Grain and hogs futures ended mostly higher Wednesday, cattle mostly lower.
Soybeans Rally as China Summit Date Set
Soybeans were slightly higher early but saw buying accelerate and the bull spreads kick in after the White House announced a new date for the China summit says Kevin Duling of KD Investors.
President Trump is scheduled to meet with Chinese President Xi on May 14 and 15 in Beijing.
“So yes, that’s a good step. The market responded positively to that. We haven’t made up all the ground we lost ahead of that. But at least it’s a step in the right direction.”
He says he thought from the beginning that China would slow play the additional 8 million metric tons of old crop soybeans.
“I don’t know if it was well-defined that it would be an old crop purchase or a new crop purchase. So, I thought they’d delay purchases regardless and try to add some doubts into that 8 MMT pushing out to June or July for purchases. I still think that’s the case and they can ship it in the fall before the new crop window,” he explains.
Soybeans Also Trading RVO Optimism
The soybean and bean oil markets were also trading optimism about the RVOs or biofuels blending levels being announced soon with whispers the final rule may look close to the initial proposal which was robust.
“The RVO situation looks good, and hopefully we’ll have that by the end of the month. And then the E15, you put them all together. And again, all the grains are kind of moving in tandem here.”
Macro Market Move
The grains are also seeing outside money come into the complex he says, mostly due to the macro economic picture tied to war.
“It just doesn’t seem like we need to be bearish $5 wheat, $4 corn, $10, $11 beans. It doesn’t.”
According to Duling the markets may also be adding risk premium with the concern about higher fertilizer prices or the inability to get product threatening the grain supply.
“If you’re an importer and you’re watching the situation unfold, you know, the longer that Strait is shut down, you don’t want your people to get hung out to dry on the food side. So you’re going to import now and import, you know. frequently to try to get get those grain stocks up. So, we’re apt to see not just the emotion of it you’re apt to see some actual buying come into these grains as countries try to offset some of that risk. We’ve been living hand to mouth for many years and that always ends badly,” he explains.
E15 Announcement Supports Corn
The EPA also announced emergency waivers for summertime E15 use on Wednesday which was supportive of the market.
The corn market is also anticipating favorable RVO levels to be announced soon.
Corn Technicals Look Strong
The corn market looks strong technically according to Duling.
“I think this was the second highest close of the move. You know, with that trend line holding on that uptrend line, as long as we don’t take that out on the technical side, this looks like we’re getting ready for another leg up. And so there was a lot of selling at $4.50, $4.60 level. And there’s probably a lot of selling in the December waiting around $5 and if we get through that we’re ready for the next leg up.
New Crop Corn Pricing in Lower Acreage?
The corn market may also be rallying in anticipation of the lower acreage in the March 31 report with early estimates showing 4 to 5 million less acres.
“You’ve got the combination of the lower acreage, you’ve got a combination of the E15, you’ve got a combination of more feed getting fed in the Southern Plains because of the drought. I mean, there’s a lot going on there on the corn side of it that’s very beneficial,” he says.
What About China?
The other possibility is at the last meeting between U.S. and Chinese trade officials the Chinese talked about wanted to buy more non-soybean row crops. Could that mean corn?
Duling says, “Boy, that would really give it a big push if that happens. And it wouldn’t surprise me if that happens. They had some difficulty last year getting the crop in. They had some pretty bad quality issues. And the overall quantity was down as well. Yeah, if they have an interest in buying U.S. corn, then, man, we could really have some fun here.”
Wheat Adding Risk Premium
The wheat market saw spillover from higher corn and soybeans markets but has also been putting in risk premium on a couple fronts.
Duling says the market is adding war and weather premium.
“I was surprised the weather premium was as subdued as it was and we sold off after the fact. I mean, there’s a lot of damage in that area. And so the U.S. crop is... not going to be strong this year, regardless of what happens. There’s some pockets that look good. The Northwest looks good, but they’re three weeks early, so there’s a lot of frost talk already that were set up to really get damaged by being so early.”
All the attention has been on the Iran war but the Black Sea war is still lingering. “We had a very active night last night with Russia on the drone front.”
Global Wheat Cut With Fertilizer Problems
Duling says the Iran war is also causing supply issues with fertilizer for other global wheat producers.
“You’ve got the Australians cutting back wheat acreage because they don’t have the fertilizer or the diesel. And they’re going to postpone planting and probably go with the lentil route. The EU has been fighting some major, major political battles with their input costs
internally. They’ve already assumed that they’re going to be off six to 8% from last year. And it could be more than that,” he adds.
Rains in HRW Forecast
The weather has also been hot and dry in the hard red winter wheat production areas. There is some rain in the extended forecast but how helpful will it be with Oklahoma’s crop at only 14% good to excellent, Texas at 16%.?
He says, “It’ll be some benefit but I mean, overall in those areas where the very poor to poor categories are so high, they’re looking at a rain as like, okay, now we can potentially plant something else. There’s a lot of wheat that’s done. I mean, it’s just not going to get harvested.”
Cattle Fall With Beef Prices
Cattle futures were mostly lower on Wednesday despite the lower gas prices and higher stock market.
Duling says the higher grain prices and the nearly $8 drop in Choice boxed beef at noon were part of the reason.
“I mean, that boxed beef value dropping that much right now ahead of barbecue season is kind of, I guess, a pretty big red flag, which bothers me a little bit. We had the bearish Cattle on Feed and you’ve got potential for some much higher grain prices. And so when you put all that together,it’s going to be hard for these futures to really take a big move.”
He doesn’t see cash markets cooling off much, at least in the longer term. “Because I feel like there’s a push of cattle that are getting moved through because of the drought, which explains the Cattle on Feed numbers. But that leaves a problem at the back end. So we’re apt to see a pretty good shortage at the back end. So I don’t see this thing falling out of bed,” he explains.
Cattle Charts Run Into Resistance
The cattle charts are showing some caution signs, according to Duling. “That chart doesn’t look that great to me. We’re in resistance area, and we’re below the last high, which is not where you want to see it start to fade. So that’s concerning.”
