It was a rare event, but all the grain and livestock futures ended higher on Monday.
Mike Zuzulo, Global Commodity Analytics, says grain markets were adding risk premium on a change in the U.S. weather forecast in additional to global weather threats including heat and dryness in the Canadian Prairies and Black Sea region.
“I think were were looking at a global weather situation over the weekend, especially in Ukraine and the Black Sea regions. They were supposed to get some rain and they did but it was very light rain from what I can tell,” he says.
Crop areas of Ukraine and Central and Western Russia, according to Zuzulo, look like they will lose soil moisture over the next 5 to 6 days.
“And that really took the market by surprise and I think we saw that in the fact that the canola market, the ICE canola futures were up about 4% on the session,” which has says helped to rally the soybean complex.
Plus, the commodity funds or speculators are near to record short in the grain complex and so they covered some of those positions, adding fuel to the rally.
However, Zuzulo is concerned about the grain market sustaining any gains with the growing supplies in the U.S.
“The corn was tardy on the rally, waiting until the close before getting back above the June 28th Acreage and Stocks Report close at around the $3.95 to $3.98 level,” he explains.
Zuzulo is watching the wheat because he says the more it participates in a rally driven by macroeconomic fundamentals and a weaker dollar, the more the grain markets can recover.
“I could see another 5%, 10% even 15% rally in the grains just because of the big move we’ve had to the downside,” he says.
Cattle futures got a boost from the bullish placements number in the Cattle on Feed Report, which was down 7% but can the market build on it with the lower seasonals?
Zuzulo thinks so because the tighter supplies that were confirmed in the report will offset the placements in the May report and curb the softer seasonal demand for beef.
“I also wonder if some of the June placements didn’t get stuck in the May report.”
Zuzulo also points to the huge discount futures are holding to cash and some heat in cattle feeding areas of Kansas and Texas as supportive of the board.
Hogs also rallied with the rest of the complex but also followed the recovery in cutouts and the higher Lean Hog Index.
Again, Zuzulo thinks the recovery in the market can be sustained because pork bellies are leading the cutout up and higher Chinese hog prices are also supportive.
However, he is looking at the deferred contracts for areas to hedge.
