Grain Markets Post Higher Weekly Closes Despite Disappointing Brazil Estimates: Will It Trigger a Bigger Rally?
Markets Now Closing Markets 3-8-24 Video
For the week, May corn finished 15 cents higher and December corn was up 12¾. May soybeans surged 32¾ cents, November soybeans were up 34 cents, with May soybean meal gaining $9.10 per short ton and May soybean oil up 101 points.
Grain markets ended higher on Friday following the March WASDE, which provided very little change in domestic balance sheets and disappointing revisions to Brazilian production.
USDA left Brazil corn unchanged at 124 million metric tons (mmt) and only lowered the soybean crop 1 mmt to 55 mmt.
“I think all of us were looking for them to come down on the Brazilian soybean crop maybe 4 or 5 million metric tons and they came down one, so that wasn’t near what the trade was expecting,” says Darren Frye, Water Street Solutions. “I thought at first the numbers looked neutral to slightly negative, but the market really never sold off.”
Frye thinks the positive reaction in soybeans was tied to USDA’s revision of two years of China’s soybean imports. For the 2022-23 marketing year, imports were raised by 3.65 mmt and for 2023-24, they were increased by 3.0 mmt. Most of this business went to Brazil, but USDA did lower global carryout on soybeans by nearly 2 mmt.
The grain markets, with the exception of Chicago wheat, scored higher weekly closes and ended above the 20-day moving average for the first time in weeks, according to Frye. He says this was positive technically, but is it enough to get the funds or speculative traders to cover their record short position in grain markets and trigger a bigger rally?
“It seems like it — after weeks and weeks and weeks of being down, the funds had their way with the markets and added to their short positions,” he explains. “This is the first week we can say we got above the 20-day moving average on the charts. We had good weekly closes.”
The funds look at several factors, according to Frye, including moving averages, momentum and certain price levels.
“This is the first nick to their positions, no question. I think it’s going to be important for corn versus the May contract, to push over $4.60, we’ve got to get above there with some exuberance,” he says. “I think for soybeans need to push over $12, more importantly $12.25 in May. Price action is king and that will get the funds pretty nervous.”
The action to start next week will be closely watched as an indication of whether there will be a sustained rally, he adds: “If we can build strength into midweek after a good start to the month, I think the funds could be short covering even more.”
Frye doesn’t think the speculative traders will want to be this short as we head into the end of the month, the USDA Prospective Plantings Report and planting season in the U.S.
Other markets, such as cotton, have already seen a big rally and speculative buying but that market is also trying to bid for acres.
Frye thinks cotton has stolen some acres from corn and soybeans in the mid-South. There is also uncertainty about acreage in the northwestern Corn Belt with many specialty crops looking more attractive than corn from a price standpoint.
Wheat also shook off a 15-million-bushel increase in U.S. ending stock in the WASDE report and a second day of soft red winter wheat cancellations by China to the tune of 4 million bushels. However, the wheat market quickly priced the news in as it had been rumored earlier in the week. Frye says the sharply lower dollar index also supported the rally. Chicago wheat did end lower on the week but Kansas City and Minneapolis were higher.
The live cattle futures started the day strong with follow-through buying after a higher day Thursday and supported by higher cash trade. The futures managed to score a chart breakout early and made new highs for the move. However, profit taking and hedge pressure turned the market back lower. Frye says this is a bearish reversal, which is negative technically for the market, but he isn’t overly concerned because of the tight supplies.
