Grains were mostly higher early Wednesday. Livestock started mixed then turned higher as well.
Has Wheat Priced in Production Cuts?
After limit up closes on Tuesday, the winter wheat market started mixed Wednesday under expanded limits.
Jamie Gieseke with Paradigm Futures says futures were pausing to digest USDA’s big production cut on winter wheat to the lowest level since 1972.
He thinks additional upside is limited as the market has factored the cuts into the market. “I think for the time being, yeah, it’s priced in. We’re struggling to get the European wheat complex to follow along. I think we’re going to need some support from that market to extend this rally on the U.S. wheat side.”
Kansas Wheat Tour Results
Meanwhile the Wheat Quality Council is holding their annual tour through Kansas this week with a summary on Thursday. The first day of the tour, showed a 38.3 bushel per acre yield versus 50.5 last year.
That surprised Gieseke. “I mean 38 isn’t too far off from the five-year average closer to 45. It’s just been extremely dry, I mean it started out hot and low moisture and then you throw in a frost and a freeze and now it’s still staying dry. So, I would have expected a bigger deeper cut than you know six to seven bushels.”
Abandonment rate will be the big key he says especially with higher diesel costs providing little incentive to harvest the crop, even with higher wheat prices.
“Higher diesel costs. I mean, that’s that’s something that the farmer is going to get charged with fuel surcharges. We all know feed trucks are charging fuel surcharges and anything with transportation is going to be higher input costs. If you have a marginal wheat crop, I just kind of really question how much they’re going to be anticipating going to get it,” he explains.
Global Wheat Numbers
Digging into global wheat numbers in the WASDE he was looking at the data on Australian from the Foreign Ag Service regarding 2026 production and Canada.
“They were going to cut production in Australia due to lack of fertilizer or diesel they accounted for some of that but more so they the bigger side of the cuts that they made for the 26 crop was due to weather shifts accounting for El Nino. The WASDE actually did a pretty good job of funneling that into yesterday’s report. I think the Foreign Ag Service cut Australia production about 7 million metric ton year on year. I believe the WASDE cut it about six. So they did a good job of incorporating that into yesterday’s report. Canada actually also got cut. Foreign Ag Service also cut Canada’s production here beginning of April. So they did a good job of accounting for that in yesterday’s report.”
Corn Trading Higher, Global Stocks Tightest Since 2013
The WASDE did not provide much bullish fodder on the domestic balance sheets with new crop ending stocks at 1.957 billion bu. However, the global stocks were down 19.4 MMT from last year says Gieseke.
“I think the price trend will continue to push higher here from a world perspective that was the real story yesterday. I think it’s the stocks to use number once again we have to account for demand when we talk about total supplies here on grain moving forward because demand has increased so much on all these commodities with these lower prices. So, I mean a 21.1% world stocks to use number is as tight as it’s been since going back to 2018, which if you remember that’s pre-China finding 60 million metric ton of corn in their stocks,” he explains.
So, stocks are as tight as it’s been since 2013 and the corn market doesn’t have a ton of wiggle room.
Chart Breakout in Corn
Gieseke thinks the market is on the verge of a bull market or a chart breakout as the front month continuation chart shows higher highs for the last two months.
“I just pull up a monthly continuation chart and I just kind of look at that chart structure and say, you know, a monthly close at $5 or higher is probably going to be that next indicator for us, whether we’re stuck in a range. So the range would be, you know, 2024 low. The 2025 low is actually higher than the 24 low. But if we can get that close above $5, that would be a step in the right direction compared to the 2025 high, which was made last February. A close above $5 on front months would kind of set the stage for that next leg higher here,” he adds.
Corn demand has been strong, especially with record exports but what is the catalyst to get old crop corn above $5 with carryout still over 2.0 billion bu.? Would China business be the key or a weather issue?
