The soy complex was lower on Wednesday as well as wheat with fractional gains in corn. Live cattle ended lower, with feeder cattle and hogs mixed.
Soybeans and Bean Oil End Off Highs
Soybeans ended 10 3/4 lower on July at $11.79 1/2 with November down 10 1/2 at $11.56.
Soybeans made new highs for the move and November came within a 1/4 cent of the March highs overnight on talk of China looking for soybeans of the Pacific Northwest.
The market looked like it was ready to breakout but Sam Hudson with Cornbelt Marketing says soybeans hit chart resistance and saw profit taking.
“Profit taking was part of it. We have to keep in mind, too, as we go into the end of the month here, you’re also going to have some option expiration and first notice day against those May contracts. So any traction we get here in the short term could get faded. So far, that seems to be playing out.”
However, the deliver period is slow with producers in the field and he says once they’re done there will be some steady sales again in June.
Soy Processing Demand Hold up Soybeans
The board crush margins for soybeans are over $3.30 so they are huge and also helped drive the recent strength.
He says, “These processors probably went out there and locked all those margins in early. And so the only trade left is their out trade. The producer is pretty well out of beans. I think that’s part of this, you know, just contentment in the bean market that we’ve seen for the past month.”
China Buying Beans?
The rumors of China buying helped provide early support.
While there was no confirmation of the business Hudson says he wouldn’t rule it out before the mid-May meeting.
“I certainly think they could. I think it’s going to come down to quantities and timing. I would have confidence that you’re going to see that get pulled through. I would still favor that a lot of that, if it comes to us in a positive way, is still going to end up landing on the new crop balance sheet. But we have to remember back in February, they bought beans when it really wasn’t that advantageous for them to.”
He adds that if China has made some deals to help end the Iran war soybeans could be added to the mix, especially as inflationary pressures are continuing to build with high energy prices.
“That would be an eye opener for the trade because we’re about 100 million ahead on our crush demand. And if you have to bring our exports up to on this old crop, you know, how do you reconcile that on the balance sheet?”
Multi-Year Highs in Bean Oil
Soybean oil also hit multi-year and new contract highs before ending lower on the day. Is that reversal a concern?
Hudson says, “When you look at yesterday’s bar you know one day doesn’t really define a market and we continue to see a you know a lot of interest in this. I think the processor I think this will translate to a pretty strong bid as you get into harvest because I mentioned them locking in some of these margins in early even off the heels of the Venezuelan situation and then Iran got thrown on top and those margins have only gotten better.”
So he thinks they will be aggressive buyers at harvest through the end of the year.
Corn Also Hits Resistance
Corn was up for a third day on technical buying but ended well off session highs at $4.62 3/4 on the July, up 3/4 and December was a 1/2 higher at $4.82 1/4.
Hudson says that market also hit chart resistance and was pulled down by lower soybeans and profit taking.
“This is just kind of a resistance trade. You got the December back to the $4.85 and every month you go that’s closer to us in time. It seemed like it was just a little bit weaker and that’s evidence that those front end spreads are starting to give a little bit of that and once again we’ve got enough supply to meet the demand. So, as long as you don’t see a weather market I would expect that December to lead the way and maybe even the Dec 27 more prevalently if you don’t have any issues,” he adds.
Dec 27 Corn Adding Input Premium
He thinks Dec 27 corn is putting in some input premium tied to high priced fertilizer and diesel fuel.
“I think you have to. I mean, I think you have to sit here and question not only where our input costs here come harvest, but how do we see global acreage influenced here over the next six to eight months? We didn’t have a lot to lose here in the U.S. because so much was pre-booked. If it’s not getting on, it’s because they don’t want to pay it. But you could have some other places around the world here, be it for wheat or corn, where they simply don’t even have it available. And that inevitably is going to create some sort of a pinch. We just don’t know how much
yet,” he explains.
Old Crop Corn Capped
He says old crop corn prices are just capped because supplies are too big.
“And as soon as we get done with planting here, the farmer is going to be at the ready to continue trucking season again.”
Fund Liquidation
With option expiration on May options on Friday and first notice day coming up on May futures contracts could there be more long liquidation by the funds?
Hudson says, “They’re not holding a huge, huge position in any of these markets. I mean, I think it’s a tenable level in corn and beans. They’re really not holding much of a position at all in wheat. So I don’t see anything to exploit there. I think it’s going to be more about how they move those positions forward from the May to the July. And even coming into this week, we hadn’t seen a big pulling back in the open interest. So I would not be surprised to see a bit of weakness in this May-July spread. But as you go into, you know, after First Notice Day, you know, keep an eye on that spread as we go into delivery because I still think the processor needs corn they’re going to need to keep that flow and they know it’s out there but they need to keep the pace of it too.”
