Corn and wheat end higher Tuesday with soybeans lower. Cattle soar, while hogs end mostly lower.
Wheat Rallies on Geopolitical Tensions
Wheat futures rallied on Tuesday, reversing and bouncing off of new lows for the move. Darren Frye with Water Street Solutions says the wheat market, and to some degree corn, was adding some geopolitical risk premium with tensions rising in the Black Sea region. This includes a threat from Russia’s Putin about retaliating on Ukraine vessels and shipping facilities as well as tankers of countries that are helping Ukraine. The funds are still short in all three classes of wheat and as a result the reversal resulted in some short covering.
“Wheat has been lagging but today, we saw a bullish engulfing day on the candlestick charts. We saw a reversal. And I think it has to do with all the rhetoric around Putin and Europe, Secretary Rubio not going to the NATO meeting. Peace talks are supposed to be happening while tankers are getting sunk. Ukraine’s escalating things. Putin is striking back. So, wheat probably responded to the geopolitical tensions,” he explains.
Corn Follows Wheat Also Adding Risk Premium
Corn futures followed wheat higher on Tuesday and saw technical buying as it pushed through some key moving averages including the 200-day for the March contract. Frye thinks futures can build on that strong technical close. “I think we can move up into that, you know, let’s call it $4.75, $4.80 area. This would be, you know, over some time here.
It’s not straight up. We’ll go up. we’ll come back and base a little. We’ll go up again, come back and base. You know, no markets go straight up or straight down but I think we can move higher.”
Fundamental help will come from strong demand as exports have been running at record pace as indicated by the export inspections. He also believes national corn yield needs to come down in USDA’s January Crop Production Report. “I do think we need a lower yield. I think we need the government to say something less than 186 in January. And I think they will. I think the yields from my standpoint, working with our grower base, corn yields are suspect here to be record,” he says.
Soybeans Fall Awaiting Proof of China Sales
Soybeans started higher during Tuesday’s day session on a story from Bloomberg that indicated China would meeting the entire 12 MMT soybean purchase agreement struck with the U.S. as well as the 25 MMT annually for the three following years. However, there was no daily flash sale Tuesday morning and so Frye says the market needs to see proof of those export commitments or the trade will sell every rally.
$12 Soybeans Still Possible With China Deal
Frye is confident the U.S. and China will get the deal finalized and signed in the near future and that the Chinese have committed to buy the entire 12 MMT. “They are already buying U.S. soybeans at prices that are above Brazil’s so that tells me there is a deal,” he explains. While the 12 MMT could be purchased before the end of 2025 Frye admits those shipments cannot be moved in the next four weeks.
Cattle Soar
Live and feeder cattle futures soared on Tuesday on short covering and corrective buying according to Frye. He says, “It takes a while to digest a move, as large as a move was down. It’s going to take a little while to digest that. So how do we do that? We have a wave of decay or a wave that’s back into that trend. And so a little ABC correction, probably pushing fats on the February up in that $228, $230 area. I would say Jan feeders up in that $335, $340. I don’t think you’re going to fill the big gap in January feeders, but you could push up into it or the edge of it at least, and I think that’ll take place over, you know, the next three or four weeks of December. After that, I think you can start tipping this market back over in early January and head lower. I think those are going to give us nice hedging opportunities. I think we have highs
in place for a while. I think we’re going to see the market move lower after this correction is done,” he says.
Cotton Struggles
The cotton market has continued to struggle with prices below the cost of production for producers. Despite record low acreage the market saw an increase in yield and production in the November WASDE and Crop Production Report which has also been a headwind for the market.
“Recently the cotton market is very sensitive to the economy and of course with crude oil going lower and with our president that wants cheaper energy prices, that’s how you get polyester. That makes it harder on cotton to compete. And so we’ve just pushed the prices lower. Funds have become as short on cotton as they are on the weak classes. We see them set a new record about every third week as far as their short position. So they’re piled on to that market to the downside. And so it just has not been able to lift its head up. And we need some fundamental stimulus to get that market going and get short covering,” he adds.
