Grain and hog futures ended higher Monday with cattle mostly lower.
Grains Add Risk Premium
Grains markets were higher on Monday adding risk premium tied to the breakdown of the peace talks with Iran over the weekend and higher energy prices.
Vince Boddicker with Farmers Trading Company, says both sides rejected the deal and so funds were buying and as long as crude oil stays at high prices that will bring in inflationary buying.
“I think you move some of those investors from the equity markets to the grain side, one on inflationary concerns, but two, just saying these things are undervalued. We know we have plenty of supplies at the present time but that could change. But let’s just take some money and put over there. And I think that was really the catalyst that it got started. Now we got to see what it takes to get it to go further,” he explains.
Big News Week....Including China Summit
The other factor that is moving the grain markets and bringing in fund buying is optimism about ag purchases as part of this week’s China summit between President Trump and President Xi.
Soybeans have been adding premium heading into the meeting according to Boddicker. “The market always gets excited when President Xi and President Trump are going to get together, knowing great things are going to happen, but we’ll see if it does or not. You know, in the current situation with the Strait of Hormuz closed that might be more of an incentive for China to come in and do some things with the U.S. to try to get some concessions and get that opened back up.”
How Much China Business Priced Into Soybeans?
But how much of the soybean purchase agreements with China is already priced into the soybean market?
Boddicker says, “One would have to think that most of it is. We are here in the seasonal time, on the beans where you put some highs in, but nothing saying you couldn’t have. But when you have these types of summits most of it’s priced in ahead of time, unless there’s some really huge surprise that you’re not thinking of.”
China Buying Other Ag Goods?
The other key is whether or not China buys other ag products beyond soybeans as the grain market is already pricing some of that in as well.
“One ship can keep all afloat sometimes, and I think that’s helping. I guess I wouldn’t be surprised if China did some corn and some wheat in here, but time will tell if they do,” he adds.
Running Into Chart Resistance
Corn and soybeans may have stalled out though running into chart resistance on Monday.
Could the market break above those recent highs with some good news from China?
Boddicker says, “I think it’s a possibility. You know, if I were a producer and I didn’t have much done on new crop beans somewhere from here to $12, I would be pricing somewhere whether that be in the cash or in the futures. If I did futures, if I started going back over $12 or $12.60 or so. I’d probably exit that and see where it went because I’d have a breakout at that point. But I think it’s not a bad area to do some things.”
July corn is also nearing the double top from last week at $4.78 1/2 but Boddicker thinks that mark could be retested.
“I think it’s a possibility. After hitting chart resistance you really thought this thing could break back to $4.50 to $4.60 and you went to $4.61, which I think was great support. And that’s a 25, 26 cent break, which would be about right,” he says.
Boddicker thinks the corn market needs to get a supply shock from weather or a demand shock from the China summit to get through overhead resistance.
He probably needs some news to get going in here with the supplies we got to do, whether that’s weather or something out of the China summit in here.
May WASDE Positioning
The grain market was also gearing up for the May WASDE with little change expected in the old crop balance sheets.
The focus will be on the first new crop estimates of the season and the trade is anticipating soybean production to be up 183 million bu. from last year at 4.445 billion bu. due to a 3.5 million acre increase in acreage. Yet, the ending stocks are estimated to be up only 19 million bu. from last year at 364 million.
Corn production could be down over 1 billion bu. from last year with acreage cut nearly 3.5 million against a trendline yield of 183 bu. That brings ending stocks down nearly 200 million bu. to 1.933 billion bu.
Boddicker says that is largely priced into the corn market.
Winter wheat production is expected to fall 200 to 250 million bushels below last year with ending stocks down to 833 million bu.
Boddicker says that is reasonable with the problems in the hard red winter wheat crop.
“I think you get a lot of areas that are dry and that wheat’s really gotten hurt. The next two or three weeks, as you know, is going to be critical. But just where it goes from this point, I’m
not sure. But I think there could be some surprises there. But whether they’re going to bring it out now or later, time will tell us,” he says.
Kansas Wheat Quality Tour
The size of the Kansas wheat crop will at least be determined by scouts on this week’s Wheat Quality Tour but will it move the market?
Boddicker says, “The trade has a lot of that priced in with looking at bad conditions that we’ve seen. We got a little improvement last Monday on the report but could they come back and say, hey, there’s more acres that we’re going to destroy here. That could be the real surprise.”
Exports and Inspections
The corn market saw flash sales on Monday morning of 15 million bu. of corn to Mexico, split between old and new crop. South Korea also bought 5.8 million bu. of corn.
Weekly export inspections were strong on corn at 66.6 million bu. with the year to date total up 30% from last year.
Soybeans export inspection were at 24.1 million bu. which are solid for this time of year, but the total is still 23% below last year.
Wheat export inspections were 18.8 million bu. and now total 840 million bu. which is up 13%.
Boddicker says that data was mostly supportive and reflects a change in attitude by many countries that are stockpiling grain.
“A few months ago, I think we can go back and say that we changed the attitude of that importer to say, I’m no longer going to buy hand to mouth. I better put something in reserve just in case more gets out of hand with the American and Iranian war and other things going on in the world,” he explains.
Cattle Market Hit by Beef Import Hike
Cattle futures were mostly lower except for nearby contracts reversing the strong opening.
The market reacted to President Trump’s Executive Order to suspend tariff-rate quotas on all beef-exporting nations to curb record high beef prices.
Boddicker says, “What can break the camels back? When President Trump came out and said that he’s going to drop the tariffs on Brazilian beef and other countries to get more beef in the U.S.”
He says this caused funds and algorithm traders to again liquidate on concerns that the government is getting involved in trying to get beef prices down at the grocery store.
“We looked at preliminary open interest numbers from the CME this morning were looking like we were down 2,100 contracts, which would have meant long liquidation on Friday on the sell-off. And then when they came up with final numbers, it was a plus 3,900. Again, a 6,000 contract swing indicating there was more new selling on Friday. Something wreaks in Denmark on that much of discrimination or discrepancy between those reports,” he adds.
Cattle Market Topping Action?
However, it is hard to call a top in this type of market he says.
“We’ve seen this action before and every time it’s come back. When we look at some cyclical things, you’re looking for some intermediate term highs in both feeder cattle and fat cattle in May. So could we have done that already? We could. I think only time is going to answer it. But this market, as we all know, is fundamentally is strong but is still headline driven,” he says.
The market also failed to rally on record cash trade which topped at $260 in the North and don’t forget the DOJ probe announcement on Friday.
“The only thing that bugs me on that is what are we going to find out? We’re just getting settlements from the last DOJ probe. What are we going to do different this time than we did last time?”
Hog Bounce
Lean hog futures bounced off the new contract lows scored on Friday. So was this just a one day pop?
Boddicker says he was encouraged the summer months at least held chart support after testing it the last several sessions and it came as cattle futures fell.
Can the continue to market recover?
He says, “It feels like we maybe have the high end for the year but a $5, $6 rally would not be unexpected,”
