Grains closed sharply higher Wednesday, with hogs also higher and cattle mixed.
New Contract Highs in Winter Wheat
Grain markets exploded higher with new contract highs in both classes. December soft red winter wheat futures closed limit up 45 cents at $7.48 1/4, with December hard red winter wheat up 38 cents at $8.08 3/4. December hard red spring wheat closed 28 cents higher at $7.48.
Jim McCormick with AgMarket.Net says the market saw massive fund buying and short covering adding war or geopolitical premium.
Wheat Adds War Premium
It driven by news Russian President Putin was escalating the war with Ukraine, dashing any hopes for a ceasefire as the U.S. sent an official to Moscow to try to work out a diplomatic deal.
Putin said today he was turning up the heat. “It’s hard to believe that. They’ve already done a lot of damage. They’ve really attacked the infrastructure, but he said the gloves are coming off. That ratcheted up the fear factor that the wheat availability out of the Black Sea is essentially going to continue to be non-existent. And the bulls just piled in. I’ve heard up to 70 ships are waiting to get in to the ports of Ukraine. They just can’t get that wheat out,” according to McCormick.
On top of that the Ukrainians are fighting back and have hit the Russian infrastructure hard.
“Some of those ports could take four to five months to get where they’re able to export wheat for the Russians into the Black Sea region. And that is hence why this market surged today,” he adds.
How High Could Prices Rally?
With new contract highs in both classes of winter wheat and the funds short in Chicago futures how high could prices rally?
Once the emotions wear off McCormick says extending the rally may be challenging.
“Because unlike when the war started, the fear was. How was Ukraine actually going to produce a wheat crop? They’re the breadbasket of the world, in essence, in Europe at least. Now what’s interesting is we know there is a crop there. When you get these surges. It’s hard to maintain because you surge up. And then you eventually back off a little bit simply because the market says there isn’t a shortage. It’s logistics,” he explains.
Dec Corn Hits New Contract Highs
December corn ended 13 cents higher at $5.36 1/2 and September was up 13 1/2 at $5.14. The market got some help from wheat but hit new contract and multi-year highs before wheat surged.
McCormick says the market is trying to ration demand on ideas of smaller supply. The question is whether or not it is justified?
“Time will tell. The USDA report said 180 bu. yield. We had the Pro Farmer Crop Tour last week that said it’s down to 173. If it is that low, this market needs to go into a rationing mode. And that feels like what is going on,” he states.
Now that the corn and wheat market are making new highs the fund buying is accelerating.
“Those funds just continue to plow into it as we get into rationing mode. We will find out in the next couple weeks and months when we get into harvest, did we overshoot it? Is this crop bigger than what we think? Because I would argue the weather right now is very conducive to add bushels. We have very warm days and we have cool nights. If that pattern continues, that should add at least some bushels to this crop.”
Add to that the inability to get corn out of Ukraine, the drought in Europe and the uncertainty of the South American crop. That is also driving fear of food inflation.
What Size Corn Crop is the Market Trading?
So what corn yield and crop size is the market trading. Could it be in the middle of the 173 bu. to 180 bu. range?
McCormick thinks the U.S. corn yield is around 178. “That is still a very big crop. That would be the second largest crop ever behind last year’s crop. So that might temper it a little bit. You know, because we would need to do a little bit of rationing, but we probably don’t need to go
full for $6 level at this point. Like a lot of people are hyping.”
If South America struggles or the market gets a demand shock that could change things quickly according to McCormick.
“There’s still a lot of uncertainty, on what’s out there. We’ve got this feeding residual number from the old crop that most people in the industry say does not make any sense. We’re not going to get clarity on that probably until September 30 quarterly grain stocks report.”
Lack of Farmer Selling
The farmer has been rewarded for doing nothing and there has been a lack of selling supporting the corn market as well.
“We’re seeing very little in interest in producers selling new crop,” he says.
Instead farmers are waiting for even higher prices.
How High Could Corn Rally?
With new contract and multi-year highs in December corn and multi-year highs in both December and September where does the market project to technically?
