Grains and livestock closed mostly higher Tuesday.
Wheat led in the grain complex with double digit gains. Funds were covering short positions in the grain complex after even Chicago wheat made new lows and all of the grains were oversold.
Arlan Suderman, Chief Commodities Economist, with StoneX, says, “Yeah money flow. The funds really had built massive, short or sold positions in the grain and oilseed sector, across corn and soybeans and wheat. And not just short positions here but in Europe as well for the wheat market.”
He says with the funds overexposed it makes them nervous about any headlines out of the Red Sea or the Black Sea. “The same thing with end users who may be going hand to mouth, and they know that the funds have these big, short positions. Well, those headlines happened over the weekend and affected the freight price of grain and oilseeds. Two grain ships hit in the Red Sea area, one of them ironically was headed towards Yemen,” he says. Suderman says this is the first time the terrorists or rebels have actually hit grain ships. “That raises the risk of freight, lengthens travel times, increases costs with the delays, increases insurance levels.”
Suderman says whether the rally can be sustained is the question. “The farmer still has a lot of soybeans, especially in Brazil but somewhat in the United States as well, to catch up on sales. Farmer selling in Brazil is the slowest in the last five or six years for this time of year.” Plus, U.S. farmers are looking for rallies to sell and he expects that to continue until there is a story that can turn the farmer bullish.
China came out of holiday over the weekend and announced a cut in interest rates for mortgages which also helped give the soybeans a bit of a boost on Tuesday.
Suderman says the grain markets have built in a lot of bearish news especially with last week’s projections from USDA at the Ag Outlook Forum.
Live and feeder cattle futures hit new highs for the move before seeing some profit taking after running into chart resistance. Additionally, Suderman says the market is concerned about another week of steady to lower cash trade, deliveries against the February contract, and the packer is cutting kills. “We may see weekly kill fall below 600,000 head,” he says. However, the Cattle on Feed Report is expected to show low placements with the average trade guess around 88%.
Lean hog futures held gains on the heels of higher cash and cutouts according to Suderman, as well as some fund buying.
