Grain and livestock futures were mostly higher early Tuesday.
Grains Rally on China Talk
Corn and soybeans failed to extend Monday’s gains in the overnight session but when the day trade resumed the markets were sharply higher on talk that China may be looking for U.S. soybean bids.
Vince Boddicker of Farmers Trading Company says while no sales have been confirmed, just the rumors of China in the U.S. market looking for bids brought buyers back into the market.
He says, “I haven’t seen anything else that would be doing it. You’ve got something that put money flow back into this thing and the quick turnaround it was from 7:45 am to 8:30 am was incredible. Maybe China said, I’m not going to buy a U.S. product until we end the war with Iran and maybe they’re coming in to do it now. It’s a little early, but it’s never too late to start.”
Grains on Sale
With the pullback in grain prices from the May highs, U.S. product is on sale and new crop soybeans have dipped below Brazil’s price, which should make them attractive to China.
“Yes, the U.S. dollar’s up there which hurts you a little bit but I don’t think it’s huge. Demand as we know is a key,”
Plus, soybean processors have been looking for old crop soybeans with the price pullback on the futures.
Crush Driving Soybean Market
Despite the NOPA crush missing expectations Monday at 208.8 million bu. there were several plants doing maintenance for the month and it was still a record.
So Boddicker thinks crush will continue to drive demand. “And hopefully we can continue to have that demand and promote that demand as a great environmental alternative.”
The Iran war has also driven the surge in demand in the U.S. and globally for biofuels.
Could China Buy Corn?
U.S. corn prices are also on sale down near the new contract lows scored on Monday, which should peak China’s interest as well according to Boddicker.
“Yes, you know, you would think they should be. The question is, one, do they need the corn? And two, if they do, then they won’t let anybody know they do. You know, and again, I keep coming back when corn gets uglier, even when it’s high and say, is the world ever going to adjust to 2018 surprise of finding another 100 million metric tons of corn in China that nobody knew they had? I think we lost a lot of that a few years ago, but nobody ever corrects it on the balance sheet,” he adds.
Weather and Crop Ratings
While U.S. corn ratings went up 1% on the good to excellent category at 68% and soybeans improved 1% to 66% there are some problem areas.
Iowa ratings fell 5% on corn and 3% on soybeans, while Illinois ratings dropped 3% on soybeans. These areas are also forecast to get more rain in the next few days.
However, Boddicker says the trade still trades rain makes grain. “In all of my years that I’ve done this, Michelle, with the exception of 1993 when the funds were just getting into this business, I’ve really never seen where too much rain gets the market excited. They’d like to see it drying up and burning up to jump in.”
Wheat though did not trade the drought card very long he says.
“We had some some improvement in crop conditions there, and sometimes they forget about it, and you look at the South, we’re harvesting pretty well already. I don’t think anything is exceptional on yields in there, but that story’s been there,” he adds.
Boddicker says wheat carryout in India was also reported higher which doesn’t help.
Confirming Lows?
Yesterday the grain markets did see reversals, so with a higher close today, could this confirm lows in this market?
Boddicker is hopeful that some fund money will come back into the market. “I think it could. They have to have a reason. I think a lot of that early entrance was when the war started in February and March with Iran. The stock market was ugly they pulled money out of there and put it in here with new all-time highs you got to believe a lot of that went back into the stock market. Do they look at it now and say we’re probably undervalued let’s put some money back in? That’s a good possibility.”
He says the big key to bottoming the markets will be a change in psychology that gets the funds to quit selling every rally. Last week they sold a record amount of grain and oilseed contracts.
“Otherwise, I’m looking at cycles. We’ve got some quite a few midterms, corn cycles that were due the end of may not that they can extend for another month yet before they actually have to happen in there. Hopefully we’re making that turn and many times if you get a break into from mid-May and by the time you get to mid-June late June you’re starting to turn that around at least short term,” he details.
End of Month, Report Positioning
Plus the market is coming to the end of the month, end of the quarter, and it coincides with the reports from USDA on June 30.
So Boddicker says funds may not want to be too short heading into that time frame.
“Again, they are both big reports. The quarterly stocks can be a surprise a lot of times. You know, the final planted acres report still bothers me. I’ve talked to senators and congressmen and getting to get the USDA to change that report to come out July 31st you know only from the fact that are we are not done planting corn or beans on the first of June,” he explains.
Cattle Extend Rally
Cattle extended Monday’s rally on technical buying and were making some new highs for the move early Tuesday.
Additionally, higher boxed beef values and higher cash ideas were driving the futures rally.
“Somehow you’ve got to put confidence back in that market to get the buyer to come back. And I think you’ve started to do that, especially when you took out yesterday, took out last week’s highs. That was a necessary thing to do to say, okay, now I have higher highs. Can I get higher lows to confirm that I’ve changed at least to a short-term uptrend? Longer term you’re still in an uptrend in this market and you should be for awhile,” he says.
Consumer demand and spending due to higher energy prices has not seen a slow down when it comes to beef.
Still, the rally in the equities and lower energy prices are also supportive.
Hogs Try to Bounce
Hog futures were mostly higher except the nearby July. However, the hogs have continued to see fund and technical selling on any strength.
Boddicker says the selloff is overdone and while there isn’t a real fundamental reason for it, there isn’t any reason to rally either. Still he is hopeful for a bottom soon.
“I think we should be coming into some fairly decent lows, at least short and midterm in here. And if you look at it realistically, you look at that August hog contract, if you can put a significant low in at $94, historically, that’s pretty good. But let’s take the other side and look at inflation where it’s at also. We need to be higher to make it work for the producer.”
