Grains ended mostly lower Wednesday, cattle were higher with hogs mixed.
Grains Give Up Early Gains
The grain markets closed mostly lower and gave up overnight and early short covering gains.
Sam Hudson of Corn Belt Marketing says funds sold that strength with the war premium coming out of energy markets and no weather threats.
“I think it’s the war premium still. I think you’re still unwinding that trade. I think you had some people that maybe got caught,” he says.
Plus, the markets are trading with the “rain makes grain” mentality and disregarding the drought conditions in the West and excessively wet conditions in the East.
The fund position is nearly neutral and Hudson thinks it may stay that way until the reports next week.
Old Crop Corn Supplies Still Adequate
Any problem in the corn crop would have to substantially cut yield as the market is comfortable with the old crop ending stocks over 2.1 billion bu.
“We were never going to run out of the old crop supplies. And I think that’s still very apparent here. You know, you got good biofuel margins, you got good exports, but we still have enough sitting around. And I think, you know, eventually as you get into that August, September timeframe, if we start to realize that there could be a problem with this new crop, you could see a bigger desire to come after the rest of the old. But for now, everyone thinks there’s enough and they’re not going to have to chase it,” he says.
He doesn’t think there has been a great deal of producer selling of new crop as they are concerned about the size of their crop.
Will the Contract Lows Hold?
Corn futures held contract lows but did score new contract low closes and so the he thinks the funds are building their short position.
“I think you’re going to be short at least 50,000, potentially even closer to 75 or 80 at the end of this week. And if you start flushing some of those lows, there was a little bit optimism to start the trade today. I think we could make a small double bottom and maybe start to trend higher. But they just continue to pressure it as you get into the midday and we don’t see any enthusiasm. It just starts to pile on again,” he explains.
Awaiting China Business
The corn and soybean markets are also seeing funds liquidate soybeans and increase their short in corn due to disappointment in the lack of China sales.
While rumors have continued to circulate about China coming to the market looking for corn and beans, so far there has been no confirmation.
Hudson says, “A little bit of that is smoke and mirrors, too, I would say, because, you know, whether it’s China or South Korea or Japan, as long as there’s value in our U.S. products, I think we have to continue to expect it to come. What’s going to be hard to say is the pace of that.”
China is not going to telegraph that too quickly for fear of pricing rising or until there are threats to production.
“Because if we have a problem and stub our toe here in the U.S., no one plants as much corn acreage as we do. Brazil is always there for the beans, but you cannot refill that supply until next year at this point,” he adds.
Option Expiration Friday
Option expiration on July contracts is also coming up and open interest is dropping but he thinks its a blessing.
“Because as that interest comes out, the way the markets look, that interest may not come back in. But if you start to give them a reason and start to get back above some of these near term resistance levels, it’s possible you not only see some shorts take cover, but you could see some bottom pickers start to come in and some speculative buying as well,” he states.
Report Positioning
The markets are also starting to position ahead of the big June 30 Acreage and Quarterly Stocks Reports.
Hudson says lower corn acres are one of the few things that could support the market but the estimates are showing a more muted cut than initially anticipated from the March Intentions.
“It is way too early to start making conclusions there. But compared to last year, we found almost 4 million acres of corn last year from the opening bell to the closing bell. As far as those numbers are concerned, I would not expect to see that this year. I don’t think the metrics supported that extra growth. And I think you also had a few areas with some wet weather that you could be surprised where it didn’t get planted,” he says.
Still he doesn’t think the market can find or lose enough acres in the report to make a big difference for corn. For soybeans he is fearful the USDA will find more soybean acres.
Quarterly stock are a flip of the coin says Hudson, but he thinks end users see value in these low prices. However, he says demand for corn has been good at these lower price levels and that includes livestock producers, biofuels producers and imports.
Wheat Sees Harvest Pressure
Wheat futures also saw some early short covering but ran into chart resistance like corn and soybeans but also saw harvest pressure.
However, it may not play as big a role as normal, “Number one, you don’t have as big of a crop, and that means the commercials don’t have to move as much out of the way before that comes in or as that comes in. But also this wet weather could be a much slower affair, and I think you’re going to see a lot of quality conditions,” he adds.
EU Drought and Heat
Headlines are also circulating about the drought and extreme heat in the European Union and that their corn and wheat prices are
soaring.
However, the market doesn’t care. “That is something that you’re going to have to derive here down the road and start to tally up what that means. And that’s why I mentioned, whether it’s Europe, whether it’s Asia, be it China, South Korea, anybody, if there’s a value to do it, they’ll continue to do it. But they’re not just going to come in swinging for the fences unless they see a defined problem.”
He thinks that weather could impact acreage in the Black Sea region because they’re seeing some of the same conditions there.
Iran to Buy U.S. Grain
The other headline the market is ignoring is President Trump talking about how Iran may buy $500 million of U.S. goods, maybe some corn, beans, and wheat.
Hudson says the market doesn’t believe it and it is not a big enough amount to be significant.
“I just don’t know what to believe in that story. I’m not going to say it’s impossible. It seems like anywhere there’s smoke, there’s fire when some of that stuff gets advertised. But I don’t know if you can hang your hat on a storyline like that,” he says.
With the war over, Iran is going to need to buy some level of products but it doesn’t stack up that well compared to China and other regular buyers.
Cattle Pushed By Cash
Live and feeder cattle futures were up and saw a recovery after a round of profit taking yesterday and futures ran into chart resistance.
However, Hudson says the cash market for feeders is also on fire in many areas.
After all of the fund selling associated with New World Screwworm (NWS) and talk of reopening the border to Mexican feeder imports the market has rebounded.
“It shook a lot of paper out of the market, took the fund position out. And we were about a $25 plus discount to the cash market. We’ve
come all the way back now and are actually, you know, on the verge of trading a premium again. And I think you could push a little bit higher here yet. We saw some really strong cash prices in the Plains here today that helped push that. But I think part of this is just, you know, the interest. came out of the markets may be coming back into it.”
Choice boxed beef is above $400 which is also an indication of some good demand.
Fed Cash Higher This Week?
Cash trade was higher last week at $258 to $260 and some early sales in the North have also been at $260 which may indicate higher cash trade again this week.
“I would have to expect that anyways at this point. And, you know, and that has me watching that June, August spread. It seems like August could have a little bit more work to do if we continue to prove that out,” he adds.
Futures Into Resistance
If cash trade is higher the hope is that will help push live cattle above chart resistance of $250 for the August contract and above the contract high of $251.65.
“You know, you need to see a close probably over, honestly, probably over about $252 to really scare people and get that next round of technical buying. And I think it’s going to have to be driven by those cash values if it’s going to happen.”
Hogs Await Report
Lean hog futures were mixed ahead of the USDA Quarterly Hogs and Pigs Report.
Trade guesses have inventory at 101% of a year ago but the futures may have already priced that in.
The futures have been lackluster even though cattle prices have been higher.
“Well, you know, it seems like, you know, during the rally on the livestock that we saw that, you know, the first part of the year, it seemed like the hogs were just chasing it the whole way. And I think we’ve been reminded about how quickly we can refill that pipeline. You know, the combination of technical selling with the fact that the demand hasn’t kept up has been a drag on hogs.”
The funds are already near record short, so the hope is they won’t push futures down much farther.
