Grains were sharply lower early Thursday with livestock surging higher.
Grains See Profit Taking on Peace Talks
Grain markets hit new contract highs on Wednesday and then ended lower on profit taking and that trend continued on Thursday morning.
Mike Minor with Professional Ag Marketing says the other catalyst creating some selling is news accounts that Russian President Putin may be considering a peace deal with Ukraine.
That sent wheat sharply lower, dragging down the corn and soybean markets. However, Minor says crude oil is also trading lower in reaction and that is a drag on the grain markets.
“Crude oil and wheat specifically, I feel like I’ve been pushing around soybeans and corn very hard as of late,” he says.
Fundamentally and technically there are reasons to buy corn and soybeans with tighter U.S. and global balance sheets but the market needed a push or reason to buy and that came from wheat and oil markets.
Will a Peace Deal Happen?
While there is talk of a peace deal between Russia and Ukraine, few people believe it will materialize and fighting continues to escalate and choke wheat exports.
Minor says, “I think this is just a one-day pullback here from the peace talks, even if it lasts for a few days or here. Something along those lines, I don’t see it sticking. Now, at some point, it’ll be interesting to see if the futures continue to care about the Russia-Ukraine war, because remember, as they just kind of went into a plateau of escalation there for a few years, the market virtually didn’t care about their situation. So we’ll see how their exports get rerouted.”
Russia Lifting Export Tax
Meanwhile, Russia announced a suspension of their grain export tax through the end of the year which was already a negative for the wheat market on Wednesday.
“Russia is going to try to cheapen their exports to help pay for their war like they did last time around. You know, that had a bearish effect last time. That was a little bit unforeseen, I’d say, to the marketplace. And if they start to do that a little bit more again here, that could be substantially bearish,” he adds.
Pre-Holiday, WASDE Positioning
The peace talks were also an excuse for traders that have been long in the grain markets to take some money off the table before a three day holiday and the WASDE next Friday according to Minor.
He says funds are near to record long in corn and soybeans so the traders were begging for this kind of trade action.
Heading into the WASDE yield estimates are starting to be released from private firms. Allendale’s survey estimate was at 178.7 bu. per acre on corn and 52.6 bu. on soybeans.
Minor says, “If you do come in somewhere 178 or above, that’s where it starts to get interesting. If you are below 180 significantly, you’re going to have to ration this crop. And price usually is what’s got to do that. And that’s got to go up to make people stop using it. So next Friday will be interesting.”
Correction is Healthy
Plus, in August soybeans and wheat rallied over $1 and corn was up $.75 so a correction is healthy.
Minor says markets can’t go straight up every day especially in the month of August. “Talk about the definition of the counter-seasonal rally.”
Do Funds Keep Buying?
So with the funds so extended in corn and soybeans do they keep buying? Minor says they sure can.
“Just because they’re at a record, they probably won’t look at it and say, I’m at a record, I’m going to pull these off. That’s not really the case. I would say, look at it more from a price perspective. If we’re at $5.20, $5.30 on December corn here, that’s not that expensive of a price historically when we’re at a record long position on funds. You know, you go back to when the last time we had a record in 2011, you had much higher prices. I mean, $6, $7 range,” he explains.
So from that perspective the funds could double their long position if they wanted to here says Minor. “They’ve got plenty of capital to throw at it. You’re just going to, one, need the momentum to continue, need price to continue to rise for them, give them a reason to keep staying long. Don’t force them out too much here on the time being.”
The scary part is when they do decide to get out the market will go down fast and hard.
Exports Solid, No Signs of Price Rationing
Exports so far are showing few signs of price rationing or slowing of demand. The new marketing year started on Sept. 1 for corn and weekly exports were at 78.2 million bu.
“I mean, old crop marketing year finished out very strong. Normally we’ve got cancellations going into the end of the marketing year and we saw virtually none. So that was very odd. Strong exports for this last marketing year. But this next year. We’ve had good exports, yes, but we are 30% behind last year’s pace at this time. So keep an eye on that because if we are going to have higher prices here, keep an eye on any export demand rationing going forward,” he says.
