Grain markets were mostly higher on Thursday morning, cattle were trying to extend gains, with hogs lower.
Grains Bounce with Crude Oil
Grains markets were mostly higher except hard red winter wheat on Thursday following a bounce in crude oil.
Mike Minor with Professional Ag Marketing says, “Yeah, market direction here is being totally dictated by the oil market and any Iran oil news that’s happening in those outside markets. We’re getting very conflicting reports still out of the U.S. and Iran. Both of them are basically saying
that the other party violated the truce.”
Meanwhile, President Trump has been saying a deal with Iran is close to being signed. So the market hasn’t bought into it yet.
“For the time being, if there’s no news, we’re trading the oil news in the grains,” he adds.
When Does the Grain Market Divorce From Oil?
When does the market get worn out or tired of the war headlines? Minor says it takes a few months.
“We saw it in the Russia-Ukraine war. I don’t think it’s much different really for a time frame perspective. We know that we’ve seen the immediate supply chain disruptions, the bottlenecks. We’ve seen the immediate shock and awe. So after a while here, if nothing changes
dramatically on the story, it’ll soon become old news, and we can talk about relevant fundamentals,” he adds.
He is hopeful as combines start to roll in the South and the harvest results continue to be poor that the market will wake back up to trade fundamentals.
China Lowering Grain Import Tariffs?
The other supportive feature is talk that China is going to lower their tariffs on grain imports, which could be the first sign of their willingness to buy the $17 billion of ag products from the U.S.
Minor says, “At the end of the day, the economic way of looking at it is still it doesn’t make sense for China to want to buy any of our soybeans or corn or anything with their declining sow herd. They’ve got cheaper prices in Brazil. So really, economically speaking. They shouldn’t buy anything from us. But the fact that they’re willing to take the time to say, hey, we’ll take the tariffs off, maybe look into some of those things, maybe look at some bids on the U.S. export prices, that look is a good sign.”
However, he adds China must also follow through.
“China is one of the three main legs of this stool that can really move this grain market going forward. It’s obviously weather. It’s the Iran oil situation. And then if China does step in and buy something,” he explains.
However, he says the market’s clear indication of China buying is the spread action.
“We saw a major disruption in spreads on soybeans specifically between July old crop soybeans in 26 and November new crop soybeans of 26. We saw that spread go massively inverted and go up to over 80 cents, and then it’s pulled all the way back down now. So from that perspective, just looking at the spreads in corn and soybeans, they’re pretty weak recently. The market doesn’t have a fear that China’s going to come in, make a big purchase, or really even front running it at this point,” he says.
No Weather Fear
There is also no major weather fear for China or the market according to Minor.
“They’re looking more at the fact that 95 million acres, if we are anywhere close to that on corn, it’s a lot of acres. There’s no weather disruption so far that could equate to a lower trend line yield. So at this point, it looks like the market’s sitting comfortably believing that we’ll have enough soybeans around, we’ll have enough corn around,” he says.
Plus USDA’s export figure in the May WASDE at 1.63 billion bu. doesn’t show a big increase in China purchases over last year. “So they’re going to want to see some purchases. They’re going to want to see some proof for them to really bump that number back up to a 25 million metric ton number that China was more accustomed to in the past,” he adds.
With 86% of the corn planted, 79% of the soybeans planted those figures are ahead of normal and also feed that argument.
“You start to talk about a weather problem of some sort or potential at the end of May normally. And this year, it’s mainly been in the Western Corn Belt where we’re dry. That pattern’s changing and we continue to get more confirmation that the El Nino switch is coming Aand with that, it looks like our rainfall is starting potentially as soon as this weekend all the way through the next week with chances of rainfall through the Dakotas and Nebraska in major areas that really need it,” he states.
Rains in HRW Areas Pressure Market
Some rain has already fallen in some of the dry HRW wheat areas and there is more in the forecast for state’s like Nebraska which is pressuring HRW markets.
However, Minor says it is kind of late to be helpful especially as the harvest is already starting.
“We know it’s a bad crop, but we’re too expensive compared to the rest of the world on wheat. And most of the fund buying has just run out,” he adds.
Corn Does Chart Damage
Soybeans and wheat are still holding uptrend lines but corn futures did some chart damage during Wednesday’s session.
July corn fell below the 200-day moving average and Minor was also watching $4.80 as critical support for Dec corn. So a close back above those levels will be important.
“If you look at it, we had a pretty poor close yesterday on the corn market.”
Cattle Get Push From Higher Beef
Cattle futures were higher on Wednesday with the push from two days of higher beef prices and some end of month short covering.
The market was trying to extend gains Thursday, “Technically speaking, we got pushed pretty hard, it didn’t take much of good news to really give us a bump. That little product bump we saw was really all the bulls needed to latch back onto.”
He says demand is concerning with poor consumer sentiment but even higher gas prices haven’t seemed to slow down beef purchases. “But at this point, it seems like no one is really giving up steaks or hamburgers in the United States to too big of an extent yet.”
Technically the market looks like it could retest the top end of the trading range. “We didn’t do any chart damage really at this point.”
Hogs Can’t Extend Rally
Lean hog futures had a nice short covering rally on Wednesday with a $2.59 bump in cutout values and tighter slaughter numbers.
However, the market is seeing very little follow through Thursday.
Part of the problem is consumers are not trading down from high priced beef to lower priced pork, so demand is lagging especially for bellies.
“Cutout hasn’t responded like it normally does this time of the year. The belly market’s been part of that problem. It’s been struggling,” he states.
He thinks it is tied to consumers buying fewer hamburgers and cheeseburgers with bacon on top at fast food restaurants.
“Also, if the meat that you’re buying is expensive, it’s going to be difficult to say, I want to throw bacon on top of that and make it even more expensive. So we’re maybe seeing some of that hit the belly market.”
Can Hogs Bottom?
So are hogs in the process of bottoming?
Minor would have like to have seen cutouts continue to rally to help support a futures rally but he still thinks a low is at hand.
“I think we’ll still come out of this hole. I would say that when you look at the premium in this hog market, when the June traded down to $95, there wasn’t any premium really left in that versus what the CME index was trading at at $91. So I do believe that’s a pretty solid firm support point in this hog market for the summer, he says.
PCE Data Shows Slight Inflation Risk
U.S. personal consumption expenditures (PCE) rose 0.5% month-over-month in April, slowing from a 1.0% gain in March. Spending on goods led PCE higher as energy prices continue to rise. PCE rose 3.8% year-over-year, the highest since May 2023.
Core PCE, the Federal Reserves preferred inflation gauge, rose 0.2% month-over-month, down from 0.3% in March. Year-over-year, core PCE rose 3.3%, up from 3.2% in March.
Minor says April data will likely show the highest inflation data related to energy prices.
“So the report for PCE was through the month of April. And with that, I want to caution because through the month of April, that does not include an 18% drop in crude oil prices that we’ve experienced since then. So I do believe that the market front ran this thing. And this is relevant this week, I’d probably argue, because it’s really the only real data that we had to come and look forward to on the outside markets this week for data,” he says.
However, he’s not concerned, yet. “Obviously inflation’s high. It’s not nine percent by any means like we saw a few years ago but it’s still making it a very very tough case if we’re going to have inflation still picking up being a little bit hotter it makes it really tough for this new fed chairman to make a decision to say, hey, we should drop interest rates. And it’s more of a case that we’re hearing more about by the end of the year, we’ll likely raise rates. It’s over a third chance of that happening now.”
But it’ll be something to watch mainly in Q4 of this year he says.