Wheat Prices in Weather Concerns?
The wheat market saw slight losses of 2 to 6 cents in the three classes on light profit taking and some rain chances in the extended forecast. However, are the weather concerns also priced into the market?
He says, “Yes and keep in mind you know we have some wheat to lose here in the us our stocks usage is still well over 40% so there’s still plenty
sitting around. I think this is more about how it evolves moving forward and how you could compound it. For example, if you got a bad stand and we rip that out and plant soybeans instead, that just adds to this building issue in the background.”
Cattle Hold Support
Live cattle futures were lower for a sixth day and saw more technical selling and long liquidation.
However, the market did hold support.
“Thus far, you know, you could still see the June maybe flush down into those mid-230s, but you’re probably gonna have to have a headline to help facilitate that, especially where you have cash trading right now. But with the concerns you have going into grilling season, you might have enough meat on the bone to take that off if there’s reason for it.”
Feeder Cattle Still Awaiting Border Reopening
The feeder cattle futures ended mixed on Wednesday and are trying to stabilize with the border reopening story still in the background.
A new New World Screwworm (NWS) case 60 miles from the Texas/Mexican border should keep the border closed but it is still political.
Hudson says, “It still is in the background, but it seems like the administration has been a lot more slow to make any comments. And maybe that’s due to the influence we saw earlier in the year because of it. You may have to get through this summer and get to some of these colder months before we can really feel good about having snuff that out and and I kind of think you’re going to be dealing with this all the way through that time frame.”
He thinks the situation is creating a new normal South of the border for feeding cattle as well.
Has the Fed Cash Market Topped?
Some light cash cattle trade has occurred at $246 live and $386 dressed but not enough for a test. Still, the lower trend may indicate a cash top is forming he says.
“But I don’t see no reason for it to completely collapse. You know, you could stop the ascent, but, you know, let’s face it, we’re not getting any more animals. You know, any sort of weakness is going to be bought up on the front end again anyway. So I see somewhat limited downside in there still, at least in the interim, especially after the little break that we’ve seen here,” he adds.
He also thinks the futures, at least the nearbys are trying to confirm a top. The jury is out on the deferreds.
“And again, that may mean that some of these back months hold themselves above water and eventually find a bid again. I don’t think that’s necessarily going away, but do we have to continue a lot higher right now? It just doesn’t feel like it. And if you have to turn that market and the energy complex higher again, if we don’t get some sort of a peace deal done or ceasefire done, then it’s going to continue to weigh on things as well,” he says.
Hogs End Mixed But Stabilizing?
Lean hog futures have bounced off the four month lows but is there a fundamental reason for the market to stabilize?
Hudson says, “I think it really comes down to timing. And the hog market actually got a little weaker than I expected testing that $100 mark in the June. I didn’t think we’d have to go down and do that all at once now. But the fact that we did, I think that’s kind of a tradable chart point now that as long as you hold that, I would see that there’s a decent chance of recovery effort back to $105. And then from there, we can maybe see what cattle do into summer.”
Cease Fire But Strait Closed
The markets are getting war fatigue with news the cease fire has been extended with Iran but the Strait is still closed which rallied the crude oil market again Wednesday.
Hudson says the long term impact of the higher energy prices is already starting to surface.
“Yeah. I mean, if you’re a company that has to do any sort of commerce, whether it’s energy or anything else, if you’ve already got a boat out there floating around, you might be committed to figuring out what needs to happen with it. But you’re not sending another one until you have
confirmation and assurance that you can actually do business the way you want to. In the meantime, people are going to try to reroute that, whether it’s fuel, fertilizer, anything that goes into that. A lot of petroleum products that we probably don’t think of in our everyday lives. And you’re seeing about 30% increase in a lot of that stuff. It’s twofold. It’s not only what’s going into the product, but it’s the freight to ship it around the world. And if you think about all those little widgets and every little Amazon box that we have sitting on our front doorstep, to me,
this is just the front end of this thing getting a lot worse here in the next six to eight months.”
So when will the market start trading inflation fears?
He says, “I think as you get into the third, end of the third quarter, beginning of the fourth.”
Still it may not help support old crop grain prices and will have limited impact on new crop with trendline yields.
“But the upside is still somewhat limited as long as the USDA is going to have a reason to advertise trend line yields. And I don’t see any changing of that until maybe earliest end of June, but probably more prevalent with the September stocks report. And by then we’ll have an idea of what those yields look like.”
