Grain and livestock futures were lower on Wednesday except for feeder cattle.
Grains and Cotton Futures Fall as China Denies Purchase Amounts
Grain and cotton markets saw profit taking and speculative selling on Wednesday after China’s Commerce Ministry denied the the $17 billion of agricultural purchase amounts released in a White House fact sheet on Sunday.
Mark Schultz with Northstar Commodity says the market was skeptical about the lack of specifics in the framework before China denied the purchase amounts.
He says that likely triggered some speculative long liquidation. “I think the other part of it is it’s now day number three since we’ve had the announcement that they were going to do some more business with the U.S. And we have yet to see any type of purchases being made of any sort being announced. Maybe the trade looked around and said, we’ve got three days. We got a lot of length in this market. No confirmation.”
Why Would China Confirm the Deal?
Why would China top their hand and confirm what they were going to buy? That would just make prices go up and make U.S. ag products more expensive for them to buy.
Schultz says, “I would hold that card closer to my chest all the way along as well. I would not relinquish what we agreed to. If the U.S. wants to tell what we did, fine. But I don’t need to make that as a forecast of what we did as well.
So will the purchases start showing up as flash sales or quietly under the radar in the weekly export sales?
“Well, you could see that happen, but I would say right now the trades probably wants to see something being announced. And if you go back, I mean, we haven’t, other than 150,000 metric tons of meal to Italy in the last two weeks, we haven’t seen anything in the daily reporting service of any kind from any country. So all of a sudden our export business has just shut down quietly,” he says.
He attributes that to the high energy prices making shipping more expensive.
Crude Oil Collapse Also Pressures Market
The crude oil market also collapsed later in the day with President Trump sounding once again like a peace deal with Iran may be close at hand.
He says, “Today, with the energy dropping 20, 22 cents on gas and diesel and crude down $6 a barrel, I mean, it just also cast a little bit more of a negative tone across the board.”
Will Funds Liquidate More?
So if there is a peace deal in Iran and energy prices fall and China sales don’t start to materialize soon will the funds liquidate? They currently old a near record long position in the grain complex combined.
“Well, they could,” Schultz speculates, “I thought last week’s technical action for the corn and the beans did cast a negative tone. Now, we’re still some eight to nine cents higher than we were last Friday on the corn, December corn from the close.”
He says soybeans have had a longer rally. “The soybean market has made a pretty good push. I think it’s 17 or 18 weeks. We put the bottom in on this January 12th report. We’ve been going up every since. I think we only closed lower three or four times during that. 17 to 18 weeks and barely had a correction of 20 cents was the biggest correction we saw. So I just think that market’s been, if you look at it on a weekly basis, it looks like it’s just been another market straight up on here. So I just think when you get up to this level and the funds have this much length into the market, you have to keep having friendly to bullish news almost on a daily basis to sustain the rally.”
Weather and Fast Planting
Also adding some pressure is the fast U.S. planting pace at 76% on corn and 63% on soybeans, which is ahead of average.
While there are some problem areas, the weather forecast is non-threatening.
“Yeah, it’s getting favorable because most of this crop is now going to be in the ground. It looks like the heavy rains are going to track further South into the Delta and the Ohio River Valley. Now, that’s an area that probably would entertain having more moisture because they’re still pretty dry underneath. And there, too, the crop is much further along than it is up in the upper Midwest. So they can handle the water. They need more of the water,” he explains.
The upper Midwest would like to see more warmer, drier conditions, at least for the short term and Schultz says that is what they’re going to get.
“It was affecting maybe up to 40% to 50% of the safinha corn. That has been narrowed down to maybe 20%. But the rest of it has got picked up enough moisture that I think it offsets whatever that 20% is going to lose on yield,” he adds.
Problem Areas
There are a few problem areas that have had too much rain in the Eastern Corn Belt and there is even some frost damage in the North that will force replant.
However, he thinks that is a small percentage of the crop.
Wheat Crop Still Shrinking?
The one exception may be the hard red winter wheat crop which saw the worst crop ratings this week since 1989.
Still, much of that may be factored into prices he says because there isn’t much of a problem elsewhere in the world.
“Now, how that changes is if by chance, all of a sudden, the Chinese or somebody else comes in and starts buying U.S. wheat. We’re the most expensive wheat in the world, so that’s going to be a little bit tough to do. But if there is some type of a purchase, then I can see where that becomes a bigger issue,” he says.
He is also watching for disease and quality problems in the soft red winter wheat crop where they have had excessive rains. “Better chance of quality issues going into feed quality wheat,” he says.
Plus he’s watching the spring wheat in Canada and the Dakotas for dryness that could start to curb yield
Live Cattle See Pressure
Feeder cattle futures rebounded to close higher with the lower corn market. However, the live cattle futures closed lower.
The headline of the lockout at the Fort Morgan, CO beef plant may have triggered some early fund selling. However, the plant has been dark for nearly a month without a market reaction.
He says, “Well, it didn’t care, and it certainly hasn’t cared about a shortage or a plant being shut down because the rest of the packers were still out and bidding up last week for cattle.”
Cash Trade Improves Wednesday
Last week cattle traded at record levels but some early week sales were steady to lower. “I heard a few cattle going yesterday in Nebraska, $264, maybe a buck lower, steady to a buck lower. The bid’s out yesterday at $260, not much for takers.”
So by Wednesday cash improved to $264 to $265 live in the North and $415, which pulled cattle off their lows.
Futures are trading at a huge discount to the cash, which is not uncommon, but that will narrow closer to June 5 or June 6.
Cattle on Feed Coming with Bearish Expectations
The market was also positioning ahead of the USDA Cattle on Feed Report on Friday with expectations for larger on feed numbers and placements compared to a year ago when the border was closed to Mexican cattle.
“That is correct. So it is finally crisscrossed over and we should start seeing where the placements start to get a little bit larger, on feed starts to
get a little bit more,” he says.
Improved Beef Demand
The key for him is when demand will start to get better, especially with China relisting 425 U.S. beef plants.
“They basically shut the exports down and we’re only doing about 1.5 million pounds of muscle meat per month going out to China where
they were up as much as 18 and 20 million pounds. So that’s dropped off,” he says.
Increased Beef Imports?
On the flip side of that the market is seeing increased imports from Argentina, Brazil, and even Mexico has now stepped up on the imports
of beef.
Mexican officials say they are going to double beef exports to the U.S. in 2027 because they are feeding more cattle in their country and shipping the meat to the U.S.
“If we shut down the border and we don’t bring the cattle in, it’s not like the cattle died. They are still going to be fed. They’re just going to be fed down in Mexico. And yeah, if the Mexicans aren’t going to eat that much beef, eventually they’re just going to bring the finished product back to the United States,” he says.
Lean Hogs Hit New Lows....Again
Lean hog futures were lower again and seeing some new lows for the move in the June contract.
Is a bottom in sight?
Schultz says, “We haven’t brought the cash market or the pork cutout, for that matter. In seven months, we have been sitting here and doing nothing. It just chops in a sideways pattern. The hog slaughter has finally slipped for at least two of the last three weeks. You better start seeing less numbers.”
He says when the numbers start to drop the pork cutout should respond. “But that is not happening yet as globally, the world is still awash in pork. And obviously, we need something on demand. And thus far, it appears, though, we don’t have that demand showing up.”
Plus, he says consumers only buy pork if it’s cheap because they still have an appetite for beef.