“Given the time of year that we’re in, it’s without a doubt going to be supply side. You know how the Brazilian crop finishes off here or you know the Western Corn Belt here is very dry. I know this weather system moving in in the next week we’ll we’ll cover the I states pretty good but you got to remember last year’s crop was ultimately pushed higher because of these the Western Corn Belt actually had some very good yields last year. So, if this dry weather persists it’s going to be a supply lead rally,” he says.
E15 Vote in House
The corn market is supported not only by hopes of China business but the possibility of year-round E15 as the House votes on that bill on Wednesday.
However, Gieseke doesn’t see it as a huge market mover. “I think the market, it’s just going to get muted by everything else going on here this week. I’m not anticipating much of a move from it.”
Soybeans Gear up for China Summit
The soybean market has been gearing up for the China summit for several weeks now. The key will be will agriculture be a focus and it looks that way from the leaders traveling with the President.
“Yeah, it was a powerhouse roster that he brought over there, including the Cargill CEO. You know, today’s this week’s meeting as far as it leads to soybeans I’m not anticipating much more. So, I’m more so continue to watch the just the FOB price in Brazil and how it compares to the U.S. and that spread has closed here the kind of tightened up here the last month or so but the trend on both of those prices that continue to be higher. So, to me I think that’s more of a market mover than, you know, today’s or this week’s discussions in China.”
Market Anticipating 25 MMT of Soybeans
Still the market has been gearing up for 25 million metric tons of soybeans to be confirmed by China for this year. So it that isn’t part of the deal will soybeans sell off due to disappointment?
He says, “Only to the extent of Brazilian prices. Brazil is going to continue to be the floor of the market, and we shouldn’t need to be the cheapest soybean in the world. We just need to be competitive with Brazil’s exports. Again, if that spread between U.S. and Brazil stays within 50, 60 cents of each other here during our harvest or if the gap can close, I think we can meet that 25 million metric ton. It’s just way too early to write it off as we won’t.”
July Soybeans Take Out March High?
From a technical standpoint, July beans have not taken out the March highs although November keeps making some new highs for the move here.
Will July make new highs if China confirms any U.S. soybean business? He says,"There’s a gap on old crop beans in the $12.32 area, interday chart. So if we close that, that’d be a good check in the right direction.”
How high could November soybeans climb? “I mean, as far as new crop beans, $12.30 is going to be an area of interest for us to start hedging
some more.”
Soybean Oil Rally Stalling?
The soybean market has also rallied on the back of the soybean oil rally and the 60% increase in the RVO levels for biomass based diesel blending volume.
However, Gieseke says that rally is getting mature. “We’re going to date this back to January when it started to break out. A lot of the commodity indexes actually started to break out in January. Soybean oil was kind of the first of the ag sector or the grain sector to start to break out.Technical projection was just that weekly cup and handle formation that we’ve talked about before. It actually met that target here last week. So we’re actually not anticipating too much of a sell -off here in soybean oil. The rally has been extensive, but we’re really looking at meal kind of taking a little more of a leadership role here going forward for the next few weeks.”
Commodity Index Hits 2.5 Year High
The rally in bean oil has been on the heels of the surge in the diesel fuel heating oil and crude oil markets. Retail diesel prices hit record highs on Wednesday and coincide with inflation figures heating up with both the PPI and CPI rising.
So that continues to bring money into the commodities and grain markets.
He says, “The Bloomberg Commodity Index, we tracked that pretty closely. That took out 2022 highs. We really don’t see it slowing down. Typically, it might slow down, but we don’t see that trend reversing yet. To slow that down, you need something like, again, higher interest rates, unemployment picking up some sort of breaking point.”
Start of a Bull Market in Grains?
So do he anticipate money will continue to come into the grains because of that inflation risk and start a bull market like we saw back in 2020 after COVID?
“Yeah. I mean, I don’t see anything from a technical standpoint or monetary standpoint that says it’s short-lived. For right now, I’m just kind of staying out of the way and along for the ride.”
