Grains ended higher on Friday with livestock lower.
Soybeans Rally with Bean Oil
Soybeans were higher on Friday following bean oil which made new contract highs and hit levels not seen since June of 2022.
Jim McCormick of AgMarket.Net says the bean oil market has been seeing strong U.S. and global demand with various countries announcing biodiesel mandates.
“Soybean oil has been the lead driver for the bean complex. Years ago, meal was the driver for beans. It’s now the oil due to the biodiesel.
That definitely is helping it,” he says.
Frost and Cold Weather
Soybeans may have also been adding risk premium due to frost concerns.
Some areas of the Corn Belt already saw freezing temperatures and are facing replant and there is another push of cold weather coming in the next few of days.
He says, “Another cold shot this weekend and there is worry about some replant going on. Parts of the country earlier this week also had some very, very heavy rains. We are hearing parts of Southern Indiana, Illinois might have to replant as well,” he says.
New Month, New Money in the Grains on Inflationary Buying
McCormick says a new month also brought in new money on inflation concerns.
“You know, as long as you have the problems in the Middle East going on, you’re going to have people wanting to buy commodities on the energy inflation hedge. And then the other story line you’re going to continue to hear is about the food inflation risk due to the fact of not getting fertilizer there. There’s fear there will be a shortage in the Southern hemisphere growing season. That is attracting spec money into the markets as well,” he adds.
He says there are plenty of investors that made money on the last round of inflation that started in 2020 and hit its height in 2022.
“Coming out of COVID, they made a lot of money trading that inflation story. So some of that money, I believe, is coming into the market. And that is what’s supporting the corn market,” he says.
The record high diesel fuel prices are also driving up inflation McCormick warns.
“Remember, everything is used, you know. for you know in energy to get that product to where we need it so you know you’re you know and then so much of the packaging is derived from products made from energy from crude. So you know that has got a lot of the just inspect investor money saying I want to own an asset that could make me money if we come back into inflationary times. We got some inflationary readings this week shows that the inflation is going the wrong way compared to what the Fed wants. It’s starting to creep back up and that tends to attract money near term.”
Bean Oil Follows Crude Oil
How much higher can soybean oil go if crude oil stays above $100? Is that the key here for keeping the funds interested in that market or not?
He says, “I think that’s one of the major keys. I mean, the fact is as crude oil continues to go higher, as the Strait stays shut, that probably is going to be supportive.”
The caveat is competition from other lower priced veg oils he explains. “What we’re finally starting to see is we saw the story six months, a year ago, where we were bringing a lot of used cooking oil in from China and going into our renewable diesel plants. Well, we’re starting to hear reports that that is happening again. So what it’s showing you is the price of bean oil domestically has gotten so competitively priced, so high priced, I should say, that you can now import it. That will tend to ration. the demand for the product a little bit, and that might at least at a minimum, slow the upward momentum.”
Worst case, he says it could force the top in the market.
Soybean Chart Breakout
Soybeans had a strong technical day with July closing above $12 and the November contract making a new contract high.
November soybeans could go higher but it depends on if the funds want to add to their long position.
“I would argue, the market isn’t trading your typical grain fundamentals. You’re trading macro fundamentals of the Middle East. And you’re trading, like I mentioned, the inflationary aspect of it. That can carry the market a lot further than economically it really makes sense. So really, the money flow is going to be the key to how far this market can be carried higher,” he says.
Although the July contract closed above $12 he says that contract is still range bound.
“It is still sideways. It’s taken out the near-term range. It has not taken out the high, I believe that was spike made the past fall when the Trump administration announced the China trade deal.”
China Meeting Key
He says that is the key for the market is if the China meeting happens in mid-May and is not delayed again.
“If talks with President Trump and Xi are still on, and President Trump is anticipated to make his way over to China here in the next couple of weeks you’re probably going to hear more rhetoric potentially about what China may do. I do not believe there are going to be a big buyer of old crop beans. They did in that first agreement back in the fall talk about buying 25 million metric tons of new crop beans. We’ll see if they can lock that down and get a hard commitment,” he explains.
If that deal doesn’t happen the soybean market could fall apart.
“We know I think the last time we go around when we had to postpone the meeting, the market did sell off a little bit. And there is a lot of uncertainty to it. Like I said, President Trump sounds like he wants to go. But, you know, we’ll see, you know, with the war going on in the
Middle East, I think all, you know, we probably, you know, this thing could fall apart at the last minute,” he adds.
