Grain and livestock futures ended mostly higher on Thursday.
Soybeans Lead Gains on China Hopes
Soybeans futures extended nice gains from Wednesday with demand optimism surrounding the rescheduling of the China summit for May 14 -15 says Jim McCormick of AgMarket.Net.
“The market definitely reacted to the positively on news we’re going to redo this summit.”
What does he expect China to buy? Will it be the 8 MMT of old crop soybeans are not?
“I’m a little bit cautious of it right now. Remember, we had a couple of weeks ago, the bean market collapsed, went limit down. The headline story was, Michelle, that China, Trump had canceled the summit due to what’s going on in the Middle East. What got mixed in the story was that preceding weekend, the Chinese told the American negotiators they were willing to buy American beef, pork, but not beans. They were maybe interested in buying other row crops. And what that tells me is the Chinese are saying, hey, we bought the 12 million that we said we’re going to buy in the fall. We’re good,” he explains.
He adds the Chinese have Brazilian beans to fill the next needs, and then they’re going to buy that next 25 million for the new crop.
The problem is the U.S. needs China to buy another 4 to 4.5 MMT of old crop soybeans to meet China’s current export number. “So if China does not buy any more beans and no one else steps up to the plate, Michelle, we could be overstating the bean export number by roughly 140 million bushels, which would essentially end up in the ending stocks, which would be bearish.”
Retesting the Highs in Soybeans Difficult
He says that will make taking out the March highs in soybeans unattainable.
“The wild card would be the crude oil market. I mean, the fact of the matter is, if things really escalated in the Middle East and crude oil went to $150, $200, like some people fear it could happen, all bets are off how far commodities could go,” he explains.
Soybeans and Bean Oil Higher on RVO Hopes
Soybeans and bean oil were also higher in anticipation of robust RVO levels being announced at this White House Celebration of Ag.
“That is what the belief of the industry is,” according to McCormick. “I do think you’ve got to be a little bit cautious if you’re a trader out there about this. These RVO numbers have been floating around within the industry for quite a bit. The Trump administration, Michelle, I think feels like what they want to do is they want to have an announcement that everyone is essentially happy with, big agriculture is happy with, as well as the energy sector is happy with, and kind of kick that equal medium. Because what they’re worried about is whatever they announce, then essentially you go right to court. I’ve got to believe that they think they’ve got consensus on both sides of the aisle, in essence, that this is a good deal for everybody.”
Corn Ends Mostly Higher
Corn ended mostly higher with a new high close for the move in the December contract with help from crude oil and strong weekly exports at nearly 48 million bu.
“I think it was a combination of both. Part of it was a good export number. That has been sustained all fall into the winter, now into the springtime, so that kept buyers at it. Crude oil market is definitely rallying again. Uncertainty of the peace deal seems to be going on and off. And then lastly, the wheat market is catching a little bid today. It’s being led up by the Kansas City wheat. Chicago wheat is following.”
Wheat Adding Risk Premium
Wheat was adding risk premium, with Kansas City wheat seeing supportive weather. McCormick says the market was also inserting war premium but hard red is leading over soft red.
“And that’s what you would anticipate just based on looking at the weather models that we’re seeing. The rain forecast, if you’re in the Eastern part of the Corn Belt, it looks like we’re going to have some decent rains the next couple of weeks.”
Meanwhile the hard red wheat areas looking to remain dry.
Hard red spring wheat is trying not to lose too many acres to other crops.
Corn Worried About Acres?
Is the corn market also worried about acres?
McCormick says, “We will get a little clearer picture potentially on Tuesday of what the corn number is going to be. The average trade guess is right about 94.4 million acres of corn being planted from the survey. That’s about 400,000 more than what the February outlook would be. If we planted that 94, 94 and a half million acres, Michelle, and had a trend line yield, we still would be oversupplying the market. But one thing I’m going to caution people on this number that we get on Tuesday, it is the beginning of the acreage story. It is not the end.”
Acreage Report
The surveys were sent to farmers before the Iran war escalated and grain prices rallied. So will that make a difference?
He says it depends on how many surveys were taken early? How many surveys were taken late? Does the government try to make its own adjustment just based on the fact that fertilizer is so much more expensive?
“The Secretary of Ag came out and said 80% of the fertilizer they believed was bought, but that means 20% wasn’t bought. Is that final 20% going to be enough to make people see a hard shift in acres? I haven’t seen that in the major I states, to be quite honest, Michelle. Most of our clients said, no, they’re stuck in a rotation. A lot of guys in the West had a fabulous fall. A lot of that fertilizer got put on in the fall. But if you get to some of that more marginal ground, and it was the marginal ground that I’m going to argue is what gave us the big yields last year. They punched above their weight. That is the ground that might say, hey, look, this high fertilizer price, if you did not get it locked in, those are the farmers that might say, you know what, I’m moving away from that expensive corn and I’m going to produce something a little bit cheaper. And more likely, it’s probably going to be soybeans or potentially canola.”
Surprise in the Quarterly Stocks
Could the surprise come in the quarterly stocks? Farmers have been active sellers of grain recently but the survey is as of March 1, so will it show up?
“Well, we should get a better handle. The bean number usually doesn’t surprise us. The corn number, hopefully we get a better handle. I think personally, as we get it into the commercial sector, we get a little bit better handle. And the real question is going to be on this number, Michelle, is how it backs into the feed and residual number. I have been arguing that the feed and residual demand category in the balance sheet is 740 million bushels, roughly higher year on year. Yet the amount of livestock we have is roughly the same. Now, when we have big crops, that residual number does grow. There’s no doubt about it. But even that argument seems a little bit far stretched to think we fed that much more corn.”
He says if the report finds more corn than either it was never fed or last year’s crop was even bigger than estimated.
Funds Defund End of Month?
With the money that has flowed into the grains the last few weeks due to the Iran war will funds defend those positions into the end of the month and quarter?
McCormick says that the million dollar question. Do the funds take profits or defend their longs.
“I mean, right now, it feels like it’s going to be more of a defensive measure right now. What has driven the market into the ag specifically? It is essentially the energy market exploding. The fear of inflation, we’re getting inflationary numbers that are showing that inflation is starting to percolate up again. And the trade in New York, the spec money remembers when we had inflation a few years ago, owning ags was a very profitable trade. And if you just look at the CFTC reports, we have constantly seen an investment into pretty much all the ags, not just by the trading funds, but also the long index funds as well as they’re building some length into this on the idea that inflation is getting uncorked, unfortunately, and it’s going to be a long-term investment for them that they think is going to be profitable.”
If crude oil stays higher longer and the fear of inflation is heightened he says grains and all of the commodities could continue to see buying interest because higher energy prices show up in every product you buy. “It is going to drive investments into all commodities.”
Conversely he says if the war de-escalates and crude oil starts to move lower it will take the some of that inflationary story off the table.
Cattle Market Hold Despite Lower Equities, Higher Oil
Cattle futures ended mostly higher despite a higher crude market and lower equities.
McCormick says that is a good sign. “The reality is the cattle market has been dragged around by these two markets. And when the crude oil has been going up in the stock market down, in general, you know, The protein market’s been under pressure. It ignored that
completely today. Hopefully that’s a good sign. The fact of the matter is the consumer has been very, very resilient paying these high prices for beef. And what the market’s telling us right now is the consumer is still willing to do it.”
Early fed cash cattle trade was also mostly steady which helped support futures. “They’re paying up. The market’s taking it as a sign demand is still there for the product, even though we are seeing high prices at the pump.”
