Grains were lower early Tuesday, with livestock higher.
Grains See Profit Taking
Grain markets were all lower to start Tuesday seeing some routine profit taking after hitting new highs for the move and even some new contract highs in parts of the corn and soybean complex, according to Brady Huck with Empower Ag Trading.
He says the markets were also watching the energy sector which was seeing some lower prices.
“I think every day when you wake up, you got to ask yourself, where’s crude at? Where’s energy markets? And that’s the first place to go to look to maybe set the tone for where these markets are going to be at across your grain. So, yeah, that’s the first place to look. Dec new crop corn made a new high overnight. But yeah, pulling off and testing that $5 level on new crop corn are attractive levels for producers,” he says.
So, there may also be some farmer selling. “Yeah those round numbers stick in producers mind for sales targets,” he says.
Dec $5 Corn, Now Where?
He says now that Dec corn has closed above $5 there may be more upside to the market, especially as funds continue to buy.
“I look at managed money positions quite often and funds have been on the right side of the grain market since the first of March. You know, the end of February when those March options came off the books, funds were net short 13,000 corn contracts. And now as of last Tuesday,
264,000 long. And there’s estimates that they’re closer to 300,000 net long currently. So you’ve got to respect that number. That’s well off the record high for their net long position in corn. So there’s room for them to add to that length,” he adds.
Still he says to respect where the funds are at and prepare for a pull back on long liquidation.
Money Flow, Crude Oil Supports Grains
Still, he says the money flow has been favoring grains and the market should be supported on inflationary concerns as long as crude oil prices stay elevated.
“Yeah, it goes back to where are the energy markets? What are they doing? You got crude above $100 in this area. That’s going to support the market. Rising prices at the pump, they make ethanol more competitive compared to gasoline. But on the flip side, Michelle, too, we got to think about gasoline. That’s the main delivery mechanism for getting ethanol and driving ethanol consumption. So if you have higher prices at the pump, is that going to curb usage? And then that kind of goes back to inflation too. Is that going to squeeze consumers’ pocketbooks and actually cause less ethanol usage?
He says many people are looking for a reduction in ethanol usage in the May WASDE and the next few reports.
Fast Planting Pace
The fast planting pace is also weighing on corn and soybeans as U.S. corn seeding pace was at 38% Monday with the five year average at 34%. Soybean planting at 33% was 10% ahead of average.
He says, “No significant problems getting the crop in you look at corn planting pace above the five -year average pace is you know just screaming we’re getting beans in the ground and they’re ahead of normal. That’s good until the rains I guess don’t come but that doesn’t look to be a problem right now.”
That early planting is also taking production risk out of the market he adds.
“So, each day we plug along in this production cycle you know we’re getting the crop in the ground then it’s early vegetative growth and then as we enter reproductive growth putting seeds on the plants and and production the more we know about a market the more certainty we get on the supply side the less risk there out is out there and the market becomes less concerned about a production problem,” he adds.
The market is also watching the dry conditions in the Brazil and if that will trim production on the second crop corn.
Soybean Market Also Makes New Highs
Soybeans made new highs for the move on Monday so the market is seeing profit taking and some farmer selling pressure especially with fast planting.
However, Huck says the market will be well supported going into the China meeting next week and with the May WASDE on Tuesday.
“So next week could be a really dynamic week and who knows what to expect out of that. So we will get the WASDE, we will get the first look at the new crop balance sheets for both corn, beans, and wheat,” he says.
China Meeting in Focus
Plus, the volatility of the China Summit with President Trump and President Xi meeting on May 14 and 15 will be in focus.
“We’ll see what comes out of there. My biggest concern about that meeting and what’s changed over the last month is that Iran and the conflict there will take more precedence over a bigger, larger ag trade deal. It may take the air out of the room a little bit as they focus on other things,” he says.
The concern could also be if the soybean market has already price it in then there may be a “buy the rumor sell the fact reaction” which could produce a selloff.
“You have these headlines the anticipation of an event and like you said there you can buy the rumor and sell the fact and where will this market go so a lot of a lot of pieces of the puzzle ahead,” he says.
Marketing Strategy?
Huck says seasonals are in the farmers favor right now and so they need to watch the market to take advantage of opportunities to price.
“Producers should keep an eye on these grain prices and where they’re at and be opportunistic don’t rule out where things can go but uh respect where they’re at today and where we’ve come from,” he adds.
Wheat Market Falls on Conditions, Rains
Wheat futures are trading nearly 35 cents off of the 2-year highs scored in soft red and hard red winter wheat contracts just a week and a half ago.
The crop condition rating on Monday was up 1% to 31% good to excellent and there are forecasts for rain in the next few days. In fact there was already some rain falling on Tuesday morning in some areas of Colorado and Nebraska.
