Grains ended higher on Wednesday with livestock lower.
Grains Add Risk Premium
Grains ended higher on Wednesday with technical buying returning as traders attempted to add risk or war premium to the market says Don Roose of U.S. Commodities. “We were putting in risk premium. We’re adding the biofuel program in with energy moving higher. And you know, like we’re saying, Michelle, it’s very much like a weather market. It’s very uncertain.”
He says the uncertainty is coming from the Trump administration as no one is sure what is going to happen with the Middle East situation regarding oil and other supplies. “So very dicey. And headline news is going to continue to drive this market.”
RVO Talk Fuels Soybean Oil
Soybean oil was up over 280 points in the May contract early in the session with talk that the RVOs would be released soon and could see a biomass based diesel blending rate at 5.4 billion gallons with 70% of the Small Refinery Exemptions allocated back to the market. Roose says regardless of the levels they expect some lawsuits by the big oil companies as they’re not going to want that to go that far. “So we’ll see how fast that actually materializes.”
Inflation Fear
The buying in the grains is a hedge against inflatiion. So will that continue?
Roose says, “I mean, the funds have piled into the soybean market into the oil market, reduced their position in the wheat market, tried to add to the long position in corn and back it off on it. So I think when you look at the inflation standpoint of it, that’s true. But there’s also eventually a fundamental value, you know, Michelle, you got to be careful on these markets that go vertical because, you know, the old adage we always say, a lot of people say is take the stairs up the elevator down.”
He says fundamentally the markets are getting over valued for the long term and technically they could also liquidate as some technical points are hit as the air is let out of the market.
Grains Retest Sunday Night Highs?
The grain markets and energy markets have not retested or take out the highs set on Sunday night. In fact, Roose says many markets scored key reversals including crude oil, bean oil and December corn.
Could those reversals be negated? Roose says, “We had a very dicey situation when we hit those upper end of the levels. We had $120 crude oil, you know, and some of these other things were almost unimaginable where they’re going to go from a war standpoint. So I think from a fundamental standpoint, we’re high enough and overvalued on the grain, certainly from what the USDA price projections are. So I think that the way you have to look at this market, and I think from a marketer standpoint, you either hit a major top or major intermediate top.”
He thinks to retest the highs in the grain market crude oil would have to retest those highs. So he suggests making some sales, just in case. “You know, we’ve been almost a two-month buy signal uptrend in this corn market. That’s getting pretty old. But, you know, we’re as good as the next weather forecast. In this case, we’re as good as the next outcome of the Middle East situation, Michelle.”
Similarities to Black Sea War in 2022
The last time the market saw this type of buying was in May of 2022 when the Black Sea war broke out. There are some similarities but also some differences according to Roose.
“That’s where we had Russia, the largest wheat producer in the world. And we had Russia or Ukraine, a big grain producer exporter. So you had two big grain producers involved. The wheat market was the big leader then. It shot wheat quickly up to $10. But what we really found out, Michelle, is very much like what’s going on now. You took the stairs up and the elevator down.”
The market rallied but once the reality of the fundamentals set in and traders saw too much wheat in the world market, the market fell back quickly. “So I think from a historical standpoint, you have to look at that and kind of use that as a trading pattern along with some of these technicals, Michelle.”
Higher Fuel and Fertilizer a 2026 or 2027 Story?
With the Iran war spiking diesel fuel and fertilizer prices going into spring planting season will this have a major impact on planting decisions or is this a 2027 story?
“I don’t think it’s this year. I think, you know, it’s too close to planting. You know, you’re planting in the Delta, you’re planting in the South. You know, a lot of the other areas have already their fertilizer and such for the most part covered, you know, maybe some of the anhydrous for the summer, you know, producer hasn’t booked. I think from that standpoint, the producers kind of set, but it is next year,” he explains.
Roose doesn’t think there will be any bigger shifts out of corn into soybeans than the four to five million acres that was already planned. Plus, believes the war will be short-lived.
Cattle Retreat With Demand Concerns
The cattle futures were back under pressure on Wednesday with higher corn weighing on feeder cattle.
Roose also thinks there is some concern about the economy and the higher gas prices hurting beef demand.
Plus, cash cattle trade was down $5 in the South at $235 and in the North trade took place at $235 and $372 dressed, which was down $8.
The market is also concerned about the JBS beef plant strike in Greeley, Colorado.
“Yeah, you know, that’s exactly right with that strike. And of course, they can still negotiate to go back to work here yet. The workers just said they’re going to strike. But, you know, I think when you look at the capacity that we have right now, over capacity in the industry, I think it’s more of a logistic thing, trying to switch some of those cattle to other places rather than it is anything else. So maybe a short term by that, but it certainly is a warning sign for the demand side of the market.”
Hogs Follow Cattle
Hogs were lower in tandem with cattle and the summer futures have reached a level that they are too big of a premium to cash and the cash index.
“You know i think historically when you look at it you get up around $112 in the summer months on hogs unless we get some real supply disruptions that market kind of reaches a plateau up in there so the trade is very leery,” he explains.
However, he thinks hogs could be more resilient than cattle as consumers trade down proteins.
