Grains continued higher early Thursday with cattle mixed and hogs lower.
Grains Rally with Energy Markets
Grain markets are continuing to rally on Thursday morning. Greg McBride with Allendale says they are in lock step with the energy markets.
“Yeah, I mean, it’s exciting. This goes back to other years where we’ve seen big moves in the energies. You get to go back to 2022, you go to 2008. They’re a little bit of a different situation right now as far as what the upside looks like because we don’t know how long this thing’s going to last. And I mean, you’re hearing anything from $150 to $200 a barrel crude. And it is one of those inflationary movements that can continue to lift the grain market, even though you don’t have the supply and demand story to go along with it,” he says.
How High Could Prices Go?
If crude oil would rally to $150 or $200 just how high could grain prices go trying to follow those markets?
McBride says, " It’s hard to tell because you’ll start to run into some sort of a demand destruction type situation too. So maybe we’re talking, you know, if we really do see $150, $200 crude, maybe we’re talking $15, $14 beans. Maybe we’re talking about $6 to $7 corn. And those are just maybes because I don’t know that anybody truly knows the full effect that we’ll see. But whether it’s through fertilizer or any of that kind of stuff, every price that we pay or that the farmer pays for everything is going to go up alongside of this. So you’re not actually going to make a whole heck of a lot more money, even though those prices look that much better.”
Funds Buying
Regardless the hedge funds are jumping in to buy commodities, including grains.
“Yeah, we’ve seen KC wheat, Minneapolis wheat. Corn has gone back to the long side again. You’ve got to think with what we’ve seen this week that Chicago wheat is now long and we’ve built a pretty sizable corn position now. Beans for their part, the whole complex is long, but you’ve got to think that the beans are very close, if not at a record long right now as well.”
Inflationary Buying
McBride again emphasizes a lot of this is inflationary buying.
He explains, “It’s hard to ignore when you see the strength or just kind of the unknown nature when it comes to this war type situation, especially with where it’s at to drive those prices up. And they’ll do it until it behooves them to stop. And, you know, you go back and you look at the Great Recession back in 2008, and it was straight up until about July or August for crude and corn and beans. And then it was straight down. I mean, it was a big washout. So that’s the big risk that we have. That’s why we continue to talk to our producers about don’t ignore this rally. You have to be paying attention and being active because we’re still going to have a crop here.”
Demand Destruction Soon?
So there also comes a point in time when prices rally enough that demand destruction starts to happen. McBride says that is already starting to happen in soybeans.
“Despite some of the issues going on in Brazil they have about a $60 per ton discount to the United States and that’s about as wide as we’ve seen it. So,I mean legitimately harvesting a monster record crop of 180 million tons, there’s not a heck of a lot that we have to say here in the United States about why anybody should be buying U.S. beans.”
Export sales were still fairly solid on Thursday with corn at 60.3 million bu., soybeans at 16.8 million bu. and wheat at 16.7 million bu. However, he says the soybean exports don’t really indicate China is coming back in for that 8 million metric tons anytime soon.
Cargill Halts Brazil Soybean Shipments to China
News overnight also indicated Cargill in Brazil has halted soybean shipments to China as they have increased their sanitary inspections. He explains, “What they’re saying is that China has come back to them with some increased or stricter inspection rules. And it’s really trying to weed out, you know, get out weeds or any pests that are in there. It is something that China is definitely going to be strict about. They always have been kind of strict about that nuisance rule with regard to what’s in their imports and all that stuff. So this is something that just kind of came up last night. We don’t know the full length of this or what it’s going to take as far as adjustments from the Brazilians to get those ships to sail. But for right now, it is lending to the friendliness in the soybean market. I’s more of a price bump rather than a thought of additional export sales here from the United States.”
He says it may be tied to quality issues with too much rain in Northern Brazil as the beans were being harvested.
Do Technicals Matter?
Grains were nearing the highs set on Sunday night but in this type of environment how much do technicals matter? “I think we’re headline trading. So whatever the newest headline is that is what’s going to drive us for that particular 10 minute time frame or six hour time frame or whatever,” he says. The crude oil and outside markets are trading the same headlines he adds.
Cattle Try to Recover
The cattle market was trying to recover Thursday after another lower start.
McBride says it has been hinged to the outside markets, but in particular the equities. “The Dow, the S&P, and NASDAQ getting hammered almost on a daily basis and does put a little bit of a pressure into things. You saw that jobs report last week. That spins things negative a lot of times for the cattle market.”
Fear of the JBS plant strike in Greeley, CO on March 16, lower fed cattle cash trade at mostly $235 on Wednesday was also playing into the pressure, plus a nearly $16 drop in the feeder index, in the last 12 days.
