Grains ended higher Wednesday with livestock mostly lower.
Grains Rally as War Fears Ease, Attention Shifts to Weather
Grains were higher on Wednesday with Iran war fears subsiding and the markets more able to focus on their own fundamentals.
Rich Nelson with Allendale says while he doesn’t agree with it, the corn market was seeing some weather premium added on concerns about planting delays which takes away the argument for record acreage.
“This forecast does have above normal rain still lined up for the next two weeks. So we’re going to finish out April with a good replenishing moisture situation, but we’re not going to be advanced as far as planting. Let’s make that argument here,” he explains.
However, he is paying more attention to the Climate Prediction Center’s new summer forecast coming out later this week.
Corn Losing Acres Due to Fertilizer Prices?
Is the U.S. corn market also losing some acres this spring due to the higher price of fertilizer and the inability to get product due to the closure of the Strait of Hormuz?
Nelson says they are confident that USDA will be lowering corn acreage again.
“They were 3.5 million acres lower on that March survey. Our own survey suggested 5.1 million acres lower. So we do expect a decline. In our point of view, we’re not yet really going to say that the U.S. new crop story is going to be a yield hit based on the fertilizer issue,” he says.
In fact, he thinks it might be more of an issues this fall when Brazil starts planting and then during the U.S. fall application period after harvest.
“That’s where we probably will see some more valid discussion regarding lighter fertilizer usage. So I personally am not changing yield arguments here just yet,” he adds.
Corn Demand Uncovered
Corn falling to the lower end of its price range it saw a technical bounce but also uncovered some export demand with Mexico and unknown destinations showing up on flash sales on Tuesday.
Nelson says it shows that U.S. corn is a value at these levels.
Is Corn Bottoming?
Technically the market also saw some short covering after bouncing off support. So it this bottoming action?
He says, “So corn is in a downtrend. We can argue at least we have broken above that severe short-term downtrend line with this week’s minor rebound. I’m not quite ready to say we have a major low in place here just yet, but certainly we are seeing a few stories begin to develop here at this lower in the price range where we can say at least further lower pricing might have a little cushion behind it here.”
Soybeans Bounce
Soybeans bounced after two down days in part due to renewed optimism about the China mid-May meeting, a strong NOPA crush report and weather with rain in the two-week forecast according to Nelson.
“I would certainly say that that NOPA crush report for March, 16% over last year. Now, even considering the fact there was an extra plant this year, the NOPA mix versus the non-NOPA mix versus last year, is still a strong NOPA crush. So even though exports are a poor story for U.S. soybeans, we have an exact offset right now from the crush story.”
China Optimism?
So the market is holding a bit of China premium as the mid-May summit approaches.
“I think from a psychological basis, maybe you can argue it’s a discussion simply because Trump has mentioned Xi in recent days. But really, from a realistic standpoint, how many of us are expecting any type of new second round of buying from China for this old crop story? But
realistically, does China need to buy the second round of soybeans for the old crop side? On that end, I’m not quite sure there. It’s more likely they’re going to buy other crops, right?”
He thinks China will buy a small amount of sorghum, even corn and other crops but the soybean purchases could be a disappointment.
“I give maybe a 10% chance at some small corn wheat buys. Myself, I’m not really on board with the idea that they’re going to buy soybeans here,” he says.
That is because Brazil is still cheaper than the U.S. in the soybean export market but at least the difference in narrowing.
“Seasonally, Brazil does go to their largest price discount versus the U.S. and that’s in prior weeks and that was seen anywhere from around $55
per metric ton. It has decreased it’s down to about $30 per ton but still that’s more than we need to be to see a second round of U.S. soybean buys,” he says.
Argentina Strike, Tax Holiday
Nelson says news of a trucker strike at Argentina ports and a possible export tax holiday also weighed on soybeans the last couple of sessions and maybe more so on the meal market.
Wheat Rebounds to Close Higher
Wheat was lower early on rain in the extended forecast but came back to close higher on spillover from corn and soybeans. Plus, Nelson says the market needs to hold weather premium in the HRW market, not the other two classes.
“Let’s point out at least the spreads are changing. The past three days, we have seen a clear movement back towards those KC Chicago spreads, Minneapolis, Chicago spreads. And that’s where we probably need to see and price the situation is. We should certainly price it more as a spread issue rather than a wheat threatened story here.”
He says they will be watching the Climate Prediction Center’s outlook to see if it continues to show dryness in the Plains through summer.
“So I do think that the CPC’s numbers will be a market mover and certainly getting us a point of interest, especially for hard red wheat. Keep in mind, though, in the trades mindset, given the fact that CPC was wrong last year, maybe we have a little caution here this year.”
Wheat Needs to Take Out March Highs
The wheat market also needs to take out the March highs to continue to see technical buying.
“And two of these contracts have gaps waiting at higher prices on the charts. You mentioned the March highs as well. So I do think we make some arguments there. Seasonally, though, and also even in years with a weather threat. Typically, this is not a rally which just keeps on going and going. Typically, there is a short-term rally, strong and looking like a spike, into the late April, early May time of year. But typically this is not a long lasting rally that goes forever. So I do think there’s a good chance of taking out those March highs. I’m not sure how much we can go past that point though.”
Cattle Consolidate
Cattle ended mostly lower and consolidated after new contract and some all-time highs in live cattle on Tuesday.
He says it is likely routine profit taking and report positioning with the Cattle on Feed on Friday.
“I would say so. And certainly for this cattle market, this has exceeded everybody’s expectations these past two weeks. The market, number one, has removed all prior concerns it had regarding processing. And also at the same time, it’s also removed all concerns regarding the U.S. consumer. And I’m looking at the EIA data here from this morning. Despite the fact we’ve had a $1.23 rally in retail gas prices over seven weeks, believe it or not, our gasoline usage is actually higher than last year over this past seven-week period. Bulls do have a valid argument for right now. Somehow, the U.S. consumer is weathering every storm and still spending money on beef.”
Hogs Make New Lows for the Move
The hog market made new lows for the move and was down a 7th day. With April expiring at noon can the market stabilize?
Nelson says,"We had about a two-week break in cash hogs and cash pork, and that’s stabilized. We’ve got stable cash hogs and pork prices right now, which is normal for the first couple weeks of April. At this time, though, futures are always guessing, do we really need these premiums in place for summer contracts based on those fewer hogs which show up in summer? Now, realistically, the market generally falls into the May time frame for futures, then has a sharp spike higher into expiration for those summer contracts. I think that will happen,
certainly from our standpoint. Keep in mind that March hogs and pigs report also trimmed numbers that will be hitting in the summer. So overall, we still have a dead zone waiting for cash hogs and pork to see some procurement into into late spring and strong early summer.
I do think it will happen, but certainly for right now. futures continue to tail off premiums as is often seen at the time of year.”
