Ag markets were mostly higher on Thursday except nearby hogs.
Grains See Strong Rally
Grain markets saw a strong rally on Thursday.
Don Roose of U.S. Commodities says corn made new contract lows, filled long held chart gap from last fall at $4.05 ¼ on the July corn and then closed higher scoring a key reversal.
He says the market was oversold and due for a correction and funds covered some of the short position they had recently built.
However, the market had also removed too much weather premium.
“The market was taking out a tremendous amount of risk premium in short order banking everything goes smooth the rest of the growing season. Well, we know that’s not necessarily going to happen,” he states.
Roose says the record heat wave has been going on in Europe for a while but the U.S. market finally started to take note.
Weather in the U.S. is also expected to turn hot and dry through July 10 with a high pressure ridge setting in.
China Buying Talk Fuels Buying
Grains also rallied on talk of China trying to buy U.S. corn and soybeans.
He says, “China bought over 200,000 tons that was announced so far this week and almost triple that in unknown. So that’s probably them also. And, you know, they have to start buying about 45 million bu. of U.S. soybeans a week to meet their commitment of 920 million bu. or 25 million metric tons by the end of the year.”
Still, China usually buys around 25 million metric tons annually, so this committed amount of business just gets them back to normal.However, since they didn’t buy last year it is seen as positive by the market.
“Now, usually they wait until the price is competitive. They usually start to buy more in August as we start bean harvest down south and basis widens out a bit into the fall harvest. But we’re very competitive with South America, coming into today. And so maybe we’re at some values where they say, you know U.S. beans look fairly attractive to us,” he says.
China also knows USDA will release two big reports Tuesday and they watch the weather and may see a potential threat.
Wheat Trading EU Weather
The soft red winter wheat market also saw some short covering as funds are short in that market.
Plus, Roose says there was finally some acknowledgement that the EU heat and drought could impact their crop yields.
“The EU, even this week, they’ve been like 100 to 115 degrees and are combining some of the wheat at night because they’re afraid the combine is going to start on fire. So, I mean, they have about the same growing cycle as we do,” he says.
Roose says historically, when harvest gets close to 50 percent harvested, the market starts trying to put a low in.
He adds with the funds so short in Chicago wheat the seller is cautious heading into the USDA reports.
USDA Acreage Report Estimates Show Muted Shift
Average trade guesses have been released for the reports and the shift from corn into soybeans is much more muted than the market was talk about right after the Iran war broke out.
Roose warns that this is a market moving report typically because it also comes along side the Quarterly stocks.
“Corn, year after year, has added one to two million acres from March to the final. If the weather is conducive.However, the average trade guess is down about 300,000. Soybean acres average guess is up like 700,000. So, it looks like a minor contraction in the acres on corn, minor expansion on beans,” he explains.
Roose says that is reasonable based on his discussions with farmers.
Plus, this spring farmers saw a rally in corn during the same time fertilizer prices were on the rise.Many of them had fertilizer in place and it was a pretty good planting window in the Corn Belt, so they may have stuck with corn.
He adds, “I think if you back up before the end of the year, much of the planting ideas are set, you know, before we hit the end of the year due to prepay.”
With the muted acreage shifts it may also take more than a 1 million acre shift to get a market reaction.
“If it moves one to two million one way or the other on corn or soybeans the market will react more,” he says.
In addition, with the wet weather in the Eastern Corn Belt and the dry conditions in the West, people are thinking the yield is not 183, more like 181 bu. per acre.
Quarterly Stocks the Surprise?
Trade estimates for the USDA Quarterly Stocks Report show small changes compared to a year ago for soybeans at 1.05 billion bu. and wheat.
However, corn quarterly stocks are called nearly 775 million bu. above last year despite strong demand.So could that be the surprise?
Roose says, “That’s always the one that’s the moving target. However, it could be the reason we sank so much was because we were lugging a lot of corn around. We’re still lugging a lot of corn around. I think the key on this report when we look at it on the stocks, where’s the farmer sitting?”
He watching to see if farmers have more stocks to sell than the trade thought for both corn and soybeans.
Cattle Higher Still Following Cash
The live and feeder cattle futures were higher on Thursday with feeder cattle making new highs for the move.
Roose says this is a cash-led rally.“This is two years of just a cash-led bull market, a supply-led bull market, if you will, and a demand-led bull market. So you have the one-two punch that’s really pushing us to the upside.”
In fact, he says the cash market has not broken just because the numbers aren’t there Roose adds.
“The consumer continues to buy beef and you know so all things are holding us up.So, you haven’t really seen a solid top in this market just because it’s such a long window to rebuild and we’re still kind of uncertain how much rebuilding is going on at the present time.”
Futures Discount to Cash Supports
Futures are also at an unusually large discount to the cash which is also supportive.
“Usually, we drop 10% from the spring high to the summer low year after year. Last year, we went up into it just counter seasonal.”
He says the trade is trying to bet on a normal seasonal cash break.
“Well, that would take us down to $234, something like that on August. Well, we have too big of a seasonal break dialed in. And even as of today, August cattle off a normal basis are about $9 too low,” he adds.
So the cash bends and comes right back.When that breaks Roose says it is probably a sign the big top is in.
