Grains were mixed to lower Thursday morning, with livestock also in the red.
Grains Await Bullish News
Grains were mixed to lower early Thursday.
Jon Scheve with Scheve Grain says the grain markets are looking for bullish news especially in the form of confirmation of China’s trade deal with the U.S. and the lack of China purchases.
He says the market got excited about the Trump, Xi meeting and had rallied heading into the talks.
“That market put premium in going into that, basically buying the rumor. And then when they found out that there was no deal or they didn’t think there was one, they sold off. Then Sunday night, we learned maybe there was a deal. So then it’s back on on Monday. As the week went on no more details from the Chinese side so everyone’s kind of concerned well maybe there is no more opportunity,” he explains.
He says when the U.S. announced China would buy the 12 MMT of old crop soybeans on October 30 the same thing happened.
“They ended up coming through and buying it they just aren’t going to announce it and that’s probably beneficial to them from a buyer standpoint why tip your hand. They’re going to probably slow pay this but I think the market built in a lot of premium into this and so now it’s just kind of going back and forth waiting to see well when do we actually ship some grain,” he adds.
So the market is in wait and see mode.
How Far Could Grain Markets Fall Without China Business?
While the grain markets wait for proof of sales how far could prices fall?
“This is also the beginning of the weather market. So for the next six to eight weeks, you have extreme potential of buying from the Chinese. So I think that you’re going to see up and down, you know. 10 to 20 cents in beans a day would not be a surprise and 5 to 10 cents in corn shouldn’t be out of the realm of possibilities,” he says.
He points out that if the Chinese buy from the U.S. the rest of the world may switch back to South America. So that doesn’t necessarily mean higher prices are a given.
“So it doesn’t necessarily have to mean any higher prices. If anything if it switches how the beans are moved out of the country that could change the basis in different parts of the country same with corn. Is it being loaded off the West coast or is it being loaded out of the Gulf where is the demand for the grain is?
He adds that who’s buying the goods and how is it getting shipped are questions the market doesn’t know today but will search for over time.
Is the U.S. Competitive?
Are U.S. grain and oilseed prices competitive and how helpful would it be to see the tariffs dropped on U.S. goods, especially soybeans?
China has shown a willingness to lower the tariffs, but there has been no confirmation of the 10% tariff being lifted.
Scheve says, “They could reduce those tariffs, but their state-sponsored companies can buy grain with no tariffs on at any time if they so choose. So tariffs on, tariffs off. It doesn’t truly matter if they want to buy they’ll buy and if they don’t want to buy they won’t.”
He says U.S. soybeans are higher than South America right now but he contends the Chinese will buy to appease President Trump.
“It doesn’t matter if you overpay for a couple billion bushels of beans because losing a buck or two here are a couple billion bucks but you’re saving a ton in tariffs is going to be well worth it,” he states.
U.S. corn prices are competitive globally with Brazil and Argentina and Ukraine is not a big competitor until later in the year according to Scheve.
Grain Chase Crude Oil?
The grain markets were sharply lower overnight and tested some longer term support areas before coming off those lows in tandem with a turn in the crude oil market.
Scheve doesn’t think the correlation to crude oil is that strong though.
“I don’t even pay attention to those two because when you have crude oil up from before the war of $70 a barrel or whatever it was before to now well over $100 a barrel, you have almost a 50% increase in the price, but the price of corn before the war and after the war has only changed less than 40 cents. I mean, that’s only 10% in value. Did they trend and follow each other? Sure. But on a day-to-day, it just doesn’t bother me. If we go to $150 on crude, yeah, I expect. corn will be moving up towards $5. But at the same time, that isn’t the same amount of movement.”
So he thinks corn will trade its own fundamentals, including strong demand.
“Corn is in probably a very long-term upward demand move because we are trying to produce it below the cost of production for the whole
world. The whole world needs basically about $5 corn, and here we are trying to trade below it. So in the long run, I think that corn has promise, but we still have to grind through a lot of stocks, and that takes time to grind through. It could take six months to almost a year to grind
through them.”
Weekly Exports Strong for Corn
Weekly exports showed a strong weekly corn number at 83.7 million bu. while soybeans were at 12.9 million bu. and wheat at 6.1 million.
Corn exports are running at record pace and is likely to continue that trend he says. “That’s because price-wise, we’re competitive around the world. So it should continue to move favorable to the bottom line.”
Weather Market?
This time of year the grain markets are also focused on weather which Scheve says is turning more favorable, plus the U.S. planting pace is ahead of average.
“If we can hit 70% planted by May 15th, then that improves our chances of near trendline yields or above to almost like a 95% chance. And we hit 70% by May 18th, which would put us in that incredibly high chance of having above or near or above trendline yields. I think it’s even a 75% chance that we will produce above trendline yield, which would be 183 when we’re planted this fast.”
So he thinks there are good odds for high yields.
Lower Wheat Crop Factored Into Prices?
Despite lower yields, wheat prices have been consolidating under the May 13 highs.
Scheve thinks the market has factored in the lower production, at least for the hard red winter wheat crop.
“We know that the crop is bad. We know that there’s not going to be a big crop. The question now becomes, is it as bad as we think? Probably close, but did the market already factor all of that in? Potentially. And so because of that, it may drift a little bit lower. I don’t think it has to fall completely out of bed, but at the same time, it may not have to climb anymore,” he says.
That doesn’t mean wheat doesn’t have the potential to rally post-harvest though either.
“But tyou know, if you look at seasonal charts, it would suggest that from now until July 4th the wheat value should start to slip back over time. For soft wheat grown on the Eastern half of the country there are plenty of stocks and the crop is getting good rain, maybe too much,” he says.
Two weeks ago European wheat had worked its way into the U.S. so that may limit upside.
Wheat Crisis Coming?
Longer term he is concerned about lower wheat acres due to the fertilizer issues around the world.
“Even if the Strait reopens, we’re talking probably a year before things could potentially even get somewhat back to normal,” Scheve says.
Prior to that he thinks there may be an opportunity for a rally as some countries try to put wheat in storage.
“But does that happen in the next month? Maybe not. That could be another six months out there type of thing. It could even be something
that happens in late winter, nine months from now,” he says.
So Are the Highs In?
So without an immediate shock to the market or some Chinese purchases did the grains put in tops earlier this month?
He says, “Statistically speaking, the highs aren’t necessarily in. May has seen a few of the highs. That doesn’t mean that June can’t come back and challenge it because June does see it the most often. July, not so much because that’s usually when the weather is factored in.”
Scheve adds that since farmers are trying to plant corn below the cost of production, he is waiting to see what the acreage figures are in the June 30 report and if it is close to 95 million acres.
If it is, then with the crop in on time and normal weather the highs could be in.
How Important are Higher Weekly Closes?
If the markets don’t have higher weekly closes could that also confirm the high technically?
Scheve says, “I mean, the technical trader may want to go with that argument, and I’ll let them stick with that if they want to. But I’m watching it from a fundamental standpoint that there’s no way to know that that is or hasn’t happened because we don’t know how many acres were planted.”
He says last year the market bet on 95 million corn acres and ended up with closer to 99 million.
“What if USDA is three million off in the opposite direction and it’s really 92. that’s going to change things dramatically after July 4th,” he adds.
