Grain and livestock futures are mostly higher to start Monday.
Grains See Short Covering Rally
Grain markets are all higher to start the week. Mark Knight with Farmer’s Keeper Financial says some of the strength is tied to short covering after lower weekly closes in corn, soybeans and wheat last week. In fact, soybeans tested the October lows and are oversold after falling nearly $1.40 off the November highs.
Geopolitical Premium?
Are the grains also adding a little bit of geopolitical premium with the developments over the weekend in Venezuela? Knight says there is just a slight amount of risk premium being added to the grain markets and other outside markets. However, the response has been rather muted and orderly. The one thing he is watching is China’s response. “China has been getting cheap crude oil from Venezuela and they may decide to retaliate. This could include canceling U.S. soybean sales,” he says. However, as of right now China has not responded.
New Year, New Money
The other possibility is starting a new year the volume has picked back up in the markets with traders back to work. Knight says there may also be some reallocation of portfolios by money managers and they could be looking at moving money from over valued precious metals to under valued grain markets.
Soybeans Adding Weather Premium?
The other question is whether or not soybeans, and to a lesser degree corn, are trying to add some South American weather premium? Argentina has been mostly dry the last seven days and is not seeing a good chance for rain until the 6-15 day time frame. Brazil has been receiving some timely rains but the extended forecast is looking a bit drier Monday morning in the Northeast. Knight says the market doesn’t have any risk premium built in and may not be overly concerned at this point.
Soybeans Trying to Bottom? Corn Sideways
Knight says even though the market has bounced off the October harvest lows, he’s not ready to call a bottom in the soybeans. In fact, he thinks the March contract will need a close over $10.80 before he’s willing to get bullish about the soybean market. Meanwhile, corn just bounced off of last week’s lows, along with wheat, and is still in its sideways range.
Exports, Commitment of Traders Data Getting Up to Date
USDA released export sales for December 25 this morning and the Commitment of Traders Report is updated as of December 23. Knight says so far corn exports are running year to date 30% higher than last year, while soybeans are 31% behind. Managed money is still plenty long in soybeans and traders extended their long position much farther than anyone in the trade expected, while traders are nearly flat in the corn market.
WASDE on the Way
The next big market mover will be the January WASDE. Knight says he expects USDA to increase corn exports in the report and lower soybean exports. The trade is also anticipating lower yields for corn and soybeans but he admits it will take a sizable cut to corn yield to make a real dent in the balance sheets because it will be offset by lower feed and residual use.
Farmer Bridge Assistance Payments Coming
Meanwhile, USDA announced the payment rates for the Farmers Bridge Assistance program and Knight thinks this may slow farmer selling. The payment will be received by Feb. 28 and so farmers will be anticipating an influx of cash which may help them to hold bushels off the market waiting for higher prices.
Cattle Make New Highs for the Move
Live and feeder cattle futures both made new highs for the move after last week’s chart breakouts. Knight says higher cash and more cases of New World Screwworm in Mexico also fueled the rally. Now that the market has filled chart gaps and closed above those levels he thinks its possible for futures to grind higher. However, he cautions that the market may be unable to retest the record highs because the fund or managed money traders are still fairly long in the futures and may not be willing to push the market that hard as they don’t have a lot of additional room to add positions or buy.
