Corn, wheat and hogs ended higher on Tuesday with soybeans and cattle mostly lower.
Soybeans See Profit Taking
A day after making new highs for the year and hitting the highest levels in three years, the soybean market saw some profit taking and consolidation.
Ted Seifried of Zaner Ag Hedge says improved crop ratings also weighed on the market with 66% of the crop rated good to excellent, which was up 1%.
“Monday afternoon we saw crop conditions the trade had been expecting the good to excellent category to decline by one percent in soybeans it actually improved by one percent and I think that was a reminder to the trade that hot weather isn’t necessarily bad for soybeans. In fact, I think we needed some of that hot weather to catch up a little bit,” he says.
He says now the market is waiting to see what happens with weather and China.
Market Fades China Rumors
Market rumors circulated again Tuesday that China had bought another 10 to 14 cargoes of beans within the last 24 hours for September/October delivery.
The market was already catching those rumors late Monday and priced it in but yet there was still more talk of buying on Tuesday and the market faded it.
“If you remember back when China started buying that first 12 million metric tons for the current marketing year. We actually started to sell off as China was buying. I wonder if we might start to see the same thing happening this time around,” he says.
No Room for Error
However, with China back in the market for fall and strong crush margins and record processing pace there is no room for error.
“It makes weather so much more important this year because if you look at 25 million metric tons of China buying regardless of what our crop size is or what the prices are, there’s not a whole lot of elasticity,” he adds.
He says if the yield is cut at all the balance sheet gets tight very quick.
“The market’s going to be on its toes for weather again.”
The crop progress report showed the crop rating is only 2% below last year so conditions are still pretty good and if August provides a good finish for the crop yield could be at or above trendline.
“But if we continue to get these threatening weather forecasts that carry over into August, carry over into pod set for soybeans, which should be a little bit earlier this year, considering we planted early this year, then I think the market becomes very, very sensitive.”
Corn Finishes Into New Highs for the Move
Corn opened lower on Tuesday with soybeans and a better than expected crop rating at 67%, which was down just 1% from the previous week. Moderating weather also provided early pressure.
However, the market turned higher with wheat and took out one layer of technical resistance on the charts to make new highs for the move, only to face another layer of stiff resistance.
Seifried says. “Corn’s tough. We just talked about soybeans making new highs for the calendar year. Corn is a ways away from it. Corn’s just not responding to the same sort of energy, even though I think the inclement weather that we have seen so far and have in the near-term forecast is more detrimental to corn. I think it’s hard to make a case that corn yield could be a lot above trend line yield.”
Trend line yield is especially difficult if the current forecast holds.
Still Too Much Corn and China is Absent?
He says the problem is corn does not have inelastic demand.
“If this corn crop is a bit smaller than the 183 national average yield, then there is room on that balance sheet to start cutting in the demand category. So that’s, I think, the reason why corn’s been a little bit behind,” he states.
Plus, while China is buying soybeans to fulfill their 25 MMT agreement from last October, the Chinese have not purchased many other U.S. products.
“That secondary trade agreement of that $17 billion dollars of U.S. agriculture and ag relate d products, we’ve really seen no signs of
China doing anything with that. You’d think that corn would be a big part of that if it’s $17 billion aside from soybeans. Yet we haven’t seen anything concrete that China is looking to buy U.S. corn. We’ve heard a couple times that they were inquiring, but we haven’t seen any sales.”
However, if China starts buying on top of the weather concerns in the corn market that could change quickly.
“Then you start getting that feeling of inelastic demand for corn also. That’s when I think things get really interesting for corn, if that were to happen. And that would finally get us probably back above the $5 mark.”
Wheat Rally Resumes
Wheat also started weaker on Tuesday but reversed off support and is still adding some risk premium tied to the Black Sea war and export disruptions.
“As far as the Black Sea is concerned, these are the most significant disruptions that we’ve seen in a couple of years. I mean, this war between Russia and Ukraine has been going on for a really long time. But only recently have there been grain vessels hit, ports hit. Straits shut down, right? I mean, so it’s like, wow, this is actually has the potential to have a lasting effect on grain movement from the area.”
So that is the premium that’s come back into the market. He thinks funds want to be short wheat, but the war uncertainty is keeping them from doing that. So that is what is helping the wheat out right now.
Retest Contract Highs?
So can the wheat market retest the contract highs from mid-May?
“We really had a rough go of it for our winter wheat crop. We know that, that’s been factored into the market. We look at a balance sheet. It’s still almost 38 percent stocks to usage ratio. Right. So, I mean, there’s a lot of bullish factors for wheat,” he explains.
Plus the U.S. carryover is a lot smaller than the last couple of years but still not tight enough to price ration wheat.
Cattle Recovery Fails
The cattle market had its first up day Monday after a record 15 down days in the August live cattle. However, there was not much follow through buying on Tuesday suggesting the funds are still selling on strength.
Seifried says, “I mean, the best news we can take away is that we didn’t close on the lows, but we absolutely were not able to follow through on the strength that we saw on Monday. That’s got to be really disappointing for everybody that’s looking forward for a near-term low here. You wanted to see that follow-through momentum to the upside.”
As it stands, he says the market corrected the relative strength index after getting very oversold.
“The fundamental situation, the supply side situation, the number of animals hasn’t really changed. But we have realized we are feeding to much higher weights. Argentina is feeding to much higher weights. We’re bringing in a lot more product from Argentina and Brazil
and the rest of the world. We have more beef coming into the country. So that is, I think, been the realization that’s happened in the cattle complex.”
What Now?
Where the cattle market goes from here, according to Seifried, depends on how we finish off the summer grilling season.
This is the the summer doldrums and the big parties and demand events slow down until we get closer to Labor Day.
‘So we’ll have to see what happens with that. We’re always watching the economy to get an idea of. What is high-priced beef? What’s the appetite for high-priced beef from the American consumer when we go to the butcher’s counter? So there’s a lot of things at play,” he says.
Still after a very steep drop-off or correction in the cattle complex, Tuesday was not a solid vote of confidence saying that this correction is for sure over.
A stabilization of the cash market would also help turn things around.
Can Hogs Get Through Resistance
The lean hog futures are showing some strong technical action which has triggered some short covering by the funds but the market continues to stall out at the next layer of resistance, even though cash and cutout values continue to look pretty favorable above $100.
Seifried says, “Yeah, we’re really struggling with some of that longer term trend line resistance, longer term moving average resistance. We keep we keep flirting with it. We keep getting above it, but not able to really close above it. The good news here, Michelle, is that we’ve not really pulled back away from it, right? I mean, this could just be a pause while we’re sort of collecting energy before continuing on with it.”
The key is to get above those technical areas to get the funds to cover more of their big short position.
The cash fundamentals, are still fairly friendly and he wonders if there is an overall trend of U.S. consumers looking for cheaper proteins, which would bode well for pork demand.