“It looks like its got a head and shoulder bottom on the weekly continuous chart, which is the spot month September that project somewhere up near that $5.60 to $5.70 level potentially and that may be your next swing objective if that pattern comes to fruition,” he says.
Funds still have room to add to their long position but it may take the USDA confirming a smaller crop in the USDA report to get there.
“The estimated length I’m hearing is around 325,000 contracts, maybe a little bit more than that after today. The record length is a little over 425,000, I believe. I think we probably need to continue to feed that bull market,” he states.
Soybeans Make Contract Highs
Soybean futures also made new contract highs with November closing up 28 1/4 cents at $12.66, which is also a contract high close.
The market was pushed by a flash sale of soybeans to China totaling 12.2 million bu. Plus, the U.S. did not put any sanctions on China due to their involvement with Iran.
“The fact that you’re finding China continuing to buy beans is a very optimistic sign going into the meeting between President Xi and Trump here in September,” he says.
Because the market was concerned about the U.S. China trade relationship. “Earlier in the week, Scott Bessent, said he was going to go after, economically, anybody who did any trades with Iran. And it really put the world in kind of an interesting flux, because guess who’s the biggest buyer of Iranian oil? It is the Chinese. Well, we essentially allowed the Chinese to continue to buy that Iranian oil. And that was a relief to the market,” he explains.
So the hope is they can continue to see China follow through on their pledge to buy 25 million metric tons of soybeans.
China Gets a Pass, Canada Gets Higher Tariffs
This comes as the U.S. is in a trade war with Canada as the U.S. put 50% tariffs on Canadian good and sees reciprocal tariffs announced in return.
McCormick says it is ironic and something to keep an eye on. “Remember, tariffs are taxes on products coming into the country. If this gets really ugly, Michelle, you’ve heard some Canadians threaten to withhold, or in essence, tax the product coming out of Canada. We use a lot of energy from Canada we use a lot of crude that we convert to diesel. If they limit the amount of energy coming out it’s going to spike diesel which will be bullish on the bean oil side but it’ll be bearish on the cost side.”
The biggest wild card and threat though is the impact on fertilizer prices from Canada.
How How Will Soybeans Rally?
With soybeans closing above the July highs and making new contract highs, where do the markets project now? Is $13 in the cards?
McCormick says, “Well, that seems to be the next technical target. The beans, I think, are a little bit tougher for me to get really incredibly bullish compared to the corn. The corn balance sheet it’s tightening very, very quick. You have a world stocks to use ratio at 12-year lows. So there’s very little wiggle room in the world, especially if our crop starts to shrink back. The beans, there is definitely a little bit more wiggle room.”
There could be problems if South America crop fails, yet they haven’t even begun the season.
Plus, the Pro Farmer Crop Tour suggested the soybean crop could be a record.
“There were less pods but they think the beans in those pods are going to be huge and that could offset it and we could see this bean crop get even bigger. So, it’s something we need to keep an eye on,” he adds.
Cattle Bottoming?
The cattle futures made new lows for the move again early in the session but ended well off those lows.
So it the market finally starting to bottom? He says, “I think it’s too early to call but if you’re a cattle person you’ve got to be a little bit optimistic you know normally when you see wheat market trade 45 cents higher you see corn trading 15 higher usually the cattle market is getting slammed on the higher feed costs. It took it in stride today, so maybe that’s a good sign that we are getting close to at least the bottom of this
liquidation that we’ve seen.”
He says the market is still seeing tight supplies and its unknown how much imported beef will actually make it into the the market from the 300,000 MT that President Trump proposed last week when the market sold off.
Still he is cautious, “I’m not ready to call a bottom, but it was I think today’s action you could call constructive and a victory.”
Especially in light of sharply lower cash trade at $218 to $219 live and $345 dressed.
Labor Day Demand
He is also encouraged about beef demand moving into Labor Day and football season.
“Football is a holiday every Saturday and Sunday. Half the country cheers on college football, the other half cheers on the NFL. That hopefully is a good sign for those tailgating that’ll keep the demand for this product and help bring that price back up,” he concludes.
