Grains were sharply lower on Thursday with livestock also seeing pressure.
Grain and Cotton Markets Fall on China Disappointment
Grain and cotton markets crashed on Thursday with profit taking and fund liquidation tied to disappointment over the lack of agricultural purchase agreements during day one of the U.S. China summit.
Don Roose with U.S. Commodities says soybeans saw the brunt of the selling.
“We had some optimism that we were going to get some kind of a big trade deal with China. So, we went in with a lot of optimism and I think as we look at it so far there just really isn’t anything new or anything concrete. In fact, it seems like some of the other bigger focuses on like jets and some of these outside things versus the ag products,” he says.
U.S. Treasury Secretary Scott Bessent said while China does not need old crop soybeans the original 25 million metric ton agreement on soybeans struck back in October is still in place. Still there is nothing in writing.
Roose says, “Yes, that’s the only thing that we’ve picked up here so far is that the old agreement, the verbal agreement that they had, the 25 million metric tons for the next three years each year is going to be in place. And by the way, that’s pretty much what we’ve had over history or at least the last 10 years. So nothing really big on that one either.”
And he adds that now the U.S. faces big competition from South America’s record crop.
“And now we have to compete in the world market and it seems like China is pretty well bloated with soybeans. So that makes it tough for new sales. You look at the balance table for next year, 26, 27 the government took the liberty to up the exports 100 million in the WASDE. So let’s call that one iffy here so far.” he adds.
No 8 MMT Old Crop Soybean Purchases
Many in the trade had questioned the idea of China buying 8 million metric tons of old crop soybeans when President Trump posted the news on social media on February 4.
Roose says it made no economic sense for China to buy U.S. soybeans with Brazil so much cheaper.
“Yeah, you know, I mean, during that time frame, and even now, Brazil’s sitting somewhere, let’s just call it 80 cents cheaper than we are at the Gulf. So, yeah, economics. And that’s what the Chinese, so far in the meeting, they say that they’re really looking forward to trade, fair trade, and trade that makes sense for this around the world from a price standpoint. So it looks like to us that they’re very price cautious and conscious and that means that our soybeans probably are not the first choice here right now,” he says.
Tariffs to Fall?
The one question mark is whether or not the tariffs might be lifted between the two countries for the next six months.
Roose says those are still just rumors. “We’ll see if the tariffs come off 10% on each side and get back to more of just a normal type of a trade.”
He points out that even if the tariffs come off South American soybeans and corn are still a lot cheaper than the U.S.
“So from a soybean standpoint, we’re still going to have to compete in the world market, which right now is a little bit tough with South America coming as heavy with some big sales,” he adds.
Technical Damage to Grain Charts
So with the big wash out how much damage was done to the grain charts?
Roose says new crop soybeans had been in an uptrend for nearly a month but with the close the technicals now show the market in a downtrend.
“So from our standpoint, we did a lot of damage.”
He says the corn and soybean oil markets also show chart damage.
“It started already Wednesday in soybean oil. The corn market, old and new crop, turned into a downtrend. Soybean meal, a downtrend. The one that’s still holding on the ventilator and that’s the wheat market.”
How Low Will Grain Prices Fall?
On top of that the funds are record long across all the grains according to Roose, so will that trigger follow through selling?
He says, “When you have a market turning into a downtrend and you’re overbought, which we still are, and back to the funds and you’ve got them moving, you know, you’ve got to be pretty concerned here. So not a good close, not the type of close you’d want to see. Needs to bounce back at the end of the week significantly.”
If not how low will grain prices go to take out the China premium in the market?
Short term he doesn’t think the market can take out too much premium because of the war and the outside markets.
“I think we take it in steps. Let’s look at these crop ratings. They’re going to be coming out here soon. So ultimately, if everything goes perfect and with big South American competition or the war gets straightened out. You could see balance sheets swell.”
Longer term he’s watching acreage in June and weather but still thinks there is downside risk.
“In the $4.00 to $4.20 are on Dec corn from our standpoint and maybe even $3.80 to $4.00. Soybeans, we think we have more of a target in this $10.00 to $10.50 area, and maybe $9.80 to $10.00. We’ll just see as farmers aren’t going to want to sell it.”
So Roose says the market is in risk management territory.
Weather and Rain Chances
The extended forecast has some rain for the Corn Belt which would help some of the dry areas, especially in the West.
“It looks like a bulls eye that we’re going to have in the gut slot of the Corn Belt. Some timely rains, if you will, you know, getting a little dry for some of the people that just planted. Who’s going to be shut out yet? Looks like western Texas, Oklahoma, parts of far western Nebraska and such. But a lot of these dry areas are going to get hit too in the Dakotas and Nebraska, so that’s good,” he adds.
Wheat Falls as Well
Wheat futures were also lower on spillover from lower soybean and corn markets. The soft red winter wheat contracts hit new highs then reversed lower and scored a hook reversal.
Does the market also have the winter wheat production cuts all factored into prices?
Roose says the market may have priced in the shock of the 54 year low in the U.S. crop with the limit up close on Tuesday.
“I think the real issue when you look at the demand side of the market are the importer or the exporters are, you know, just really not interested here at this price. We’re just priced out of the market is the real issue on the wheat,” he explains.
Kansas Wheat Tour Results Better Than Expected
The Kansas Wheat Quality Council Tour wrapped up on Thursday but the daily yield summaries came in a bit better than the trade had expected says Roose.
“Sometimes we dial in, you know, a lot worse than we think and its starting to show up a little bit better. So, you know, that’s probably, you know, another factor. You know, we always say, I always say this, Michelle. The numbers are the numbers, but it’s more important how you react to the numbers. And certainly, so far, the market’s told us that we’ve got plenty dialed into the market,” he adds.
Cattle Fall in Disappointing Finish
Cattle futures were higher on Wednesday on the heels of record cash and continued to see buying on Thursday morning. However, the market could not sustain those gains and ended lower which was disappointing.
“Kind of what I call a disconnect. You know, we’re watching the supply side of the market. And of course, the numbers just aren’t there. Now that said. I think this front end cattle market is bloated. I think that we have bigger numbers coming at us than we may think. We’ll see over the next 30 days. I think we put more weight on these cattle and consequently we’ve got a bunch of numbers coming at us,”
Record Cash Cattle
It was still discouraging consider the record cash trade in the North from $265 to $268, the volume in the South at $260 to $262.
“The market couldn’t really respond again here to follow that up.”
He thinks beef demand is still in question as the boxed beef rally has stalled out and the majority of the best demand is fading.
Still this has been a cash led market and it will continue that way he says.
“So the futures can only go down so far. The basis is already a little bit wide here right now,” he adds.
Lean Hogs Stumble
Despite the lower price of pork compared to beef the hog market can’t seem to get any traction or find a bottom.
Roose says the numbers are bigger than the market anticipated. “Of course, a lot of the premium we put in when we went up to that $112, $113 for the summer months was that the big disease issues, they’re there, but I think numbers may be a little bit bigger. Let’s give it a chance to see if these seasonals can kick in and demand can pick up,” he adds.
