Grain and cattle futures ended sharply lower on Monday with hogs mixed.
Risk Off Selling Grains
The grain markets all ended lower with new contract lows in corn as funds stepped back in to sell on a risk off day in the market place.
Mike Zuzolo with Global Commodity Analytics says liquidation already started Friday with July option expiration but Monday’s pressure was more largely about weather with the corn and oats the leaders to the downside. Oats lost 6% in the July contract.
“With that ridge flattening out, Michelle, I think those two leaders to the downside were mainly focused upon U.S. weather,” but thinks improved weather for the Canadian Prairies also played a role.
Markets Ignore EU Weather
The corn and wheat markets have totally ignored Paris corn futures which were up 2.5%, and made new contract highs in the September contract while U.S. wheat was making new lows.
“So we’re looking at a $6.80 per bushel corn price over in Paris versus a $4 price here in the United States. So I think that does speak a lot about the weather,” he adds.
So why is the U.S. market totally ignoring the EU drought and heat?
“That’s a great question,” says Zuzolo, “because that is something we should not be doing until we get to the point where we’re so cheap on the world market. But we’ve noticed in the wheat, we’ve noticed in the crude oil, we’re now noticing in the soybeans, they’re in the vegetable oils, and now we’re seeing it in the corn where the funds are arbitraging, I think, and spreading off these markets at this point,” he adds.
COT Report Shows Funds Still Liquidating
The Friday CFTC Commitment of Traders Report indicated funds continue to liquidate in the grain market. The last flush lower has been tied to liquidation ahead of option expiration and first notice day, plus it is end of the month and end of the quarter which can cause some odd action.
However, Zuzolo thinks that liquidation is wrapping up as traders that were nervous about the USDA reports already headed to the sidelines.
“I think the funds are mostly done because we’re approaching our 2026 net short max position right now by managed money, futures and options as a Friday’s report, which is still got a few days that didn’t count. So I’m inclined to think this was more of the small spec and the retail trader jumping out and didn’t want to get in front of the USDA numbers in case this became a trend like what we saw last year at this time. when we went down to about $3.68, $3.69 area. And even in 2024, we went down into the late August time period of about $3.60,” he explains.
Corn Makes New Contract Lows
Corn futures made fresh new contract lows Monday so will technical momentum push corn down to those lows from 2024 and 2025?
“Well, you don’t fight City Hall, i.e. the funds, but I think supply -demand-wise, there is a big argument not to go any lower and that this is not like last year or 2024,” he states.
Zuzolo is basing that on weekly export inspections, which are running over 25% ahead of last year in commitments. USDA has exports up by just 16%. “By my numbers, that means they’re short 250 million bushels. That’s probably the biggest thing to be watching on
the stocks report for me, Michelle, is to see if we don’t get a little bit closer to last year’s numbers for June,” he adds.
He also points out that U.S. wheat production is the lowest in 50 years plus, and U.S. crude oil stocks are at a 41-year low. So, he doesn’t think any of these markets have fundamentals like last year.
USDA Report Squaring
The markets were also seeing positioning and liquidation ahead of tomorrow’s USDA reports.
Reuters average trade estimates on acreage only show a 346,000 acre decrease in corn, 669,000 acre increase in soybeans and wheat acreage up only 103,000.
However, in March after the war broke out the market was talking about huge swings out of corn to soybeans due to the higher fertilizer prices. Some said nearly 20 million acres of corn would be lost but the trade estimates have moderated considerably.
Zuzolo says he is more aggressive on his acreage numbers. “Yes, I’m at 86.5 on soybeans and 94 even on corn. And if we get that, I think that would move the needle by the trade. And I do think those issues were still very present in this marketplace.”
He doesn’t think the market is fearful of the quarterly stocks figure. “Because they widened the July Dec corn spread to about 30 under. So they put all this premium in the December. I think the USDA is lighter and should be lighter on ending stocks for 2025/26. And I hope we see some of that in the stocks report.”
He thinks that could wake up the trade and make them realize the carry in the market should not be that big.
El Nino Trade?
There is also the possibility the funds will reload to prepare for the impact of the global El Nino.
He says that is something to watch for in the middle part of July, later part of July, early August.
Hedge funds have been created to to trade the possible global food crunch tied to the super El Nino.
However, short term Zulolo says El Nino is good for U.S. crops.
“It’s really about India, southeast Asia. I am starting to see India perk up a little bit more, but they are deep in El Nino in the Indian ocean and they are starting to worry about a failed monsoon at this point and about 30 day from now is when you really start talking about it,” he adds.
Commodity Fund Liquidation About Done?
The grain and energy markets have both seen massive fund selling taking prices to or below pre-war levels and Zuzolo thinks that is near done as long as the dollar stops going higher.
“The Federal Reserve has a new sheriff in town and that really changed the dynamic in this market mid-month in June. And so I think the end of this month would have been a lot different had we not gotten that kind of a tone from the new Fed chairman.”
He doesn’t think the dollar has the fundamentals to go much higher and so he looks for a rebound in markets like crude oil and wheat.
Plus he thinks the market has taken out too much premium, “I think getting 10, 15, 20 ships across the Strait of Hormuz a day is just not going to cut it as far as replenishing that 1.3 to 1.4 billion barrels of oil that we lost.”
Cattle See Profit Taking
Cattle futures also set back on Monday with end of the month and quarter profit taking by the speculative traders.
The funds are long in the live cattle futures over 126,000 contracts and may have been taking some money off the table.
“Especially in the fat cattle, they’re very long but I think the fat cattle really are a little bit troublesome right now because we have gotten within less than $1 of the old highs. We’ve used a lot of energy to get up there. It’s been a good run, but the boxed beef market’s not supporting us,” he says.
With the July 4th holiday closing in seasonal demand will start to weaken and boxed beef prices have corrected off the highs.
“So I’m inclined to think that there might be some hedging to be done in the fat cattle market if they don’t perform well the rest of this week,” he adds.
Cash Cattle Trade Mixed
Cash trade last week was higher in the North at $260 to even some $262 live sales prices with $408 to $410 dressed, up $1 to $3. The South was at mostly $258, down $1 to $2.
Zuzolo says dressed carcass weights have dropped nearly nine pounds since the end of May and so producers are staying current when prices close in on $265 but they back them up when cash drops to around $255.
“So I still like that range unless something big happens with the stock market or with screw worm,” he adds.
Lean Hogs End Mixed
Lean hog futures saw slightly higher prices in the nearby contract Monday largely on spread unwinding at the end of the month.
The futures have been disappointing considering the mild contraction seen in the quarterly Hogs and Pigs Report.
Zuzolo says he is still looking for the lows to hold. “They’re still working well, technically, on the monthly chart. The hogs and pigs report, you’re right, wasn’t bullish enough to ignite the short covering, but we’re still tight. The cold storage numbers, still tight. I think the pork has a real advantage here the second half of summer, and we’re working into tightening numbers. I think there’s disease pressure out there we just haven’t found yet.”
Beef prices are running five times higher than pork prices but he thinks the consumer will come around after July 4.
“I think you start thinking more about the pork barbecue and I always like that BLT seasonal when the tomatoes come on. You start buying a lot more bacon typically.”
