Grains Post Higher Weekly Closes Despite Bearish News: Are Seasonal Lows In?
Grains posted higher closes for the week despite plenty of bearish news, leaving many market participants to ponder whether the markets made seasonal lows. From more favorable weather for planting to poor exports and Brazilian competition, there were plenty of reasons for grain prices to continue to slide, not to mention the macroeconomic concerns tied to more bank failures.
The wheat complex was the leader building off key reversals scored in all three markets on Wednesday and bouncing off of new contract lows. For the week, July Kansas City wheat was up 57 cents, July Chicago wheat was 26½ cents higher and September Minneapolis wheat ended 32 cents better. Was there any real fundamental reason for the change in trend or was it all technical as the markets relieved an oversold status?
“Sometimes markets bottom when the news is the worst — and it looks like that is what happened,” says Jerry Gulke, president of the Gulke Group. “Plus, we started a new month. We didn’t see any real big change in the fundamentals.”
The fact that funds were near record short in Chicago wheat also produced some short covering, which added to the buying spree.
The rally in the wheat market pulled corn along, and it also had higher weekly closes with July gaining 11½ cents and new crop December was 7 cents higher. Soybeans were up 17 cents in the July with November 16½ cents higher. Both markets made new lows on Wednesday with beans taking out the March lows and then closing back above those chart points and giving the bulls a reason to continue to buy. He says this divergence is a positive signal for the markets.
The question now is will the grain markets see any follow-through buying next week? Gulke says it might just be a dead cat bounce after an ugly drop in prices. He doesn’t think there is any fundamental reason for the market to sustain the rally and he doesn’t see speculative traders buying much more going into the May WASDE Report.
“Not unless the government gives us a reason in the May WASDE and I don’t see that because we will get our first look at yield and it is likely to be bigger than a year ago,” Gulke says. “Plus, they’ll look at the demand side and what is the government going to do with the competition out of Brazil.”
The market will also be closely watching the crop progress report on Monday. With the break in the weather, Gulke says farmers have been going 24/7 in many areas of the Corn Belt, even parts of the north. He thinks planting progress could see a big jump, which could throw cold water on the market momentum. The one caveat is there is rain in the forecast for the Northern Plains that might slow the spring wheat planting efforts in states such as North Dakota.
Gulke says that doesn’t mean the lows will be violated at least for a while.
“I think the market finally said enough is enough,” he says.
His marketing advice is to stay defensive: “You may not want to go long in these markets given the economy, but you probably don't want to sell anymore. And maybe you he wouldn't be held in contempt if you took some profits and put them in your pocket.”
Gulke says in his area corn got down below $5 delivered and that's about $2.50 to $3 a bushel less than he sold for last year.
“That's $500 an acre — that's big money,” he says.
