Grains were higher early Wednesday, with cattle starting lower then rebounding while hogs were higher.
Grains Rally Led by Soybeans as Export Sale Confirmed
Grain markets saw early strength with soybeans leading the rally.
Soybeans ended higher on Tuesday after rumors of China purchasing their first new crop soybeans from the U.S.
Wednesday morning USDA reported a flash sale of 13.2 million bushels of soybeans to unknown destinations, with 2.2 mb old crop and 11.5 mb new.
Was it China?
Randy Martinson of Martinson Ag says, “You know, with the size of the purchase, you almost think it has to be. And the timing of it is very coincidental for the rumors that came out yesterday. So, you know, I do think it probably was China that came in and did this purchase.
We really won’t know until it gets ready to ship and it gets declared. But at this point, it looks ominous that it was China that was in buying.”
U.S. Soybean. Corn Prices Below Brazil
However, U.S. soybean prices, at least new crop, have finally fallen below Brazil’s prices. So with soybeans on sale China should be in buying says Martinson.
“And, you know, there’s still talk about these tariffs being lifted, too, at some point. So, yeah, we are, you know virtually on a fire sale with our soybeans. So if they want to buy, now’s the time to come in and buy,” he adds.
Martinson thinks with corn prices just off contract lows China should also be buying corn.
“The funds have virtually liquidated and gone net short the corn market, taking all of the premium out. So we’re looking at lows we haven’t seen for two years. So if they need to look at bringing in some feed product, corn is right now on sale as well,” he points out.
When Will Tariffs be Lifted?
The rumor is Sinograin was behind the export purchase but when will the 10% tariff on U.S. soybeans be lifted by China to make it feasible for commercial firms in China to buy U.S. beans?
Martinson says market sources are telling him it might not be until August and getting the tariffs lowered will be needed if China is going to buy the full 25 MMT or 920 million bu. of U.S. soybeans they’ve committed to.
“I mean, you know, Sinograin and the other companies with China that buys for the reserves, they really don’t have 920 million bushels of room to put soybeans in storage. So some of these will have to be bought by the commercials or by the private crushers to be able to
start utilizing it,” he adds.
So, it will take a combination of both the government and the private buyers to be able to get to those numbers.
China Buys as Iran Peace Deal Signed
It seems like no coincidence that China is buying on the heels of a possible Iran peace deal he remarks.
“You know, it’s very, very possible that they’re connected, you know, because China and Iran are friends. A lot of the energy that China buys or purchases does come out of Iran. I wouldn’t be surprised to say that China stepped in and said, hey, we need to get this over so we can start building our energy supplies again.”
However, he says whether or not a peace deal will get signed on Friday is still in question.
Crude Oil Slips
The energy market has bought into the Iran peace deal as crude oil has slipped closer to $75 and heating oil and gasoline have also pulled back substantially.
Martinson thinks energy prices will start to stabilize in this price area. “I don’t look for it to break the $70 mark. It might get down into the mid-$70s yet, but I don’t think it’s going to get any cheaper until we start seeing a little bit more of confirmation of the strait being open, the boats moving, and some of the activity starting to take place again.”
What does that mean for the bean oil or even corn markets?
He says, “For bean oil, I think a lot of the funds take their money out of that market, a lot of profit taking. I do expect to see the bean oil market to come back again. I don’t think this is going to be a long lasting pressure point for it. I still think that the U.S. is going to be switching over more towards the renewables and we still have the 45Z and the programs in place. So I still think that bean oil has
some strength coming back again.”
The bean oil market also got good news this week as the GREET model guidance was approved by DOE as part of 45Z which should help put more bean oil into low carbon fuels.
Soybeans Pull up Corn and Wheat
Soybeans are pulling up corn and wheat but those markets are also seeing short covering by the funds as technical support areas held in those markets.
He says, “We traded down to major support. I mean, like I said, you know, the corn market had traded down to lows, not seen in two
years. It has zero premium worked back into it.”
Martinson says the funds have liquidated based on ideas of decent weather and trend line yields, but with the acreage report coming up he thinks some premium needs to be returned to the market.
Pause Before the Reports
His early guess on the acreage report is for less acres of corn because of how wet and cold it was this spring in the Northern Plains. Those acres may have been shifted to soybeans. Spring wheat acres will also be down.
Martinson thinks the market will need to see a shift of at least a million acres in row crops to move the market though.
“I mean, it’s going to take a million or more, especially when you start looking at the numbers that we’re at. I mean, I think 95 is where we’re at. If we go down to 94, I mean, that takes 180 million bushels off the stocks estimate, but that’s not much as far as when you look at it for corn,” he explains.
Will Funds Return to Buy?
So with China possibly in the market and the reports coming up at the end of the month will funds return to buy in the grains?
“I think they won’t sell for a while. I think they’ll stay flat. They’ll just come in and kind of play in the market for the short term. I don’t think they’re going to take any long lasting position until we get a little deeper or maybe past July, see where the weather situation
kind of falls into play, how the late summer is going to look. Then I think they start developing a little bit more of a longer term program,.” he adds.
Wheat Harvest, Quality Issues
Wheat may also be getting some support from lower yield reports as the harvest progresses, abandoned acres and now quality concerns in the soft red winter wheat.
“I don’t think they haven’t got into the bad spots yet. So I think we’ll start to see a little bit lower production numbers come into play at that point. Of course, the worst wheat was destroyed already, so that’s not going to be harvested. But we’re also starting to hear, you know, a little bit more rain and moisture issues as far as the Delta and the soft red wheat area, and that’s causing some concerns as far as quality,” he adds.
Spring wheat crop conditions did improve 5% last week to 55% good to excellent last week as the recent heat helped improve conditions.
“We’ve been cool and wet and we needed to see heat to get the crop to emerge and get it to grow. That certainly did help and it did improve things up here in the Northern Plains. But now we’ve switched to be more cooler and drier,” he says.
To Confirm Lows the Grains Need Higher Weekly Closes
To confirm the lows are in the grain markets he says the weekly closes will be critical.
” It would be nice to have a higher weekly close this week. And then I think that could really help the market push again, you know, going into next week. We’ve got a short week. I wouldn’t be surprised to see a little bit more profit taking as we go through the market on Thursday or ahead of this peace deal signing,” he states.
Cattle Wait for Cash, Report
The live and feeder cattle futures had a technical breakout on Tuesday above key moving averages.
Futures opened softer on Wednesday but quickly found some support. Yet the market may be waiting for confirmation of higher cash and positioning ahead of the USDA Cattle on Feed report.
He says, “The cattle market’s pushed back up and now they’ve got closer to cash, especially with the good strength that we’ve seen the last couple of days. So now they’re waiting to see where cash is going to trade this week. Now, cash has been fairly good yet across most of the country. So I think, you know, a steady to firmer cash trade will help push us a little bit.”
Feeders have become the leaders again which is encouraging though and Martinson says it may be tied to ideas of tighter supplies and less cattle movement due to New World Screwworm.
