Grain and livestock closed mixed on Thursday.
Quiet WASDE
As expected the April WASDE had only minor revisions in the domestic balance sheet from last month as U.S. ending stocks were left unchanged for corn at 2.127 billion bu. and 350 million bu. for soybeans.
Chip Nellinger with Blue Reef Agri-Marketing says, “USDA did rearrange some of the soybean demand estimates with crush raised 35 million bu. while exports were lowered the same amount.”
Tthe bigger changes came from global numbers with world corn ending stocks up 2.1 MMT at 294.8 MMT and wheat was up 6.2 MMT at 283 MMT, while soybeans stocks at 124.8 MMT were down .5 MMT.
South American Production
USDA left South American production unchanged with soybean production in Brazil at 180 MMT and Argentina at 48 MMT. Brazil corn was unchanged at 132 MMT, Argentina at 52 MMT.
However, the Rosario Grain Exchange raised production to 67 million metric tons, which is 15 million above USDA. So why the disconnect?
Nellinger says, “You know,we often see that, right? CONAB numbers for the Brazil numbers or the Rosario Grain Exchange on the Argentine numbers. Oftentimes, there’s month, two, three-month stretches where those numbers out of the Southern Hemisphere diverge from what
the USDA usually catches up but it could be well down the road before we see that.”
Big Report in May
The bigger report will come in May when USDA releases its first new crop balance sheets and incorporates the March 31st acreage numbers.
He says, “They’re going to use trend line yields. In my mind, the big question is where do they stick demand at? And that’s an unknown, right? I mean, the February outlook number had some big differences in demand from what we’ve seen here, you know, as far as corn and beans go, both of those. And so I think it depends on what the demand is on the May report as to where the, you know, market. fireworks may or may not be. And at least it gives a baseline of what the market can expect based on what the March acreage and the trend line yields are.”
Soybean Crush Vs. Exports
How long can USDA increase soybean crush to make up for lower exports?
Nellinger thinks that relationship is getting stretched. “You’re at or close to record margins on profitability on the crush and crushers are one of the main features I think that are holding the bean market up because they’re buying beans they’re selling meal and oil they’re making $2 plus a bushel doing it but there’s a capacity constraint there and so if the export demand continues to fall I’m not so sure the USDA can continue to offset it one for one with an increase in the crush because of those constraints.”
Grains Divorcing From Headlines?
Even if the WASDE was more eventful would the grain markets have traded it or are they still trading war headlines?
Nellinger thinks the influence of the war and crude oil on the grains is starting to weaken.
“It seems like corn and wheat have, and it started even last week ahead of the Easter holiday on last Thursday. It seems like beans are a little more still correlated due to the soy oil and crude oil correlation but if we see the ceasefire and a longer term peace agreement and normal flow
out of the Strait of Hormuz, then I think it’s just a matter of time before crude oil gets back at least into the $80s, if not $70s and back to the $60s. It might take several weeks to months to see that. If you see that, then that continues to be a little bit of a drag, in my opinion, on the soy oil market and will affect the soybean crush. So I think there is still some correlation from the soy oil to crude oil, but it looks like corn and wheat have a little bit broken that starting last week.”
Soybeans Holding Up on Crush or China Demand Hopes?
Still, soybeans have held up better than corn and wheat as the crude oil trade has been unwound.
Nellinger says it is tied to crush but also China.
“The market is holding a lot of optimism on this mid-May meeting that President Trump and the Chinese president are going to have, hopes that China is going to restart a big export book of U.S. beans. I think that’s part of it,” he says.
Plus, with strong demand for bean oil for biofuels if China does buy more beans the acreage number may be too small.
“If we have any little hiccup this year on production, and it gets extremely tight on the balance sheet. Now, that’s assuming current demand, and I’m not so sure that’s going to be accurate at the end of the day, but it’s going to take several more months to figure out whether China is
going to buy our beans and sustain export demand where it’s at, or if the USDA is going to have to still drop that another $100 million, $125 million eventually because of a lack of Chinese exports.”
Funds Holding Long Positions
The funds are now long in the entire grain complex, so do they defend those positions until the China meeting in mid-May or until the crop gets planted?
Nellinger thinks that is a possibility, “The funds are record long in soy oil, they have even a healthy long in soy meal. They’re just off of a record high in their soybean link, still about 200,000 contracts. And it looks to me, like you said, they’re going to defend that until we see some more definitive answers out of that May trade meeting with China.”
He is also concerned that the funds are long in corn and technically are on shaky ground.
“If they close lower on the week and ugly, trade below the 50-day moving average, it could just increase the fund liquidation, and that could
spill over into the rest of the month of April here into first notice day.”
Wheat Removes Risk Premium
Funds are also long in the wheat market and have already removed some weather and war premium the last few sessions especially with rains forecast in parts of the hard red winter wheat belt.
However, Nellinger says it may not be enough. “There’s chances of rain in Kansas, but so far it looks like they’ve missed those chances. There’s
been some real spotty rains. They’re kind of getting to a critical time frame. So if you fast forward three, four weeks down the road, and they haven’t seen better rains in Kansas especially, but also Oklahoma, Colorado, the panhandle of Texas, they’re going to continue to see crop
conditions deteriorate, their yields coming off the top. That could give us some support down the line. But right now, it just seems like the wheat market is back to the old wheat market.”
Cattle Higher But Waiting for Cash?
Cattle futures were up a second day but live cattle have failed to take out the new contract highs despite the higher equity markets.
Nellinger says the market may be waiting for cash trade but he thinks cattle have shown resiliency.
“We had a lot of reasons to break it when crude oil was down $20 the other day and the cattle market held together pretty well. So to your point, I think that means we are waiting for cash trade. Boxes have slipped a little bit earlier in the week. They kind of came back a little bit here recently. I think if the cash continues to rally, it’s going to keep driving the live cattle into new highs. The lower corn trade probably helping
support the feeders a little bit.”
Concerned About Mexican Border Reopening
There have also been news reports circulating that USDA was getting close to reopening the Mexican border to feeder imports. So that may be holding back the market.
“And it looks like, you know, at least the start of a plan has been kind of announced. We’ve seen a couple of stories on that the last two or three weeks. And yet the feeder cattle market just kind of sits where it’s at and doesn’t break much. So again, I think that speaks to the underlying strength of what’s going on. Fundamentally, there’s just a lack of cattle. Now, if we get some confirmation, yes. It is open. There’s cattle now moving through. Yes, that could probably pull the feeder cattle market off the highs a little bit. But so far, I’ve been impressed that it’s really taken these new stories in stride.”
