Grains closed slightly higher Tuesday, along with hogs. Feeder cattle recovered, while live cattle ended mixed.
Grains See a Corrective Bounce
Grain futures closed slightly higher Tuesday seeing some corrective buying after corn, soybeans and wheat held support areas on the charts above last week’s lows.
Mike Zuzolo with Global Commodity Analytics says the grain complex also saw some buying interest on the lower U.S. dollar index, which reacted to U.S. economic data. “I think it was the sentiment reversal in the dollar. We had macro data that came out kind of out of nowhere, and it makes sense because of the shutdown and some of the negative forces in this market, like consumer sentiment. But the producer price index was above the trade estimates, Michelle. And I think that kind of generated a little bit of a second guessing by the bears in the grains, especially with that dollar falling lower.”
Grains See Selling Pressure Ease Ahead of First Notice Day
The selloff in the corn and wheat futures the last several sessions has been tied to farmer selling and liquidation ahead of first notice day for the December contracts which occurs on Friday. Ahead of that producers needed to have basis fixed contracts priced or rolled and so that added some pressure to the markets. However, by Wednesday that selling should be done and selling pressure may have started to ease already on Tuesday.
Grain Markets Bounce Off Last Week’s Lows
Corn and wheat futures also bounced off of key support at last week’s lows and saw some short covering and technical buying on Tuesday.
Key for Wheat Moving Forward Tied to Crude Oil
Wheat was also a bit higher Tuesday as Zuzolo says the market was adding risk premium tied to the bitterly cold weather predicted for hard red winter wheat production acres. However, he says the other risk for the market is tied to the Black Sea war.
He says wheat and crude oil are the two canaries for oversupply in 2026 according to Zuzolo. “I mean, Department of Energy has 2026 WTI forecasted at like $51.25. We’re still, you are $6, $7 away from that as an average price. And so we need to get wheat and crude oil to start moving higher, not dragging the rest of the market lower.”
Some of that is dependent on what happens with Russia and Ukraine. “That’s the other shoe that probably could drop here. If that peace plan potentially falls apart, would that recreate quite a significant amount of short covering in the crude oil? I think so. And then that would maybe bring back the idea. We’ve got winter weather for the U .S. winter wheat belt. Crop conditions good to excellent are, yeah, they’re up 3% versus last year, but very poor and poor are actually up 5% versus last year as well.”
Corn Demand Continues Strong
The corn market has been range bound as the record U.S. corn crop and is bought up by end users but the market remains rangebound with a 2.15 billion bu. U.S. carryout. However, global corn carryout continues to tighten. Evenutally, Zuzolo thinks that will result in a breakout to higher prices.
“I think we could have, after the December goes off the board, a big move in terms of potential move going back up another $.20, $.25 cents. That seems to be given the world supplies, Michelle, where I think we should be. I think we should be at $4.75, $4.80, whether it’s March or May futures you pick. But with stocks still tight in the world and the tightest since 2012, 2013, we are really kind of razor thin,” he explains.
Have Soybeans Put in an Intermediate Top?
Zuzolo says the soybean market has priced in the China soybean news and will need additional purchases to get the bulls excited enough to retest last week’s highs. He says U.S. prices also got high enough relative to Brazilian soybeans that it shut off buying interest from China and other exporters. Soybeans have been up for seven weeks in a row and Zuzolo says a longer term rally will also take a weather problem in South America.
“If you want to know what it will take to get China to buy the rest of the 12 MMT of soybeans they’ve committed to it would be weather because I think they’re oversupplied right now, but with Argentina and Brazil running thin, if we had a real weather market, that would really change the dynamic, and I think put them more on the defensive.”
However, forecasters are starting to put a significant rain event in the forecast for South America for the week after Thanksgiving and Zuzolo is watching that system because if it develops it could pressure the soybean market. He says its key for soybeans to continue to hold support at least week’s lows.
“I would not want to take out what last Friday’s low of around $11.13 in the January now that the November is off the board. This is a market that is in dire need, in my opinion, of feeding the bull because we’re running seven straight weeks higher at this point with the gap to the downside. And so I think the beans are back in a position where it’d be great to get some new Chinese demand news but we’ll also be watching the weather.”
Cattle Futures Try to Recover
Both live and feeder cattle futures closed limit down on Monday in reaction to Tyson’s announced Jan. 20 closure of their Lexington, Neb. beef plant and reduced shifts at Amarillo, Texas. Futures started the day lower under expanded limits and made new lows for the move before bouncing off of chart support. So, Zuzolo says the market may have priced in most of the bearish news.
“I do think we have factored in the perception, the fear of oversupplying this market. And it was the Brazilian beef tariff being cut and the packer news that I think came together in kind of a perfect storm late last week and brought us to where we were on Monday.” he adds.
Zuzolo says he liked how the feeder cattle futures were able to close higher and even the live cattle saw a mixed close. Nearby contracts were still pricing in the packer news as well as reports of lower cash. With light dressed sales of $330 in Nebraska down $15 from last week plus $210 live, down $5 to $10. Southern sales trickled in at $215, down $7 to $9. However, the deferred contracts were higher with a delayed reaction to the Cattle on Feed Report which showed placements at 90% of a year ago, which was the tightest since the series began in 1996.
Will Funds Come Back to Buy on Tight Supplies?
He says the supply side fundamental are still tight in the cattle market with the exception of the record weights. However, he thinks at some point that may attract some renewed buying in the cattle market by managed money traders, but at least for now they are still cautious.
“I still feel like 2014-15 is a good measuring stick. We drop feeders 14 % from the October high to the December low. We’ve taken feeders down 20% now with this break. And that was mainly because we rebalanced. We weren’t fearful of only supply and red hot demand back in 14-15. That shifted. And I think we went through that shift here recently. So I have told clients and subscribers, we get a good weekly close this week. I’d probably come back and look at some known cost buyback in in Dec, Feb, and April fat cattle just in case I had to make some really bad sales.” he adds.
Lean Hogs Mostly Higher
Lean hog futures were mostly higher for a second day on short covering and the higher cutout values.
