Corn, soybeans and cotton rallied, with wheat and livestock lower Thursday.
Corn, Soybeans and Cotton Rally Early with Crude Oil
The row crop and cotton markets saw some early support Thursday from a rally in crude oil as doubts about the peace deal with Iran came into question on news of additional attacks.
However, President Trump declared a 60-day ceasefire deal had been reached which sent crude oil breaking $4, only to rebound on skepticism about the agreement.
Darren Frye, CEO of Water Street Solutions, says corn and soybeans held their ground as well not believing the ceasefire was real.
China to Lower Import Tariffs on Grains?
He thinks the row crop markets were also trading unconfirmed rumors that China was lowering its tariffs on imports of U.S. grains and oilseeds, possibly the first indication of their commitment to buy U.S. products.
“We’re looking for some opportunities with China. I think a lot of people know that that deal that was struck at the summit when we got more understanding around it a week and a half ago, we ended up being more positive about business with China. They are reducing their import
taxes, that’s good,” he explains.
If China buys and crude oil doesn’t break the corn market is undervalued, according to Frye, and that is without a weather problem.
He thinks China will buy corn and maybe even wheat and more beans. “We know their corn crop, they’re feeding some wheat, and they were using wheat in place of corn. Now they’ve got some issues with wheat. They were using it out of reserves, and I think they are going to buy corn, wheat, and even maybe some more soybeans.”
If China buys $17 billion of ag goods on top of the 25 MMT of soybeans the next three years that could also include meat and milo.
“Just the fact that that trade deal got done like that and there was positive news coming out of it I think that has given the market optimism,” he adds.
When Does the Market Need Proof of Sales?
How long will the grain markets hold a premium waiting for China business to surface?
Frye says, “Well, I think that’s really hard to say. I mean, the seasonal turns down in early June, so we got another week, week and a half, right? But just because the seasonal turns down, we don’t always have to follow seasonals, but usually you do, right? So we got to probably see some optimism come in in that June 8th timeframe. If weather is good, we either need to see crude spiking higher or something with China, or I think we’re going to start to drift lower with the seasonal until we get new information.”
Inflationary Buying?
Inflation data out Thursday morning through the PCE index showed an uptick in inflation of .5% for the month and 3.8% year over year.
The crude oil market is likely to take a while to normalize even with the Strait of Hormuz open and that may mean sticky inflation for a while.
Is the fear of inflation also a motivation for fund buying in row crops and cotton on Thursday?
“Yeah i think that’s why they have been buying i think you look at the inflation side it’s an inflation trade. Inflation is alive and well whether you see it directly in the CPI, PPI or PCE number it is moving up. And the new Fed chair, Kevin Warsh, is going to have to decide, along with the board, the whole Fed chair and his board of governors, are going to have to decide, hey, do we have to raise interest rates, leave them the same, lower them?”
Frye does not see any rate cuts ahead but instead steady or even rising interest rates to curb inflation.
“And you’re going to start seeing it every month as we get new numbers, in my opinion. Energy is part of that. And I think we’re going to continue to see that escalate and rise,” he adds.
Grains Find Technical Support
The corn market had a poor technical close on Wednesday with July below the 200-day moving average and December also broke support.
Today the market negated that he says. “I like where the market closed. I like how it turned around. The only market I’m a little concerned about is wheat. It’s gotten a little bit deeper on this correction, but hey, we’re in uptrends in wheat, uptrends in corn, uptrends in beans, uptrends in bean oil, obviously, and meal also turning up here over the last two to three weeks.”
So he thinks the markets will move higher.
Wheat Story Over...For Now
The one market he is concerned about is wheat as the market saw historically low crop ratings on Tuesday and failed to recover.
He doesn’t think the story is over in the Western Plains, but right now it is old news.
“I think we got poor demand and we probably priced in all the supply shortages. So I’m not sure how we get wheat turned around. Maybe it’s more of an oil issue or a corn issue. But wheat is probably the one I’m most concerned about holding right here and basing and then turning for higher.”
Wheat a 2027 Story
He thinks there will be a cut in U.S. and global wheat acres with Australia and some of countries already projecting lower production due to higher fuel and fertilizer prices.
“Yeah, it’s affecting some countries now. We’ve seen it affect Ukraine. We know Australia, maybe Canada as well. But I think it’s really a 27 story,” he adds.
Countries that don’t have the means will not be able to buy as much fertilizer.
“I do think it’s an issue for places like Brazil. Southern Brazil might be a little different than northern Brazil where Safrinha is. Those soils are close to the equator. They’re more baked out, lower organic matter, lower CECs. And because of that they need more fertilizer. They need more water. And I think it could be a real issue in 27 for their bean crop, for their Safrinha corn crop.”
He says Ukraine, Argentina, the United States, which are breadbaskets, have deeper, richer soils. “We can mineralize more nutrients. Can we do it without nitrogen? Absolutely not. But we probably will get the nitrogen we need as long as we want to pay the price that they’re charging.”
Cotton Bottoming?
Cotton was higher on the China tariff news but also saw a technical correction after getting oversold.
Frye says the market took out weather premium with rains in West Texas but he thinks the market is bottoming.
“I think chart wise, it looks good. I want to see the market base there and turn from there. But obviously, you know, cotton just took off like a racehorse and extended and extended and extended. So you’re going to get a correction. And then, of course, the rain andthe forecast rain in West Texas helped to do that. I don’t think it’s going to be in the end as helpful as people think. But for the next two to three weeks, it certainly could. I think it makes cotton have to prove its willingness to go higher. I do think it will. I think we got another new high to make here over the next month or so, but only time will tell. But I like the chart right here for higher,” he adds.
Cattle Market Can’t Extend Rally
Cattle futures ended lower on Thursday unable to extend the rally.
Frye says lower boxed beef values were part of the story plus the funds sold on strength.
“But man, people are nervous about the cattle market, you know, supply and shortages and consumer. I mean, consumers still buy in. We don’t have the numbers. We don’t have the borders open. How can this thing go lower? But then, you know, it breaks and people are nervous being long without being hedged. People are nervous being hedged. And I think when you get this type of volatility in people’s emotions over a market like this, you get a choppy trade, you get volatility.”
He says cash bids of $255 5o $256 were being passed, which could mean higher cash.
“If we see a good cash market tomorrow, you could finish the week pretty strong here.”
Fort Morgan Fails to Reach an Agreement
The fund traders may have also been trading the headline that the workers at Cargill’s Fort Morgan, CO facility did not reach an agreement.
He says, “You know, the market, when you’re this high and this sensitive to headline news, and we have a lot of headline news with this president and just everything going on, you know, he puts out posts about trying to get beef prices down and that affects the market or closing of a plant or negotiations didn’t go well or anything.”
War Positive Cattle
But he thinks the cattle market will have a hard time breaking until the war is finally over.
“War is bullish cattle. I just think breaks are still for buy-in. I still think you can go higher. But at any time, that could change. We could top. I mean, we’re in rarefied air up here, but the cattle market still looks like it has ups in it to me.”
Hogs Also Fail
The nearby lean hog futures also failed to extend Wednesday’s gains.
So what will it take to finally bottom the market?
He says, “Well, I was bullish hogs. I really thought four weeks ago, three weeks ago, two weeks ago into the seasonal that we would go up, but we haven’t done that. And now Memorial Day is past us. So we broke critical support. you know, thinking that we got to go lower, not higher right now. But hey, they’re oversold. They look like they’re cheap and some of the fundamentals have been supportive. But for whatever reason, the market just doesn’t want to rally.”
