Grain and livestock futures closed mostly higher on Wednesday in a rare feat!
Tommy Grisafi of Nesvick Trading says it was a risk on day in the grains as they attempted to add weather premium on the hot, dry extended forecasts.
“I feel like we don’t have any weather premium in these grain markets right now,” he says.
There are also crop concerns in spring wheat areas like the Northern Plains and Canadian Prairies due to drought and other weather extremes.
How much risk premium needs to be added to the grain markets and how high could that push prices?
Grisafi says 15 to 20-cents can easily be added and then it will take a larger supply disruption to sustain the rally in the grain markets and push the futures above technical chart resistance.
“These grain markets have been moving sideways and as they do that the ranges get tighter and tighter making it more difficult to get above overhead chart resistance,” he says.
Weather fears have caused some of the fund or speculative traders, who are short in corn and all three classes of wheat, to take some profits or cover some short positions.
Despite the higher close the corn market saw further bear spreading and the July gave up early gains with the back months closing higher.
Grisafi says its a function of the large and cheaper corn crop in South America and anticipation of that export competition, plus there may be more bushels in storage that farmers are trying to unload.
Grains are also seeing some buying tied to optimism about trade deals with countries like Japan, India, South Korea, Vietnam or even the EU being announced soon with some additional ag purchase pledges.
However, this is the first week in a new month and Grisafi thinks there is some investment money flowing in from outside markets as well as some inflationary buying.
He says, “Tariffs are seen as inflationary and grains can be bought as a hedge against that”
Cattle futures saw triple digit gains and recovered nicely a day after the rumor of a processing plant closure caused a reversal in the cattle market.
Live cattle futures came within cents of recent contract and all-time highs and with the futures discount to the cash trade being so large Grisafi says its reasonable to anticipate these levels will be breached.
After the close light cash trade was reported in parts of the South at $225 to $228, $3 to $6 higher than last week’s weighted averages. The North was quiet.
