Corn ends lower Tuesday, with slight gains in soybeans and a rally in wheat. Cattle plunge, with hogs mixed.
Corn Makes More Contract Lows
John Heinberg, Total Farm Marketing, says corn made new contract lows again as funds continue to sell with no major weather threat to the crop and improved crop ratings at 73%, up 3% from a week ago.
“The market was anticipating a steady move for the week. So that just brings along the thought process that this crop, it could continue to get bigger and maybe above that 181 bpa trend line yield. And there’s nothing in front of this market right now that makes anybody nervous to want to be a buyer,” he explains.
Plus, the bulls didn’t get any fodder in the USDA reports either and so they went back to trading weather.
The market could see some short covering ahead of the holiday, but he thinks it will have a tough time sustaining rallies moving into the July WASDE on fears USDA could raise yields.
How Low Does Corn Go?
Heinberg sees both the old and new crop corn markets eventually going sub-$4 unless there is some big weather threat.
“Barring any major changes in the weather front or on the news front in that regard that $3.80 level looks like a bit of a target zone on some of these longer term charts. Whether it’s September or December that leads us there, not sure we’re in the window to go there now we may need to see an August report USDA maybe bumping yield up over that 181 level with the current weather and that jump in crop ratings you know with the majority of this crop in really good shape,” he says.
Soybeans Recover with Bean Oil
Soybeans made new lows for the move before seeing a bounce with the rally in bean oil.
Bean oil took flight after the Senate passed their budget reconciliation bill which includes an extension of 45Z or the Clean Fuel Production Credit which promotes biofuels production that utilizes bean oil as a feed stock. The Senate version also contained a provision to allow only North American feed stock to qualify for the credit.
“Just that confirmation of what 45Z would be in terms of the tax credits. You know, that just lifted that soybean oil market up.”
Heinberg was impressed with the rebound in soybeans after breaking support at the $10.20 level. “Just to come back and rally 13, 14 cents off the low. I thought it was pretty nice to see. Now we’ll see if we can get some follow -through.”
He says with smaller acreage confirmed in the USDA report at 83.4 million acres, there is no room for error.
Wheat Leads Gains
Wheat exhibited the most strength Tuesday on short covering but Heinberg says the market was also reacting to the slow harvest pace at 37% done nationally, 5% behind normal. The excessive rain has also led to quality issues in the wheat crop.
Plus, the dollar index made some new lows for the move. He says, “I mean, we traded to February 22 lows this morning. Again, that just makes U.S. commodities a little bit more competitive on a global front.”
Cattle Crash as Border Reopens
Both live and feeder cattle futures closed sharply lower in reaction to USDA’s announcement of a phased border re-opening to Mexican livestock starting July as part of its New World Screwworm protocol.
Heinberg says it may take a day or so for the market to price in this shock but he’s not overly bearish.
“I mean, obviously the reaction on Tuesday is more the mentality that we’ve got more cattle coming in. Now the question is how many cattle are we actually going to get across the border at one location and then add the next one. So it’s going to take some time realistically,” he says.
But he thinks cattle numbers stay tight which should support the cash feeder market.
“Look at that index compared to the August contract. You know, there’s some things that are gonna keep this market supported. We can see a little bit more of a technical correction, but I still think the friendly side stays to the bulls on a pullbacks here for both live cattle and feeders.”
Plus, he expects market support from the futures discount to cash.
Have Hogs Topped?
Lean hog futures opened lower but deferred contracts did find some support.
The market has consolidated off recent contract highs and according to Heinberg may be indicating the top is in, for now.
The rally was a result of fund buying in addition to higher cash and cutouts but Heinberg says those values have started to cool, which is pressing the futures.
