Grains ended lower Wednesday with livestock and milk futures all higher.
Grains Fall with Crude Oil Remove Risk Premium
Grain futures ended lower on Wednesday with fund selling across the complex and Bryan Doherty with Total Farm Marketing says the markets were removing risk premium.
“The reports, the stocks, the acreage numbers, they’re now out of the way. They’re known. Add to that crude oil softening and staying around that $100 or less per barrel and rain on the radar, all of a sudden you’re kind of running out of bullish things, right?”
Is the Rally in Grains Over if the Iran War is Winding Down?
The grains markets were also removing risk premium with President Trump saying the war in Iran would be over in two to three weeks. If that happens and crude oil continues to spiral is the grain market rally over?
Doherty says, “It’s looking likelier that we have a top in the market. I want to be really careful. We’re at a time of the year with as much money
flow as we’ve seen and variables like crude oil, if it’s done rallying. The story just gets harder and harder for corn.”
He says quarterly stocks were nearly 877 million bushels higher than a year ago with projected ending stocks still at 2.1 billion bu. on corn.
“Corn acreage was down but the numbers came on a survey that was prior to corn challenging the $5 area on December, or at least most of the numbers. So it seems like the market vote right now is cautiously turning negative.”
Profit Taking?
Some of the pull back in the grains can be tied to general profit taking says Doherty as the funds have been on a buying spree the last few weeks since the war in Iran began.
“The managed money in the Commitment of Traders Report showed they were 284 000 contracts net long in corn that is a big number for this time of the year.”
He says that helped drive up corn prices but if the market weakens further it could trigger more technical selling and profit taking.
“We saw this past week stochastics give a sell signal and two bearish key reversals in five days a break under channel line support a jump back up to retest that channel line support and then failure. So technically it looks a little soft,” he explains.
Fundamentally, he is also running out of a bullish story.
Do Funds Defend Their Longs Going Into the Growing Season?
Funds are long corn and were record long in the soybean complex to start the week. So do they defend those positions through planting and at least the early growing season?
“The last two years they didn’t, right? The market started trending lower and then they just don’t look back. There was no immediate catalyst. Now when I talk about immediate catalyst let’s say a prolonged drier pattern, followed by more dryness. Last year after a dry planting period we had timely rains throughout the season,” he says.
That weather produced a record corn crop, but this year there are growing drought concerns. So, he thinks its too early to tell if the funds will stay long.
Wheat Removes Weather Premium
Wheat had an ugly day but was also removing weather premium on Wednesday with forecasts for rain in the Central and Southern Plains.
“There was just enough of an outlook change or increasing some rainfall totals that the market may have come under pressure today. Traders move their stops up pretty tight. Market starts to trip those. And all of a sudden you got, after a good day yesterday, you got an ugly looking day today,” he adds.
Corn Acres Fall, Soybeans Rise Moving Forward?
With the Prospective Plantings Report out of the way the chatter continues about whether or not the corn market will lose additional acres due to high fertilizer prices and some supplies not being available for the planting season. Conversely soybeans may need to buy more acres with strong RVOs and a China deal.
Doherty says it looks like there will be some logistical issues with fertilizer.
“And so farmers are going to have to make decisions. That being said, though, I’d make the argument in the circles that I talk with daily I think most of these progressive producers are pretty well set for this year. It’s more the fringe acres or the smaller farmer who needs to buy fertilizer yet and faces some big challenges and may have to switch some acres to soybeans,” he explains.
However, he doesn’t think the switch means more than 4 million less acres of corn compared to last year. “There was too much of a rally in new crop corn that I think farmers could push into.”
Still he thinks it’s too early for anybody to call.
Cattle Make New Highs
Feeder cattle futures made new highs for the move with deferred live cattle making new contract highs.
The combination of higher cash and strong demand seem to be pushing the market in additional to technical buying.
Doherty says, “But ultimately, it’s the same story. Limited supply. Feeder barns are active. Prices push higher. You’ve got retailers, I think, pushing to get the inventory in. In the U.S. people are working and they’re buying beef, the price doesn’t seem to scare them.”
Will the Rally Continue?
Doherty thinks the market may be close to peaking.
“To keep a market sustained upward in this kind of trend, one, you’ve got to prove it eventually, right? We are proving that $200 is the new low in cattle and probably $225 to $235 the new norm. The $245 to $250 level has not proven that demand can move above those levels and keep up with those prices. So, I think we’re just in that window here from a long-term perspective where the market’s offering some very good opportunities to defend prices in some capacity,”
Milk Futures in Upper End of Trading Ranges
Class III milk futures were higher on Wednesday and are up at the top end of the recent trading ranges. So what pushes the market to new highs?
Doherty isn’t sure. “It doesn’t appear that it’s the cash market leading the rally in cheese or the product. As I look at those values, something like April milk, $17.49 today that’s well over a $1 higher than March. So I don’t know what the next 30 days have in it.”
He thinks milk should be able to hold a premium due to strong export demand but he also thinks the market is getting up to points fundamentally its hard to argue for higher prices without improved demand.
“And right now, the cheese market down $1.59 on barrels, $1.63 on the blocks. That’s not buying it right now. Butter was off a couple cents today, $1.75. I don’t think that supports any of the futures prices where they’re currently priced,” he adds.
