Grain and livestock futures ended mostly lower on Tuesday.
Risk Off Selling
The commodity wide selling pressure was tied to risk aversion and uncertainty regarding the escalation of the Iran War according to Mark Knight with Farmers Keeper Financial.
President Trump gave a clear warning to Iran that the U.S. would escalate the war and hit prime oil and electrical infrastructure without an agreement by 8 pm Tuesday.
“A lot of rhetoric big talk that the President was going to hit Iran hard if they didn’t meet his demands. So, the funds we know that they’re very long corn and even more so long soybeans, so I think you had those guys just kind of lightening the load a little bit going into tonight’s risk. We’ll just have to see how it plays out.”
If Crude Goes to $150 Will Grains Follow?
Knight thinks the last few sessions the grain markets were trying to separate from outside markets and the crude oil markets.
However, if the U.S. hits Iran even harder and oil shoots to $150 a barrel due to the damage to their infrastructure do the grains have to follow?
He says, “I’m not going to say they have to, but I would expect them to, even though you’re absolutely right. Late last week and the first couple of days this week, it seems like they are trying to separate themselves from what’s going on with the war and the crude and whatnot. But look, if things worsen and we see oil refineries exploding tonight, I would fully expect a big jump in crude oil and ag markets as well.”
Corn Holds Support
Even with the setback corn did hold support at the 50 and 100 day moving averages.
“Which are kind of key support areas bounced off that a couple cents, so that’s a good sign. Soybeans not so much, we still have quite a ways to support levels because of the gains that it saw,” he explains.
Acreage Battle?
So is the corn market concerned about losing acres due to the higher input prices like fuel and fertilizer?
Knight says the market isn’t reflecting that yet, either corn or soybeans.
“I mean, we still have new crop soybeans. They closed at $11.51 today and out of all of our markets I am the worried about new crop soybean prices. We’re considerably higher than we were last year. I’ve talked to countless farmers and our company has as well, that just didn’t have all their fertilizer needs locked in or any of it.”
So he sees a shift in acres. “And I think, you know, last week’s acreage report that we saw, I think it was going to be the high number of acres in corn and the low in beans. And I expect that to kind of come together a little bit.”
Soybeans Holding Premium
Still soybeans easily absorbed the extra 3.5 million acres USDA printed in the March 31 report. So it that premium from ideas of China soybean business or biofuels?
“Trump’s been talking all along here that soybean farmers are going to love him. Well, they’ve kicked the can down the road with the meetings with China where we were expected to sign something. I’m not convinced 100% that that’s exactly what happened. But anyways, Trump kicked the can down the road into mid-May, and we’ll see if something happens then. It wouldn’t shock me at this point to see it kick down the
road further,” he adds.
Knight says China has been upset by the U.S. messing up their two cheap oil sources in Venezuela and Iran. “So, it’ll be interesting to see how they feel about us.”
He goes on to say that China may not buy the additional 8 MMT of old crop soybeans from the U.S. just based on price.
“We’re priced well above Brazil to this point and what $1 or something over them and so China can get all the beans that they want from South America. They’ve got a massive crop down there. They don’t need to come in here and buy old crop from us. So, my expectations would be they focus would be on new crop going forward in meetings with Trump,” he explains.
Soybean Oil Rally About to End?
Soybean oil ended slightly lower on Tuesday and just off Monday’s new contract highs.
The market has had a parabolic move on the higher biofuels blending mandates and skyrocketing crude oil. Is that all priced in?
“Do we have $100 barrel priced in? Do we have $120, $150 priced in? Probably not. So I would think if, you know, we’ll see what comes up tonight and the next 48 hours, really. But bean oil is going to be the first to go in either direction, in my opinion, and we’ll lead beans and corn either up or down based on what crude’s doing.”
Tug of War in Wheat
Wheat ended mixed Tuesday with HRW lower and SRW higher on spread unwinding. Plus, Knight says there was a tug of war between the lower crop ratings and rain in the forecast for HRW country according to Knight.
“The crop conditions report came out, what, four or five-year type lows, significantly lower than expectations. But it’s wheat. And like you said, it was so dry, and especially in that HRW country, when you talk Texas, Oklahoma, Kansas, Nebraska, a good chunk of where that production occurs. They’ve gotten some moisture here in the last week, and there’s quite a bit more on the way. So I’m fairly impressed with the fact that the other markets kind of sold off. is kind of hanging in there. It’s tough to kill wheat and and we’ve got plenty of it,” he remarks.
April WASDE on Thursday
The April WASDE will be released on Thursday but is expected to be a non-event.
“I can’t really think of anything that comes to mind that would shock the market at this point. The numbers I saw were so close to last month’s numbers on world carryouts, South American production,” he says.
Crop Progress Close to Normal
The first crop progress report of the season showed corn planting nationally at 3%, cotton at 5%, spring wheat at 2%. Those were all in line with average.
However, the forecast is showing cold and wet conditions for the next week with drier conditions after that.
Knight says the market isn’t going to be too concerned about any weather issues until May.
Cattle Market Sees Consolidation
Cattle futures ended mostly lower with risk off selling and profit taking after new contract highs were scored in all but the April live cattle.
“The funds it’s pretty evident evident that they took off risk in the grain markets so taking off risk in the cattle market it seems smart and logical. When you put new highs in like that and pull back a couple bucks I think it’s just normal trade probably some profit taking,” he says.
However, he says the cattle market will be bought on breaks due to the strong fundamentals, including soaring cash trade.
“Yeah, no doubt. We’re definitely going to follow the cash market.”
