Funds Sell the Grains Eyeing Weather: So, Will the Markets Get a Spring Rally?

Grains end lower Tuesday on fund selling and weather.  While livestock end higher.  

Ted Seifried, Zaner Ag Hedge, says weather has been a driving factor for the grain markets the last few weeks, at least in regard to South America.  "I thought we had put a bit of weather premium into the market bouncing off those lows really based on concerns about that second season safrinha corn crop in Brazil but that's certainly gotten a lot better.  In fact, if you look at their extended forecast now there's rain in it and each day we go forward we get closer to the end of their growing season without any major concerns."  

Seifried says extended forecasts can change but if it doesn't and they get what is advertised for rain in Brazil he thinks the market needs to add bushels to the second corn crop, not subtract them.  "And it doesn't really scream that we're going to have a hot and heavy export season because of shortfall happening there.  So that's a reason to take some weather premium out of the market," he adds.

Weather in the U.S. is also a factor.  Seifried says a few weeks ago the U.S. Drought Monitor showed areas of concern, but plentiful moisture recently has resulted in an improvement, especially compared to last year.  He says the extended forecast for the end of April and May shows there will be some windows of opportunity for planting.  

So, are the grain markets running out of time for a spring weather rally or for the funds to cover their short positions?  Seifried says that may be the case unless there is a major shift in the weather and a moisture situation similar to 2019.  "But that's what it's going to take because last week the funds were adding to their short positions," he says.   

Seifried doesn't look for anything in the WASDE to change that and charts like May corn have not been able to stay above the 50-day moving average technically.   Additionally, farmers have been selling above those price points.  

Both live and feeder cattle futures saw corrective buying, but Seifried is not ready to call a bottom in the market.  "The livestock markets are notorious for overshooting the fair value mark.  Plus, packers in a period of uncertainty with HPAI they want to have better margins due to the increased risk.  So, I am not sure this sell off is done," he says.  

Meanwhile, funds continue to push hogs into contract highs and domestic demand has been solid and Seifried is not certain the highs are in.  

Speculators are also buying other commodities like gold and cocoa but yet they aren't buying grains.  "That's really come from the talk of inflation.  I think a lot of the inflationary hedgers have chosen other markets to invest in instead of grains that are showing uptrends and have better fundamentals," he adds.