Grain and livestock futures ended mixed on Monday.
Corn Extends Gains
Corn was higher and extended gains after a higher weekly close last week.
Alan Brugler with A&N Economics says corn got some spillover support from higher crude oil due to the closure of the Strait for Hormuz.
Corn was also following soft red winter wheat and other demand fundamentals.
“I think you’ve got pretty decent support on the ethanol consumption side. You’ve got pretty decent support from the export inspections that came out this morning. We’re still trucking along at 31%, 32% above year ago on shipments. World stocks usage ratio is still pretty snug in corn. So it’s kind of keeping it from going down,” he says.
Weather in Focus?
He says the market was gearing up for planting progress with some talk of delays due to wet conditions in some areas of the corn belt.
“I think we’re talking about weather, but we’re really not trading it that much. It’s early. I mean, we’re looking at planting progress. I think the trade estimates are 11% or 12% percent complete for tonight. To me, that sounds a little tall, but could be accurate. You know, it’s important to have a decent planting progress here just because we think the yields might be lowered with less fertilizer. So you want to get it off to a good start.”
Funds Exit Longs in Corn
Funds sold nearly 55,000 contracts in the corn market as of last Tuesday’s CFTC Commitment of Traders report, which is a big chunk.
What keeps them interested in holding the remaining 160,000 longs they have in the corn market or pushing above chart resistance?
“I think to get them interested, inflation is the easiest way. If you see a weak dollar, you see some stronger inflation indicators, then they want to play commodities a little more aggressively. I think the liquidation is actually pretty healthy. And you have to remember that we watch futures and options combined open interest. We’ve got those May options going off the board here fairly quickly, so that is going to make your numbers go down just because that chunk of business goes away,” he adds.
Frost Damage in Wheat
The wheat market started off higher Sunday night into early Monday in all three wheat classes and then soft red winter wheat futures held gains on concerns about frost damage over the weekend.
“You saw the overnight reaction was pretty positive and then we faded it. I think the the problem is it’s really hard to quantify frost damage. Sometimes you can’t see it and it shows up you know, a week or two later. I mean, if the flag leaf gets frozen and it’s wilted already, that’s easy. But a lot of it tends to be a little more subtle than that. You really can’t show it for two or three weeks. It would be obviously more vulnerable at the end of the month than it is in the middle of the month from a maturity standpoint.”
Plus, he says it was a buy the rumor, sell the fact situation because the market was talking about cold temperatures a week ago.
Hard red winter wheat was up 45 cents last week as well so that class of wheat ended slightly lower seeing some profit taking and spread unwinding.
More Weather Premium Needed in Wheat Prices?
So does the wheat market have enough weather premium or is there more upside potential?
Brugler is optimistic about a continued rally. “I think there is some upside price there. You’re in the time of the year when the global supply is the tightest. The supply is driven heavily by Northern hemisphere harvest. So when you get into April and May, you’re getting into the bottom of the barrel from a global perspective. Typically, that helps the U.S. exports a little bit because we’re sort of the supplier of last resort. World trade is complicated, of course, by the Middle East situation and what Russia is able to do and not able to do.”
He says Russia has one port that has been having issues due to Ukrainian activity so they are under performing on their exports.
However, he thinks the market put in a nine-year cycle low last fall.
“That was expected to be late 2024, 2025. Looked like we hit that. We’ve got a little bit of an upside breakout here.”
He notes that U.S. stocks are still ample, but overall the burden of proof is now on the bears.
Old Crop Soybeans Lower Following Meal
Old crop soybeans were lower again on Monday with the meal market and as funds have slowly been exiting their long positions.
He says soybean oil has been the driver as soybeans are still struggling with the lag in exports.
“I’ve said this several times but I think the oil over time is going to outbid exports for beans and meal is just something you have to get rid of,” he adds.
Bean Oil Follows Crude Oil
Soybean oil was sharply higher Monday getting spillover from higher crude oil.
“Again, renewable biodiesel or renewable diesel is a big driver there,” Brugler states, “It takes a little bit more bean oil to make than the conventional biodiesel does on a replacement basis. You know, that’s part of the U.S. energy security. I mean, we’re a net exporter of LNG.
We’re a net exporter of crude oil right now. We’re actually benefiting from the interruptions in the Straits of Hormuz, even though you can’t see it in the consumer prices because, you know, the world overall is tight. But bean oil is our buffer there through the biodiesel mechanism,” he explains.
Cattle Fade COF on Technical Selling
Cattle futures opened higher on Monday but could not hold early gains even with the constructive USDA Cattle on Feed Report.
Brugler says the market saw technical selling as it got overbought after making all-time highs last week and needs fresh bullish news to continue to rally.
“We bought some $250 cash two weeks ago here and the $248 looks like that was the bulk of the trade last week. Your box beef’s holding up fairly well that’s going to be the main driver is will the consumer pay for the beef?’
He says the Cattle on Feed report did hint at a little heifer retention, with a 1% drop in the percentage of heifers in the feedlot.
“But nobody’s really buying into that given the dry conditions in the plains as far as any major cattle cycle reversal here.”
Did the Market Top Last Week?
Cash trade was slightly lower at $248.02 on the five area weighted average last week, down $.36.
So unless cash trade can move back higher have the cash and futures markets put in a top?
Brugler says, “Many have died trying to call a market top. There’s been a number of them over the last six months where people have said that. But what we don’t have is the actual biology. We don’t have an increase in feeder supplies. We’re not going to get one for a while. The screw worm situation is still a problem in Mexico. So you’re not going to supplement the supply through the Mexican inventory anytime soon, I don’t think.”
He adds that the number will typically get tighter before they get looser.
“In other words, once the cycle turns, you start diverting heifers to pasture, you tighten up those feeder supplies even further, and that translates to a later peak in the fats. The board action doesn’t always agree with that scenario, looking back over 10 or 12 cattle cycles, just because it gets ahead of itself. But the cash market pretty much tracks it,” he adds.
Hogs Bounce After Nine Down Days
Lean hog futures finally saw a bounce after nine lower closes and new lows for the move on Friday but is it sustainable?
Bruger says, “I think it’s a dead cat bounce, whether it’s a one-day, two-day, three-day. After the size of the drop we had, it could be a little larger. The market’s got May futures deliveries coming up here. We’ve still got a little bit of time, but you are going to track somewhat with where the CME index and where the pork cutouts are.”
