Grains were higher on Tuesday with livestock mostly lower.
Soybeans Extend Rally on China News
Soybeans extended Monday’s rally and closed 5 to 10 cents higher.
Funds were in buying again on continued weather concerns and reports that Cofco may have purchased roughly six cargoes of U.S. soybeans for September and October delivery, although no official confirmation from USDA.
Still November soybeans failed to close above the key $12 level and Naomi Blohm of Total Farm Marketing thinks the market may be running out of runway as Monday was mostly technical buying.
“The recent rally has also made U.S. soybeans less competitive, with prices now about 50 to 60 cents above South American offers. So, China may wait for prices to pull back before returning as an active buyer,” she explains.
Plus, Friday’s USDA report is unlikely to be bullish, given expectations for higher acreage and strong crop conditions. Based on current conditions, USDA has little reason to lower yield, Blohm says, although modest demand adjustments remain possible.
Marketing Opportunity
As a result she thinks the recent rally looks like an opportunity to make some sales, especially with November soybeans again struggling near the same $12 area seen in May.
Seasonal patterns also suggest soybean and corn prices often trend lower after the July WASDE report she adds.
Corn Running Into Chart Resistance
Corn has also found support from weather concerns and while it did have a chart breakout it is running into the next layer of resistance at key moving averages and farmer selling has picked up for both old and new crop at the recent higher price levels.
Blohm says for December corn, $4.70 remains a key resistance level. “That area represents roughly a 50% retracement and aligns with several moving averages likely to limit further upside.”
Corn needed a recovery after the recent sell-off, especially after trading with little weather premium. Some weather risk has now been added back into the market.
As of June 30, funds were short about 45,000 corn contracts. In the past few sessions, they bought back roughly 35,000 contracts, leaving them near neutral ahead of Friday’s WASDE report.
Friday’s WASDE report is still expected to show large production, with no major yield changes anticipated.
Seasonally, December corn futures have shown a strong tendency to move lower after the July WASDE.
Over the past 20 years, December corn rallied through July in only three years.
Weather a Focal Point
Weather remains front and center with some areas of the central and eastern Corn Belt dealing with excessive moisture and flooding while at the same time, the extended forecast remains hot and dry, raising the question of whether corn needs to add more weather premium.
“Last year, the corn crop was rated about 76% good to excellent; this year, it is closer to 67%. That suggests a repeat of last year’s record yield is unlikely, though trendline yield may still be possible.”
But the next couple of weeks of weather will be critical in determining whether that outlook changes.
“If forecasts ease the heat or add rain chances, prices could quickly give back part of the recent recovery. Flooded fields still need to be assessed for issues such as nitrogen loss and weed pressure. For now, however, the U.S. crop still appears to be in decent condition.”
Europe is clearly in drought, which remains an important factor to monitor says Blohm.
“Because Europe generally uses all the corn it produces and relies on imports, production losses could affect trade flows. The key question is how much French or German production may decline and whether that could increase demand for U.S. exports,” she adds.
Wheat Follows Corn and Soybeans
Wheat has been more of a follower of corn and soybeans on the rally plus funds have been covering shorts in wheat and corn according to Blohm, as open interest has been declining.
“So there has been short covering with corn. So like I said, the funds had been short about 45,000 contracts of corn for managed money. They bought back about 35,000 of those contracts on Monday. So they’re neutral in corn and they’re just waiting to see what the WASDE report’s going to say and what the weather outlook is going to be. So they’re ready to pounce in either direction, depending on the WASDE and depending on the weather outlook,” she points out.
Cattle Rolling Over?
Cattle futures were lower on Tuesday and the August live cattle closed below the 100-day moving average for a third session.
Blohm says the market is looking a little top heavy. “I’m a little bit cautious in that cattle market right now. You know, the fundamentals continue, of course, to be supportive in the big picture, but we are sitting on a significant support area. And if you look at a daily chart, you could kind of argue that there’s a head and shoulders formation starting to form. And if it would come to fruition, it’d be about a $15 drop. from a technical standpoint.”
However, the six year uptrend is still intact.
Fundamentals still Strong
She says the fundamentals have remained solid with the exception of the recent cash market which dropped over $4 last week.
Boxed beef values were higher at noon and weather is also supportive. “We’ll see how this hot and dry weather coming into the U.S. in the next week, what that might be doing to weights and things like that.”
Plus, the August futures are holding a $17 discount to where the cash is, which is supportive.
Lower Beef Prices
The market corrections also coincide with actions by the Trump administration to lower beef prices.
Blohm agrees, “We saw President Trump, you know, try to ask Walmart to potentially work with some of the ground beef values and have a short term pullback on prices just to help consumers. But lower prices are only going to spur more demand.”
The funds are still quite heavily long in the cattle market. But from a fundamental standpoint, in my opinion, cattle prices should be right where they’re at right now.”
Milk Futures Bounce
Class III milk futures ended higher on Tuesday with a bump in cheese prices.
However, the market has been in a steep down trend and is also oversold technically and overdue for a bounce according to Blohm.
The longer term outlook doesn’t show much change even though demand for protein and dairy products continues to be strong in the U.S. and globally.
“So, of course, that theme in the milk market has been overproduction, overproduction, overproduction, more cattle, more cows, of course, being milked. So production is is is more than sufficient. I feel like milk prices are going to ebb and flow, but until we get the milk production to come down, it might be hard for the milk markets to have a significant rally,” she concludes.
