Grain and livestock futures all close higher on Tuesday.
Chuck Shelby, Risk Management Commodities, says grains saw fund buying return as markets consolidated still digesting possible tariffs and South American weather.
He says Monday the grain market sold off in response to the tariff battle with Columbia over the weekend and the possibility of 25% tariffs on Canada and Mexico on Feb. 1.
The market was also digesting the benefit of recent rains in dry areas of Argentina and Southern Brazil and more rain in the extended forecast.
The funds are long in the corn market over 312,000 contracts and have moved to over 40,000 contracts net long in the soybeans.
However, what will it take to keep the funds adding to those positions and finally break corn and soybeans above last week’s highs?
Shelby says export sales like the 5.2 million bu. of corn sold to South Korea are supportive .
However, to push March corn above the $4.95 area and soybeans above 200-day moving average chart resistance, it will take better news from China.
He says it would be positive if the U.S. and China could agree to avoid tariffs.
Yet, if the two countries can reach a trade deal that includes China purchases that could be the catalyst to break the corn and soybean markets to new highs for the move and also pull along wheat.
In fact, Shelby says managed money traders are short in all three wheat classes and a demand jolt like China business could produce a pretty sizable rally.
Wheat is trading just off of contract lows and continues to be at price levels that are so low its starting to be attractive in livestock rations.
Livestock futures closed strong with live and feeder cattle futures breaking to new highs chasing cash.
Fed cash cattle hit a new record high for a fourth straight week with the five area weighted average at $210.79, up $7.12 from the previous week.
But how long can the cattle market stay in record territory?
Shelby says the fundamentals should continue to support the prices and the historically tight numbers could be confirmed in USDA’s Cattle Inventory Report this week.
Fund traders are record long in the feeder market and are nearly 150,000 contract long in live cattle and so far are defending those positions.
He says lean hog futures have continued to follow cattle but are also getting a push from fairly strong demand.