Corn Makes New Highs for the Move
July corn made new highs for the move while December again was capped by the $5 mark.
McCormick says the funds are buying corn because of inflation concerns and the fertilizer issues.
“There’s no doubt about it I mean part of it is you are seeing some buying I think definitely on the fertilizer plate now most people agree that the fertilizer in the U.S. is expensive but there is no shortage. We’re pricing on a world market and if our prices are too cheap somebody from the rest of the world will come in and buy it and ship it back there but it’s here,” he says.
The world is worried if the Strait isn’t reopened there is going to be a shortage for fall needs and South American needs.
He adds another thing attracting investor money is the ethanol grind and the price of ethanol compared to gasoline, which is much cheaper.
$5 December Corn?
So it may be just a matter of time here before December takes out the $5 level but how far can it run before farmer selling caps the rally?
He says, Well, it’s a situation where we saw a lot of farmers selling here this week as the market tried to push into that $5 level. And then I would argue as we get through that $5 level, you’re probably going to hear a backoff of selling. And then you get back up, I believe you had the contract high, I believe was right around $5.12. That’ll be the next level resistance. I mean, now the question is where are farmers going to be comfortable selling versus the speculators that want to own it?”
Six weeks ago he says farmers would have jumped at $5 corn but now there is hesitancy tied to weather and fertilizer concerns.
“So people are very hesitant to sell it and if that farmer’s not there to sell against that spec money coming in that will allow this market to move higher,” he says.
Wheat Market High In?
The wheat market saw some recovery on Friday but has corrected off the two year highs hit on Wednesday in both winter wheat classes.
So it the top in?
McCormick says, “Right now I would argue it’s a little bit more of a profit taking week. Remember, we wrapped up the week here just on Thursday. The market was way, way technically overbought, a little bit of a correction. The corn wheat spread was out of whack as well. The other thing maybe generated a little bit of profit taking and generated some selling potentially was we are importing wheat from Poland, I believe, which shows you the price of our wheat has gotten so high that you can make it comparable to bring in competition. That will limit the upside momentum.”
However, he doesn’t think the weather story is over.
“We’ve still got a long way to go. There’s not a lot of rain in the forecast. I’ve had clients that are still trying to adjust for the losses they think
they had due to the severe frost damage that they had here a week, 10 days ago. We’ve got more cold weather coming in. I’m not completely convinced that this wheat market is done with going up,” he says.
Wheat Production Losses
How much of the hard red winter wheat crop has been lost? Some estimates are as high as 200 million bushels.
McCormick says, “I would argue somewhere around 200 million on the low and maybe 300 million on the high end. Now, I know that’s a lot. But remember, we did have a big crop a year ago. So the overall supply is still relatively comfortable. That’s part of the debate of the market right now and that’s why we may not have put the top in because we just don’t know.”
He thinks USDA will make some of that adjustment in the May 12 WASDE in the first balance sheet for new crop.
Cattle Make Record Highs Then Fall
The cattle market made new contract and record highs in both live and feeder cattle futures on Friday, then ended lower.
So was that just some profit taking or the talks that packers were going to start kill cuts next week?
“I think kill cuts are part of it, but I think a lot of it was profit taking. And we had one heck of a move higher. I think we rallied $15 in roughly six days or something like that. Just one heck of a strong move. And I think some people decided, hey, they want to take some money off the table
right now. I mean, we know the story, Michelle, the cattle supply continues to be incredibly tight. We’re also moving into a time of year where the demand tends to ramp up as you go into the spring and summer barbecue grilling season,” he explains.
The key will be if the consumer is willing to pay the higher prices for beef with the spike in gas prices.
“We are in a different situation than we were last time prices were up. You have gasoline prices here outside of the Chicago suburbs trading at $5, outside of Detroit at $6. So, the question now is how much can the consumer take?”
And will they trade down to cheaper proteins.
Hogs Fall on Pseudorabies Case
The hog market was down Thursday and Friday with the first case of pseudorabies in a small commercial hog herd in Iowa since 2004.
The market was pricing in the uncertainty but how low will it go?
McCormick says he thinks the low is close. “Usually it takes one to three days to price in these negative headlines. Like you said, we’ve heard it a couple of days ago. So hopefully we’re close. It was definitely disappointing. Like you said, we haven’t had a case like this in 2004. So getting that headline definitely was a surprise to the market. And, you know, kind of a knee jerk reaction you get when you get these surprise stories.”
