Grain and livestock futures ended mixed on Monday.
Markets Refocus on War or Shake it Off?
Grain and energy markets gapped higher Sunday night with equity markets sharply lower as the peace talks with Iran broke down and President Trump threatened to block traffic at the Strait of Hormuz.
Mark Schultz with Northstar Commodity says however, the grains and energy sector peaked out quickly and the stock market pulled off of its lows to trade higher by mid session acting like it wasn’t that concerned about the war.
“So the outside markets probably shaking off the ongoings in the Middle East here for the short term.”
He says there is still uncertainty from day to day but overall the market has absorbed much of the bearish news.
“But if you look at it in the bigger scope of things and look out into the future, it would probably still tell you that, no, it’s not of a major concern just yet. If by chance you keep the energy complex sharply higher and it leads on into late May, early June, then I would say you’re probably going to start having some bigger questions to answer.”
Wheat Adds Weather Premium
The wheat market was the only one to hold on to gains into the close as Schultz says that market was adding weather premium with concerns about drought expansion in the Southern Plains.
“I would say if you look at the forecast of what it was Thursday, Friday, going into this over the weekend and into this week, it was a very wet forecast. It looks like you were going to get more of the western half of the wheat belt and get some rain. You did get some, but I would say. By and large, the rainfall was more of a disappointment than it was of a surprise. On top of that, the temperature is going to flip back to much warmer. Warm and windy is what’s starting to happen, and it has been the case here for quite some time,” he explains.
He says West of 35W stretching Minneapolis to Dallas, Texas it is dry and the further West you head the drier it gets and that doesn’t bode well for HRW wheat.
Wheat Sees Short Covering
Wheat also saw some short covering as at least the soft red winter wheat futures saw funds push back short in the market.
Schultz says, “They went short and you had the wheat market, down some 50 some cents in the last 10 days. So a pretty big sell off. So you’re down at some pretty critical support levels and at least held there for a little bit.”
However, if it stays dry into the first part of May it will have a bigger impact on the market.
Corn Caught Between Higher Wheat and Lower Soybeans
Corn started higher with wheat and crude oil and then gave up into the close anchored by the lower soybean market.
Schultz thinks the corn market is starting to see pressure from the weather turning more favorable for planting and planting are starting to roll.
“You have a few pockets that will be wet but dry conditions are short term more bearish to the crop on price than it is bullish. That means your prevent planted acreage is going to be down substantially. It’s pretty, pretty low compared to normal. So I think that’s, that’s an issue. And besides that, even if it’s too dry, you could just replant the crop. That’s why the market really doesn’t get excited until you get into the month of May, whether it’s dry conditions or excessively wet conditions.”
Corn Topped on March 9
The corn market hit fresh highs on March 9 following crude oil but since then has corrected over 30 cents and looks like it is divorcing from the energy market and war headlines.
Funds have also been exiting their long position and as of the latest CFTC Commitment of Traders report sold off another 45,000 longs as of last Tuesday. Will that trend continue?
Schultz says, “I think they still have plenty of length in here, even though they’ve come down some. They’re still pretty long. For this price and the rally that we’ve seen, that’s a pretty substantial move up and it’s a pretty substantial large position that they’re holding on the long side of the market.”
Plus he says there is still plenty of old crop corn around so there is no concern about running out.
“I think the farmer goes to the field. You’re going to see movement of corn slow down. You might see a better basis improvement than you do anything else for the short term. But for a 2.1 billion bushel corn carryout, corn prices are still, in my view, still a little bit more on the high side than they are on the low side,” he adds.
He thinks there may be another 10 to 15 cents of downside risk in the market but technically he is looking for a short term low soon.
Soybeans Lower Despite Higher Meal
The soybean market was lower on Monday despite strength in the meal market.
Schultz says the market is concerned about the possibility of the China talks being delayed or canceled if the Iran war doesn’t come to an end soon and with China providing weapons for Iran.
Plus he says, “The concern on the beans will be that if we do indeed put a blockade on the Strait of Hormuz, the Chinese get a lot of their oil coming out from Iran. If you slow that down, you’d run that risk that bean business to China may slow down here for the short term. So that is of concern.”
Soybean have been trading sideways for nearly 20 days with May beans between $11.45 and $11.80.
However, Monday was an outside day down. “That’s a little bit of a negative tone to the market.” he adds.
Funds Still Long Soybeans
Funds have exited some of the their record length in the soybean complex but they are still very long.
Do they defend that position until the market finds out if the U.S. is going to get more soybean buys from China in mid-May?
“Well, let’s see how it reacts. If it starts going below $11.45 on the May beans, I think I’d have a red flag would go on up. At the same time, $11.80 on the top side, you want to see it start closing above that level.”
If $11.45 is breached and selling accelerates to the downside he sees soybeans going down below $10.80
Cattle Correct
Live cattle futures ended mixed with nearby contracts seeing a correction off of record highs scored on Friday in the face of record cash.
So, is this routine consolidation or a healthy correction?
Schultz says, “The boxed beef has been headed lower, your kill on a weekly basis for cattle is anywhere between 30 to 60, 70,000 head less than the same week on a weekly basis than a year ago. Those are some big numbers to make up. So the cattle numbers going to market are very, very tight, hard to find, keeps the cash market up,” he explains.
He is also concerned the packer margins have gone back from being in the black to now probably somewhere around $170 to $190 per head in the red.
However, he acknowledges the strong domestic beef demand especially moving into the grilling season.
“So henceforth, when you come back and you look at the oil price going down, equity markets going up, probably keeps the consumer still doing quite well with beef demand. So probably a healthy correction here, maybe. It needs a correction. Wouldn’t surprise me, but you’re going to go off of what the cash market and the cash market is still staying relatively strong.”
Lean Hogs Disappoint Again
Lean hog futures were also lower after lower weekly closes in the deferred contracts and the June contract made a new low for the move.
The overall market continues to disappoint, especially relative to the heavy disease pressure being documented in the country.
However, Schultz says the upfront supplies are still overwhelming the demand and the disease pressure may not be fully realized yet.
“Well, we hear about the disease, but you look at the numbers on the weekly slaughter, and that would not coincide with the disease problem that we were hearing about. Now, granted, we’re still to the middle of April. You go back to the hog and pig report, it would suggest that
hog numbers were still going to be about 2% above a year ago until we get maybe to the middle of April, end of April, and then we should start to work it back down to equal with a year ago. I think that absolutely needs to happen. If it doesn’t, then I think the market’s got some bigger problems in front of us. I thought our demand would get a little bit better. And I still think if you look at the big picture, beef being as high as it is, one would think you would get better demand for the pork on the domestic side. That has to happen as well.”
He says exports are okay but with low global pork prices that may be hurting the market.
“China is seeing 16 year lows on pork prices. Compared to the U.S., we’re relatively high compared to the rest of the world.”
