Grain and livestock futures were mostly higher on Wednesday morning.
Grains Bounce on Short Covering
After a down day on Tuesday the grain markets were higher early Wednesday a result of short covering according to Lane Akre, economist with Pro Farmer.
“We tested the 10-day moving average. in corn, soybeans, and wheat over the past week. And that proved to be pretty stiff resistance. And we’ve fallen near the recent for the move lows and the recent contract low on the corn side of things. And we have made a higher low. Now that’s just by a penny or two, but it is a higher low. And that’s the first real positive sign that we’ve seen that a low could be in place. So we’re looking to hold yesterday’s and the overnight low to kind of build and hopefully
retest that 10-day moving average here, either today or tomorrow.”
He says a close above those marks across the board would be a positive sign maybe there’s some money flow coming back into the market.
Market Removed Too Much Weather Premium
Akre says the old adage of “rain makes grain” has pressured the market the last couple of weeks.
However, the slide may have removed too much weather premium.
“It is getting to the point where maybe it’s been a little bit too much rain especially in some southern portions even here Eastern Iowa, we’re starting to see some yellowing in spots of field as just some nitrogen deficiency due to some washouts or just some ponding,” he says.
The excess moisture in portions of the Eastern Corn Belt have been largely ignored by the market so far and the extended forecast does look hotter and drier for the Central U.S.
EU Heat and Drought
The market is also watching the record heat and drought in Western Europe as their corn and wheat prices have soared as a result.
Akre says, “We’ve got record temperatures in France over the course of this week. Typically they produce a lot of their own wheat and they’ve been producing a lot more other crops domestically as well. And that’s kind of hindered some of the U.S. exports to the region. The recent heat that we’ve had could provide a little bit of an opportunity for U.S. crops, and especially on the wheat side of things.”
This could be just the start of production losses in the Southern Hemisphere over the course of the next year tied to El Nino.
Plus fertilizer supplies are compromised by the Iran war and closure of the Strait for Hormuz, which haven’t been reflected in the market.
War Premium Removed
The grain markets have also removed all of the Iran war premium that was build in during April and May and the energy markets are doing the same says Akre.
“And that’s especially evident in crude,” Akre points out, “At the start of the war, we were talking a lot about corn following crude prices or grains following crude prices and we’ve seen a little bit of that on the way down grains definitely led the way lower. Now we’ve got crude basically negating all the war premium we’re down below $70 and bvefore the war started,
we were trading around $65,” he says.
He says it will take month to get flows back to normal through the Strait but the market hasn’t reflected that either and has removed all the war premium.
Iran to Buy U.S. Grains?
With the Strait closed Brazil exports have been shut off to Middle Eastern countries including Iran which could open the door for some U.S. business.
“Brazil is the number one exporter to Iran. They haven’t exported any corn to Iran yet this year. And there’s some opportunity for the U.S. to kind of fill in the gap there.”
President Trump is talking about using unfrozen assets the U.S. is giving Iran for rebuilding efforts and using some of the money to buy U.S. grains.
“I think that would be really significant for the market, kind of gaining some market share there instead of Brazilian corn filling in that gap. U.S. goods going there would definitely help the corn export book. Not that it needs any help, but we’ve got ample supplies. But the market hasn’t responded to that. The markets have really kind of shaken off headlines over the past month,” as he says the market has taken a show me mentality.
Market Anticipates China Buys
The market was disappointed with the lack of confirmation of China sales last week after rumors of large purchases.
However, those rumors have resurfaced this week for soybeans and corn with word they may be asking for bids.
Akre says, “There’s been a lot of rumors, that’s for sure, but not a lot of evidence of anything. We’ve seen a couple of those daily sales, unknown destinations. We saw China come out and show themselves as one of the purchases as well.”
He says that could be a goodwill gesture but China is also a savvy trader that they are bargain hunting.
“Prices remain in a downtrend. Why would they want to shift that so they can you know these export reporting requirements they’re very public they’re very obvious so if they can kind of skirt below those reporting requirements and accumulate. It’d be a good sign but the market is going to show their bluff every Thursday morning. We get this export sales report so tomorrow we’ll see if they’ve been in the market in a bigger way than kind of what they’ve shown,” he explains.
If China was in the market it could provide a significant boost to the market but he says, “There’s been some reports of basis improvements in the Pacific Northwest but so far that’s just rumors.”
Report Positioning
The markets are already gearing up for the June USDA reports and Akre thinks the shift from corn to soybeans could be more muted than expected.
“Basically, right after that March report, we were kind of thinking that we’d see a million and a half, two million acre drop in corn acres. And I don’t think it’s going to be that big of a
drop anymore. Some of these early surveys are showing similar work. I think FBN’s had the biggest drop that I’ve seen, cutting about a million and a half corn acres with a good chunk of those going to beans, but not all of them. There was a couple more that came out this morning that saw 400,000 acre reductions in corn and like 600,000 increase in soybeans from that March perspective plantings,” he states.
Pro Farmer is on the higher side of the corn acres as Akre says they’ve been shocked to see how the corn acres have help up as producers can bushel up on corn easier than soybeans.
“From a capital perspective what I understand, a lot of guys were able to to stick with corn and there were some guys who were even adding corn so we’re still on kind of the higher
range of expectations,” he says.
Average trade guesses will be out soon but he thinks the bigger surprise could come in Quarterly Stocks.
“We’ve put together our estimates for that in the past few days, and we’ve got great demand in soybeans, corn. Wheat’s been kind of lackluster, but corn and soybean demand has just been phenomenal throughout the quarter. And that could open the door for some of this additional residual use. So residual is always the hardest to take down just because we really don’t know where a lot of these bushels are going. But we saw a really robust planting pace again this year. So we should see a lot of that reflected in the stocks report,” he adds.
Cattle Bounce Awaiting Cash
Cattle saw routine profit taking in the futures market Tuesday after hitting chart resistance near the old highs. However, Akre thinks higher cash could push the futures through those chart points and make new highs.
“Last week, we saw a pretty significant uptick. We’re up $3.50 on the five area average this week we had $260 with trade in Iowa so far this week. So if we’re able to push above that $260 mark I think that’d be a big positive sign,” he says.
Especially with a nearly $15 discount to that mark in the August futures.
Hog Market Tries to Bounce Ahead of Report
The August hogs saw light short covering on Tuesday and follow through buying on Friday ahead of the Quarterly Hogs and Pigs report.
Akre says the trade is guessing 101% on inventory but the hog market has already traded the most bearish news.
“This hog market really seems to be looking for catalysts and even if we get an expansion in the hog numbers and get a bullish reaction to that it would be a really positive sign,” he says.
Meanwhile the market has seen funds sell on nearly every rally but he is watching technical action.
“If the market can get above technical resistance and close above that that 10-day moving average and break that pattern. I think that’d be the first sign that a significant low is in place,” he says.
