Grains close higher Tuesday led by corn. Cattle also rally, with hogs lower.
Darren Frye, Water Street Solutions, says the corn market got a bullish surprise from the December WASDE as USDA cut corn ending stocks by 200 million bu.
USDA raised corn exports by 150 million bu. and corn for ethanol use by 50 million bu.
“This was a bigger increase in corn demand than I expected, I thought USDA would spread it out. This was a pretty big cut for one report especially the December report. I will be interesting to see what happens in January when we get to see if they will also have a yield adjustment or any more demand adjustments,” he says.
The result was corn ending stocks dropped to 1.738 billion bu.
However, the price action in corn was somewhat disappointing and Frye says the corn market has been held back by bearish fundamentals in soybeans especially with favorable weather and a record crop in South America.
“This was a huge change in the balance sheet, more than what the trade was expecting and you’d think that would produce double digit gains in corn and we only saw 5 to 7 cents and I think that’s because of soybeans being an anchor to the complex,” he adds.
Frye does think the report news will be enough though to eventually get corn through chart resistance areas that have loomed around $4.50 1/2 in March corn.
“We should break that yet this week, then my next target is $4.65 but beyond that it’s going to take a weather issue in South America to propel us any higher,” he says.
USDA left ending stocks for soybeans unchanged at 470 million bu., plus left Brazil soybean production at 169 MMT and raised Argentina production just 1 MMT to 52 MMT.
“But you’re looking at total production that’s 25 MMT more than a year ago and we just don’t see demand up that much,” says Frye.
Frye says the South American crop if confirmed will be a record and so this is already creating a headwind for the soybean market, in additional to tariff concerns.
Interestingly enough USDA is not figuring in any loss in exports due to tariffs on any of the grains.
Frye says he doesn’t believe the U.S. will see increased exports as a result of the tariff and trade strategy from the Trump Administration.
“China’s economy has weakened since the beginning of the first trade war so they might be a little more desperate to comply with that but I still see a battle as we get into the new year,” he explains.
Wheat saw some spillover from higher corn but also saw lower U.S. ending stocks by 20 million to 795 million bu.
Cattle also closed strong pushed by strong cash last week and some $191 in the South already this afternoon, plus strong cutouts and demand.
Frye says there is also a strong correlation between escalating war and cattle prices, so he thinks they will continue to move higher.