Soybeans exports were at 71.6 million bu. for the new marketing year which is also strong and China bought another 7.1 million bu. of new crop U.S. soybeans.
Wheat exports were a bit tepid at 11.5 million bu. and the marketing year total is down 31% so far versus last year.
Energy Prices Getting Frothy?
Crude oil prices were up on Wednesday but have cooled on Thursday.
The one exception is the diesel market where prices are at the record levels set in 2022.
“Near record prices. You know, that spread, I keep getting asked about the spread between the two being a little off, right? Like how is 80 some dollar crude oil record diesel prices? And that conversation is kind of interesting. But nonetheless, record low reserves now for diesel is really helping keep those prices high,” he says.
So it doesn’t look like inflation is going to take a break and farmers are also going to feel the squeeze at harvest.
Diesel Prices at Harvest
Farmers trying to fill their tanks with diesel ahead of harvest are seeing much higher prices, even this week. Plus availability is an issue.
“At this point, they know the price is high. It is starting to be a little bit more concerning about the fear of, can I get diesel if I want it? That question’s being brought up, which I think with many commodities, you can get it. It just depends how much you’re going to have to pay for it, which is always tough. But I’m not buying more than I need to. I would still expect a pull back at some point, especially before next spring,” he adds.
Cattle Surge on Lower Corn, Better Cash
Cattle futures were sharply higher on Thursday morning in response to the pull back in corn and grain prices.
Funds have been selling nearly every rally and Minor says the futures market has had a difficult time finding a bottom.
“Once these markets start trading momentum, they start trading a range and a trend. I’ve noticed over the past few years, they continue to hold on to that pretty well. They need a pretty good reason to break out of it. And the cattle market is a great example of that. We’ve had a downtrend building for a while now, and they’ve been holding on to that pretty well,” he says.
Minor points to Wednesday’s lower close despite better cash news as the market momentum keeping the down trend intact.
Cash traded light at $345 to $350 dressed in the North, so steady to better than last week with just a few head at $218, down $1.
“Being even steady to a little higher this week in cash so far, that’d be a win, I think. And as we look at today’s price action, one, definitely the knee-jerk reaction off of lower grain prices. But two, better cash news should be helping this from that perspective,” he says.
Can Cash Bottom the Futures?
Minor is hopeful even a steady cash trade can bottom the futures because of the discount futures hold to the cash.
“Yes, we normally do peak meat prices out here seasonally around right before Labor Day. So that part’s normal. We would expect a little sell-off
post Labor Day because of that. But futures and cash are already there. They’re already expecting that normal break, which I think if we continue to hold up here, I think that’s pretty friendly on the cattle market,” he explains.
So, he hopes the futures can form a bottom but he’s still concerned. “So I’m going to watch that 20-day moving average on fat cattle pretty closely and see if we can kind of break above that downtrend,” he adds.
Hogs Build on Reversal
Lean hog fututures were higher on Thursday seeing some follow through buying after a slightly higher close on Thursday.
Hogs have continued to build on last week’s technical reversal. Some of the move has been short covering as the funds are back near a record short position in hogs again and nearby futures are also running into chart resistance around the 50-day moving average.
Minor says hogs have been interesting because the market has been in a down trend most of the summer but stayed in a sideways range.
However, fundamentals are starting to improve. “We’ve had some $97-ish prints on cutout this week. And if we continue to hold that, it puts October somewhere around $86 or so as good value at expiration. And I think we’ve had plenty of discounts in this market. And we’ve started to take some of those discounts out. Now, for the market to get too much more excited than that, it’s probably going to need another reason. to really push beyond some of these levels, you know, a few bucks higher than where we’re at today,” he says.
Minor says numbers are not burdensome for this time of year and exports were strong on Thursday at 35,000 metric tons.
“Exports had their best week and probably 12 weeks here as well. So this better value for pork is hopefully starting to show up,” he says.
