Grains ended mixed with corn and wheat seeing slight gains, while soybeans were lower. Cattle ended lower, with hogs mostly higher but off session highs.
Grains Rally Early Then Fail
Grain markets were higher overnight and on the opening Thursday extending gains from Wednesday’s higher close. The grains markets all made some multi-week highs and soybeans and wheat made new highs for the move before failing. Ted Seifried with Zaner Ag Hedge says the early strength was tied to the 4-year lows in the dollar, new record highs in precious metals and higher crude oil. However, the outside markets quickly reversed and staged a huge correction and a pullback in the stock market was also noted. He calls it a “reallocation of assets” by money managers who may have gotten overextended on many positions and decided to take profits.
“With the dollar dropping as much as it has. There’s been a lot of talk lately about renewing inflation. And also the Fed leaving rates unchanged shows that they’re concerned about inflation as well. And so I think there’s been a lot of talk about money being reallocated to commodities. And generally speaking, that’s a commodity -wide thing. So the grain’s finding some strength in that.”
Plus the six month high is crude oil supports biofuels feed stocks like corn and bean oil. The fact that it is the end of the month likely also played a role.
Soybeans Hit Chart Resistance
Seifried says March soybeans made six week and new highs for the move after closing above the 200-day moving average on Wednesday but then failed. “We got above the 100-day moving average but failed at the 50-day moving average which also represents the downward trend that we’ve been in since we put our highs in back in November.”
He says the market is trying to decide direction and the first time the market puts in a reversal off of key resistance doesn’t mean the rally is over. However, he says the move needs to extend higher quickly. “Otherwise, you’re going to have that 50-day moving average cross below the 100-day moving average that’s called a golden cross and that’s really rather bearish when you have technical traders like funds watching that.”
Could Argentina Weather Push Soybeans Through Resistance?
With hot dry weather much of January in Argentina some private forecasters have trimmed their corn and soybean production estimates for the country. If the forecast stays dry could that be enough to push soybeans over chart resistance? Seifried says it is something he is watching as a possibility. “Precip in January was almost 40% lower than that 10 -year average. So that is a concern.” And if the forecast is still hot and dry in a couple of weeks then the market might get excited about it.
The Buenos Aires Grain Exchange (BAGE) lowered the good/excellent rating by 6% from last week to 47%. The forecast remains problematic for the next week with warm temps and limited precip for much of Eastern Argentina and Southern Brazil.
Corn Fails at Resistance
Corn futures were fractionally higher on Thursday. The market made new three week highs but hit chart resistance in the March around $4.35 and ended off session highs. Even with the higher wheat and crude oil markets that wasn’t enough to get corn out of its sideways trading range. Seifried says in addition to profit taking you also get farmer selling and cash corn movement this time of year that caps the rallies.
Could a Chart Breakout in Wheat Help Corn?
Wheat futures in all three exchanges also made some new highs for this move and look to be on the verge of a chart break out. If that happens could that also bust corn out of it’s trading range? It’s possible, according to Seifried, but the rally in wheat has been mostly tied to short covering so it may be limited. Funds were short over 125,000 futures contracts in the three classes combined and so he thinks the move has been mostly technical.
Can the Wheat Rally Continue?
Seifried says wheat has seen some support from the 4-year low in the dollar index, geopolitical concerns and cold temperatures and that has caused short fund traders to step aside for the moment. Still, he doesn’t think there is enough of a change it the fundamentals to rally the wheat market much beyond current prices.
Cattle See Profit Taking?
Cattle futures also made some new highs for the move in the feeder cattle and even some of the live cattle contracts before reversing. Was this profit taking ahead of the USDA semi-annual cattle inventory report or the selloff in the financial markets? Seifried says there is some concern because cattle traders often look at the stock market to get a gauge of consumer demand. Still he chalks the reversal up to caution before the report as well as the lack of cash trade. He doesn’t think cattle were caught up in any of the money flow or reallocation of assets taking place in the outside markets.
Lean Hogs Higher But End Off Session Highs
Lean hog futures ended mostly higher but off session highs. The market saw a profit taking correction on Wednesday and tried to rebound with help of strong weekly exports of 56,000 MT but stalled out in the summer months again just under the $110 level. However, Seifried says with strengthening cash he doesn’t think the rally is done.
