Grain and cotton futures ended higher Wednesday, livestock were lower except live cattle.
Grains Extend Gains Post Reports
Grains markets were higher for a second day extending gains post report.
Darren Frye with Water Street Solutions says the follow through buying was very important to show the higher close on Tuesday was not a head fake.
“We got through the reports and first notice day, we saw a lot of liquidation ahead of that. And hey, but what we need to see is follow through the rest of the week. So today was a good day. Let’s see what tomorrow brings. “
Can the Market Build on It?
Frye says to build on the momentum the market will need to see China come in and buy not only soybeans but other ag products.
“We’ve seen some rumors of them being in the market, but I like the action and hopefully we can finish the week strong before we go and celebrate July 4th,” he says.
There have been several days with talk that China was in pricing U.S. grains, not just soybeans which has supported the market.
He says with the massive fund liquidation the last four or five weeks the specs have gone from huge longs in corn and soybeans to net short, especially in corn and wheat.
“They have their powder dry and so it would be on the bullish side if we were to China come in here or if the weather is not as favorable as we roll out of a three-day weekend.” he adds.
Do Corn and Soybeans Need to Add Weather Premium?
Some of the extended forecast models are trying to put some heat back in the Midwest after July 11.
“I know some good weather guys that are on both sides of that. Some are saying, hey, it’s going to moderate and July is going to be fine. Others are saying, hey, it’s going to be pretty hot. And some of the extended forecasts, even hotter. This could be something the market pivots off of,” he says.
So after the three-day weekend, a hot and dry forecast could help push the market through critical chart resistance.
Bottoming Action?
What technical areas do the markets need to close above to confirm intermediate bottoms are in?
Frye says he is targeting a close on September corn at $4.33 1/2.
“Then I think I’d be comfortable saying, hey, I think the bottom’s in place given where we are in the season.”
For September Chicago wheat he is targeting $6.36 1/2 and Kansas City and Minneapolis, are similar.
“They just have to get up above that last swing high and you could call a bottom. I think wheat is probably more primed. for making a bottom before even corn, but they probably will trade in tandem. And I like both those markets for higher. We just got to see if we can get more momentum coming out of this week.”
Funds, Farmers Done Liquidating
With funds short in corn and wheat he thinks the right catalyst could trigger a good short covering rally.
That will be easier to do with first notice day in the rear view mirror when basis contracts had to be rolled.
“And of course, the commercials are offsetting what the funds do. So I could see this being a little bit more difficult for them if they wanted to get flat or even net long coming out of this three-day weekend. So we could really be up and out of here, given the right ingredients.”
Wheat Best Chance to Rally?
With record low acreage for wheat confirmed in the report and the EU heat and drought the wheat market could be prime for a rally once the market get through seasonal harvest pressure.
Frye says, “You know, I’m surprised the market hasn’t been a little bit more concerned about what’s going on in Europe. They have a record, a record hot situation over there. 15 degrees, 10 to 15, 20 degrees above normal for a month now. And this western part of Europe is just burning up and really don’t see any relief for them in the near future.”
He adds that U.S. weather could see a similar pattern in the long term forecasts.
Trimming Yield?
Heat on top of wet weather across much of the eastern Corn Belt, has resulted in shallow roots, some denitification.
“So, you get any stresses like heat and dryness and that can really take its toll.”
Cotton Shakes Off Higher Acres
The cotton market closed higher for a second day shaking off the 210,000 additional acres from the March to the June Acreage report.
“It was a little bit bearish on the report, but I think some of the concern, you know, with some of the forecasters is, hey, the Western Corn Belt’s going to for sure turn hotter and drier. This Western Texas area has to be watched. That’ll be key. That could send cotton up, obviously,” he says.
Plus the market broke so hard from May into June and was due for a correction.
“I do think if we get above, you know, 81, 82 cents in December cotton, we could see then a run to the highs again. So not bearish after a break like that, but certainly it hasn’t confirmed it wants to go higher. But I think it’s pretty good action given we increase acres and we’re not going down,” he adds.
Cattle End Mixed
Live cattle futures were mostly higher except August digesting lower cash and cutouts and with the futures at a big discount to cash.
He says that is holding the futures together as well as a fairly strong economy. “The consumer has not backed away. Our numbers are still tight, tight, tight. You know, the new world screw room problem is an issue. I mean, if they come in and have to quarantine cattle, I mean, basically just take those off the market. That’s friendly. The charts don’t look bad.”
Plus, he says the war is not completely over despite the 60 day cease fire and that is bullish for cattle.
“Cattle always go up and do real well in times of war. And we still have the Ukraine Russian skirmish going on and things still in the Middle East. So I kind of like cattle for highter,” he adds.
New Quarter Brings Fund Buying
Funds banked some profits in cattle at the end of the quarter but the futures may see some renewed buying according to Frye.
“You know, that’s a big deal. End of the month, end of the quarter. Anytime we start a new month, new quarter, you can see fresh new buying. And I would expect that.”
So, he thinks the funds will continue to defend their long position.
Lean Hogs Fail
Lean hog futures were back lower on Wednesday with renewed fund selling pressure and Frye says the charts look poor.
“We had really a counter seasonal move. We never rallied in to Memorial Day and passed. And we’re still trying to form a bottom and forge a bottom. And we haven’t had proof of that taking place yet. A cold storage report, you know, inventories are still pretty big. We do have a lack of demand, I think, for the pork side. And of course, that’s keeping us a little bit stymied here, just below the $100 mark here in these summer months.”
USMCA Uncertainty
With the USMCA talks ending and the U.S. deciding not to extend the deal in its current for it will not go to an annual rolling review.
That may have also weighed on the lean hogs as Mexico is the top customer for U.S. pork.
“Well, things like that are going to affect any markets that are going to be impacted by an agreement like that. I don’t know what they’ll end up coming with, but I saw that announcement earlier today. And anytime you cancel something and you don’t have a plan to replace it, I think the market always has some concern.”
That’s because markets do not like uncertainty.
