio and the Southeast, that are excessively wet and may see some switching to soybeans or prevent plant putting some corn acres at risk.
The extended weather outlook is also hot and dry during the key development phase for corn and so he thinks the market needs to add some weather premium.
How far can the rally extend without a bigger weather threat?
Doherty says corn had back to back strong closes with July now above the $4.50 level and targeting the 200-day moving average at $4.61 1/2. December corn closed right on the 200-day moving average at $4.48 1/2.
Soybeans reluctantly followed corn and wheat with planting nationally at 66%, which is 13% ahead of average and rains falling in dry areas of the Western Corn Belt.
The rally was also capped by technical resistance and uncertainty regarding biofuels policy which may impact demand for soybean oil.
However, Doherty says with USDA projecting ending stocks at only 295 million bu. for new crop soybeans any hiccup in the weather could threaten supplies and the lofty 52.5 bu. trendline yield.
Cattle futures consolidated for a third day, ending mostly higher except for August live cattle.
Doherty says the markets have still not negated the bearish key reversals on the charts and failed to do so again today.
But will the market eventually correct that technical damage?
Doherty says if cash trade is even steady this week he thinks the market will be able to move back higher with their large discount to the cash and boxed beef values have continued strong.
Class 3 milk futures ended lower in the May and June contracts again.
Both scored new highs on May 16 at just shy of $20 per hundred weight but then failed.
Doherty says the market had a big recovery rally after the tariff delays were announced but domestic demand for cheese has not been strong enough to keep the momentum going.
Plus, he says there is very little herd liquidation because producers are keeping cows around to produce another beef on dairy calf to take advantage of the higher cattle prices.
“That will likely continue to keep production just high enough that milk prices will stay in about a $4 range,” he says.