“Wheat’s been on a tear this year. You know, one of the best performing commodities. I think July KC wheat is, you know, traded almost a $2 trading range since the first of the year. It rallied from $5.35 up to $7.18. We’ve pulled back off of that. We’re about 35 cents off the highs on the July KC wheat contract,” he says.
Crop conditions are bleak the further west you travel into Eastern Colorado and the extreme Western Kansas the panhandle.
However, says, “The wheat crop looks tough but in my travels here I’ve seen you know seen some ground over the last couple weeks traveling around. I’ve actually kind of been impressed with pleasantly surprised with some of what the wheat looks like. So wheat’s a very resilient crop. We often joke that it, you know, needs nine lives to kill it. And I don’t know what life we’re on. Some of it has spent all of them, but I wouldn’t underestimate. I think there’s more potential out there than than maybe what we thought a couple of weeks ago. And yeah, we’ll see. A rain, I think. still help some things.”
He was surprised though with the slight improvement in crop conditions on Monday.
“We really saw kind of a separation where some of that, the fair either went up into good and excellent, or it drifted back into the poor, very poor. So there’s definitely have and have-nots out there in wheat country, and it’s a resilient crop. It’s used up a lot of its lives. Don’t count it out,” he adds.
Wheat Marketing Opportunity
Huck says there are some opportunities to market wheat right now.
“It’s a really difficult crop to market to, Michelle. Are we going to raise 60 bushel wheat or are we going to raise 10 bushel wheat? So options make a good tool to be using there to protect these prices. And if you’re not doing something on 26 or you feel like you can’t, maybe look out there at 27 and see what you can do out there on 27 crop,” he explains.
Kansas Wheat Tour
The Wheat Quality Council tour is headed for Kansas May 11-14 and Huck expects a mixed bag regarding what they find in the field.
“I think you’re going to see some extreme photos of browned out wheat with no heads and just big bare spots. I think you’re going to see some thin wheat. I think you’re going to see some frost freeze damage wheat. You’re going to get a basket of a little bit of everything. But I think there’s going to be some pockets out there where the wheat looks better than expected. And maybe an average, below average type of crop would be my anticipation. It’ll be interesting to see when we get the boots on the ground. And some of that freeze damage is out there, too, because that’s one of the most difficult things to look at, especially from the 70-mile-an-hour drive-by look that I often get at wheat,” he states.
The key to production may be the abandonment of acres and he says that may not show up yet in the May WASDE.
“Typically the USDA takes a scaled approach to making those adjustments, but you never know what to expect when it comes to printing a number on paper,” he says.
Cattle Market Trying to Recover
The cattle market was higher early on Tuesday trying to recover from the key reversals scored on Friday.
The market made record highs that day in both live and feeder cattle futures and then ended lower and continued to sell off Monday.
So can the market make a full recovery?
Huck says, “The cattle market’s strong and we’re up here, you know, very near record levels, just off those record levels, looking at feeders, looking at fats, you know, May feeders posted contract highs Friday, $378.27, closed yesterday, $366.60. You know, we have a $12 off the high just yesterday,”
However, he points out May’s beef month and grilling season is just ahead.
“There’s a lot of fundamental supportive factors for the beef market going forward. But one of the biggest questions in my mind is the health of the consumer. That’s to me is what’s going to drive demand and drive this market going forward. If they show resiliency to continue buying beef because they like the way it tastes, they like the health consciousness of it. It’s a nutrient dense protein that brings lots of stuff, lots of good stuff to consumers. If they’ve got an appetite for beef, I would not guess how long this good market can last,” he adds.
Cattle Market Resilient
The cattle market has also been resilient in the face of bearish headlines. While it did trade bearish in reaction to the announced DOJ probe of meat packers it doesn’t take long for the fundamentals to came back into focus.
“There’s a lot of headlines out there that get slung around and you never know when the trade’s going to trade them and when they’re going to completely ignore them,” he says.
Cash is King
Still with record cash last week that will support the market and the strong cash trade moving foward.
This week the cash market may be more quiet after a week of big gains and last week’s early trade.
“Wholesale beef prices there’s just some natural ebb and flow as to what the packer needs to do to manage the inventory manage their margin and then you’ll manage the supply on the feed yard side so lots of ebb and flow in this market the fundamentals haven’t really changed but
you never know when they’re gonna they are going to change,” he says.
Cash Feeders Strong
The cash feeder market has not cooled off which should also support the feeder cattle futures.
“Right. Yeah, we’re the index is moving around quite a bit. A couple of weeks ago, we saw a pullback on it with some headlines. You kind of got to watch energy markets in the macro markets as well whenever you’re looking at cattle. And we see some pullbacks, some sell offs, ten dollar sell offs. But cash data last week was pretty strong and bouncing back. Watch that cash, not just the the index average change each day, but the daily data that goes into the feeder cattle index each. each day that also provides some clues as to where things are going,” he adds.
