Grains ended mostly lower on Thursday except HRW wheat. Cattle and cotton rallied, with hogs mixed.
Corn Lower on Weather and WASDE
Corn ended lower on Thursday with fund liquidation and technical selling setting back in.
Chip Nellinger, Blue Reef AgriMarketing says corn saw pressure from weather and lack of bullish news in the WASDE.
USDA raised South American corn production a combined 5 million metric tons (MMT), with Argentina up 2 MMT to 61 MMT and Brazil up 3 MMT 138 MMT.
“The increase in South American production and the world stocks number, was probably a good excuse. I think at the end of the day, it continues to be about fund selling under the assumption that Midwest is getting enough rain. It was an awful lot of rain on the radar
screen all day long during the WASDE report release. Under that circumstance, it’s hard for corn to put a higher close,” he says.
U.S. ending stocks were nearly unchanged as well as USDA raised exports 25 million bu. but lowered corn for ethanol 25 million bu.
Funds Continue to Sell Corn
Funds have already liquidated a big share of their long position in the corn market but still made new lows in December corn.
The corn chart looks terrible according to Nellinger, and the volume has pushed to the December contract.
“Three weeks ago, they were along about 250,000 contracts. Right now, I would say that they are flat or just very marginally. So the chart looks horrible. I think if we close under $4.40 for a weekly close this week, it opens the door up for a quick push down to $4.20. You could argue even maybe closer to $4 if they want to build a short position going into the end of June here,” he adds.
Soybeans Balance Sheets Virtually Unchanged
USDA shuffled the demand for soybeans with old crop crush being raised 20 million bu. but exports were lowered the same amount. So ending stock were left unchanged for old crop at 340 million bu. and new crop at 310 million bu.
However, USDA raised Argentina soybean production 2 MMT to 50 MMT and left Brazil unchanged at 180 MMT.
Still Nellinger thinks the pressure in the market came from forecast.
“I think it is more about the weather and at 310 million bu. carryout there is no margin for error. Plus domestic demand is still extremely good with wildly profitable crush margins. That’s going to be what underpins us.”
However he says funds are still long around 90,000 contracts while prices are holding support at $11 in the November contract.
“If you get a close under $11. You could see a quick move down into the $10.60 to $10.70 range if the funds want to liquidate everything and get net short on the beans,” he adds.
What Keeps Funds Long in Soybeans?
So do funds have any reason to stay long in the soybean market, especially without any evidence of China business.
“I think that’s been part of the problem in corn as well. Remember this supposed trade agreement that we had not only saw them
supposedly buying the same amount of beans that they had agreed to, but also a lot of other additional U.S. agricultural products. Most people thought that would include U.S. sorghum and corn. Nothing from anyone yet in the case of China. So a little bit of disappointment there,” he explains.
He adds the market feels like it is done waiting for China to come to the table.
A projected 310 million bu. bean carryout is still extremely tight and the crop isn’t to the finish line yet.
“But right now, it’s more about money flow. I think the funds are in exit mode. The question is, are they going to want to build a short? Time will tell. Probably the next 10 days will tell more on that,” he says.
Still Drought and Flooding Concerns
Despite the forecast the U.S. Drought Monitor from Thursday morning is showing D1 to D4 level drought in many areas, so the crop is not perfect.
Still the market is acting like it does not care.
“Yeah, I think the market, again, as always, focused on Iowa, right? 84% good to excellent on Monday’s report. And you look at the fringes though, and there’s problems. There’s been too much rain in southern half of Indiana, Ohio. There’s portions of Illinois where there’s too much rain and the crop doesn’t look great. The far western corn belt certainly has been much more drier. And it’s less than perfect everywhere. But this time of year, the market seems to focus on Iowa, Minnesota is right behind them at 79%.”
USDA Cuts Wheat Crop
USDA cut wheat production 18 million bu. to 1.543 billion bu. and that also lead to an 18 million bu. cut in ending stocks.
However, USDA may have to cut production in the future based on higher abandoned acres according to Nellinger.
“Yeah, I think both are possible. If you remember back a month, everybody was saying, USDA was too aggressive in their yield cut. One way or the other, that crop is likely shrinking. It’s one of the worst in history. Could it stabilize and we see additional abandonment? Yes. Could they continue to shrink yields? Yes, on both accounts,” he says.
Kansas City wheat is still trying to consolidate off the lows and move back higher which shows the domestic supply is tightening.
“The Kansas City action to me says we’re probably closer to a low in here. in the short run funds are already short 60 to 70,000 contracts for Chicago wheat,” he adds.
Cotton Soars on Cut in Ending Stocks
Cotton ended sharply higher on Thursday with a cut in ending stocks by 200,000 bales to 3.7 million plus the market has bounced off key support says Nellinger.
“It was a pretty critical support area on the new crop December contract. Hit about 62% retracement of the entire up move that started just prior to the war in Iran. And so pretty key. If we’re going to hold this thing and not go back down in towards new contract lows, it’s right in this area. So it’s good to see the up move today. Can we get back to the highs? I’m not sure, but it’s pretty oversold,” he says.
Cattle Move Back to New Highs
Cattle futures ended higher for a third day after digesting the New World Screwworm (NWS) news.
USDA report a seventh case Thursday but the market continues to rally on ideas of tightening supplies. The key is can the market get above technical resistance.
The feeder cattle futures have done that but the live cattle have not.
He says open interest has been dropping and funds have been liquidating with the increase in limits.
“So the amount of money that the funds have at risk on a day to day basis has expanded as well. So I think typically their risk models
tell them pull back position size a little bit. We did see that open interest is down and such a massive discount on the August live cattle to where the cash is, that I think that gives us some good support. We need to kind of still get past the screwworm situation. But big picture, that’s probably more bullish than bearish longer term,” he states.
If cash can stabilize or trade higher at the end of June or early July he thinks there is upside left to test contract highs, especially in the August.
“Again, it’s going to be cash market led. It has been for the last nine to 12 months in here. But if we’ve seen a little dip here, if we can at least stabilize, go sideways for a couple of weeks, even if we’d lose another buck or two in the cash, that August is so far discounted $13, $14 behind where the cash market is. Any sign of stability or strength in cash, I think you can see a screaming rally in the August,” he says.
Lean Hogs Mixed
Lean hogs ended mixed with the front end of the board lower and the August on back to the plus side.
“Yeah, I mean, it’s been disappointing that we haven’t seen better levels and better demand. But in the same breath, I have to take a step back and say, look, we’re still well north of $90. We started three months ago way over $100, probably got ahead of ourselves. So it’s not been a normal type June just yet, but maybe we’re starting to see some better rally potential into the last half of June and the first half of July.”
