Ag markets ended mostly lower on Thursday with the exception of deferred lean hogs.
Grain Markets Correct
Grain markets made new highs for the move overnight but failed to hold those gains during the day session.
Garrett Toay with AgTraderTalk says after the big rally to start the week the grain markets saw some profit taking and corrective selling.
The headlines did not change regarding the Black Sea export disruptions that supported the big rally in wheat on Wednesday but even bull markets need a break.
So what does news does the market need to continue to rally?
Toay says, “You know, this continuation of headlines. It does seem like at least Ukraine’s strategy, has changed as far as how they’re approaching Russia. I mean, they’ve attacked oil refineries. They’ve attacked, you know, their shipping lanes and have done the same thing that Russia had done to them early in the war is, you know, trying to create economic duress and they’ve turned the tables and are doing the same to them.”
Whatever they’re doing ti seems to be working, says Toay, and that’s got the markets a little bit more excited.
Corn Eyes Weather, Hits Chart Resistance
The corn market didn’t have the push from the wheat market and weather forecasts turned somewhat cooler and wetter.
“At the start of the week, everything was higher across the board with the weather support of the ridge and the heat, that sort of thing. Now the model is starting to back off that heat a little bit or at least showing in the next week better chances of rain.”
However, corn also ran up into the next area of chart resistance technically according to Toay.
“I do think there’s some charts impacts here. We needed to push through $4.70 we tried early and we failed we got up to $4.74 to $4.75 which probably triggered some old crop you know remaining old crop cash sales from the producer or additional sales for the producer for new crop,” he adds.
Weekly exports were also a marketing year low at only 12.4 million bu. old crop, which did no favors for the market.
He says Argentina could undercut the U.S. with their big crop and it may be difficult for corn exports to stay at a record pace with the soybean export program ramping up.
“Last year, you know, we had the largest corn export program ever on pace. We were able to do that because we didn’t have a soybean export program and new crop exports for beans today were fantastic. I do want to point out that we have about 13 million metric ton of unshipped corn commitments on the record on the books, which is about 2 million metric ton bigger than any other prior year. So there’s a lot of corn that still is either going to get switched or potentially get rolled over to new crops. So that’s something to keep an eye on here over the next six weeks.”
EU Heat and Drought
The Black Sea war and the EU heat and drought stories are both supportive features for the corn market but so far that hasn’t really had a major impact on prices.
When will it? Toay says, “This could be a big issue in the EU as far as the drought, I mean, Ukraine is their major corn supplier. Europe could have a problem if this war escalates and the Ukraine rail systems have said that a significant portion of the rail capacity has been targeted by the Russians. So, you know, if the EU situation deteriorates further they’re going to have a problem.”
That’s because the majority of the the corn exports out of Ukraine that typically go into the Middle East will be impacted.
Weather Threat Not Big Enough?
The hot and dry weather forecast have not been enough alone to push the corn market above the next layer of chart resistance.
So does the market have enough weather premium in it or is the threat not big enough?
Toay says, “I think we’ve got enough weather premium in the market for what we’ve got.”
The old crop carryout is relatively large and the new crop carryout is going to be tighter if there is a weather event. But, as the board has rallied the Sep/Dec spreads have widened and built in some risk premium.
Soybeans Can’t Hold $12
Soybeans closed above $12 on Wednesday but were unable to close above that level for a second day despite talk of China buying from four to eight cargoes of soybeans.
Exports were also strong for new crop at 65 million bu. and the June NOPA crush was a record.
So what will it take to sustain a rally above $12?
Toay says the market is seasonally at an inflection point where November beans could move higher or lower depending on August weather.
“November beans could move above $13 or we’re going to revert back to $10.50.”
He thinks soybeans have held together well in the face of Chinese business.
“You know, I thought that the market would potentially wait to react until it saw 15 to 20 million metric ton of Chinese bean business on the new crop books. However, with the initial buying the trader showed up.”
He’s hearing China is in to buy one million metric tons of beans a week between now and the end of August and the market will need to see consistent sales to hold above $12.
“Get to six to ten million metric ton and then we’ll see what they’ve got left. We have the 25 million metric ton target on the table here that everybody’s watching. But will they actually buy it all?” he adds.
Still the market is facing tight ending stocks of 310 million bu. and with strong crush margins, higher bean oil and diesel prices, any signs of a August weather issues could push soybeans to $13 quickly.
Cattle Down...Again
Cattle futures made more new lows for the move on Thursday and August live cattle have been down a record 14 consecutive days.
Cash trade was also lower with Southern live sales at $237 to $240 developing on Thursday, $10 to $11 lower than last week.
So how much lower does the market need to go before it bottoms?
“That’s the $64,000 question,” says Toay, “I think the The south is trading a premium to the north from what I’ve heard on early reports this week. I think as a cattle producer, I think no one’s really surprised that this happened. I think the surprise is how sharp of a correction that we’ve had.”
He says the warning signs have been in the market with negative packer margins, high fuel prices and the beef market is past the peak summer grilling demand.
Still he thinks the market will find a bottom soon. “We traded towards lowest level since, early March. The supply side story of the market has not changed whatsoever. Call it a pause that refreshes and allows the market to kind of clean out and then we can get some new players.”
He says there are some longs that have been in the market for a long time, nearly three years, and they want out.
How Much Have Funds Liquidated?
So how much of their massive length have the funds liquidated?
Toay says the next Commitment of Traders Report will be very interesting. “You would think that given the price action that they have liquidated half, but, you know, as tight as it is, I mean, the market really hasn’t given them an easy exit. So, you know, maybe the fund liquidation is as big as what we think.”
Can Hogs Keep Moving Higher?
August lean hogs made a six week high before seeing some profit taking, while the back months were all higher.
Toay says the recent recovery in the hogs has been sponsored by unwinding of cattle/hog spreads and short covering. So can it keep going if the funds are covering their big short position?
He says, “Market positioning suggests that they might. We’ve had a similar type sell-off that we’ve had in cattle and hogs early in the
summer, so we can have that bounce here and follow through. It certainly seems like the catalyst, if we’re going to tip that domino, has been the sell-off in the fats. But now it looks like we’re gaining some technical momentum.”
