Grain and cattle markets started Tuesday with some early strength, which quickly faded.
Grains Consolidate Early Tuesday
After gains Monday of 44 to 48 cents in soybeans, 15 to 17 cents in corn and 10 to 15 cents in the wheat futures the grain markets saw light follow through buying Tuesday morning.
However, that quickly faded due to consolidation and reported farmer selling in the corn market.
Darin Newsom, senior market analyst with Barchart says Turnaround Tuesday action is not unexpected after a big rally following the three-day holiday weekend.
China Sales Confirmed
Soybeans led the gains on Monday as the Chinese Commerce Ministry confirmed they had reached an agreement with the U.S. to lower their 10% tariffs on ag goods including soybeans and grains.
The market was later fueled by talk of China buying from six to 10 cargoes of U.S. soybeans.
Meanwhile, news wire reports confirmed five cargoes were bought by Cofco on Monday.
Newsom is skeptical that China is buying or if they are that they won’t live up to the 25 MMT purchase commitment that has been advertised by the administration.
“We’ve heard these rumors many times over the past decade, and very few have proven true. Given how the market reacted coming out of the three-day holiday weekend, there was some commercial support. That suggests there may be a little more reason to believe these usually unfounded rumors this time,” he says.
Cash Soybean Market Firms
USDA did not confirm any China business with flash sales. However, he says further proof of export business came with a firming of cash basis levels on Monday.
“So it is certainly possible the world’s largest buyer was looking to cover some secondary supplies. There are still question marks not only in the United States, but also in Brazil, China’s main supplier. Brazil is in its winter season now as the market looks ahead to the 2027 crop. Given the decline in U.S. prices, that could attract some secondary buying.”
Processors Bidding Up
Beyond exports, soybean processors have been bidding up to secure their needs which also supported the cash market.
Newsom says it is interesting because usually this time of year, demand slows down, particularly on the export side.
“But over the past couple of years, domestic crush demand has remained solid. The strength in basis points to immediate demand, and right now that likely points to domestic crush. For basis to stay strong through July and into August, that demand needs to remain firm,” he adds.
Soybeans Look Technically Strong
But from a technical standpoint, November soybeans are not far from $12, or from the May high at $12.14.
If the market moves above $12 and then $12.14, how high could it get?
“After more than 40 years as a technical analyst, this is hard for me to say, but I do not read much into traditional technical patterns right now. Last week, that same November soybean contract completed a bearish outside range with a lower weekly close. Then on Monday, it immediately moved higher and took out its previous four-week high, which was also set last week. That is a bullish technical pattern.”
However, he doesn’t think algorithms are focused on traditional technical patterns.
Weather Supports Grain Markets
Part of Monday’s rally in the grains was also tied to weather with flooding in the central Corn Belt and a hot dry pattern in the extended forecast.
Does the market needs to add some weather premium?
Newsom says, “It is possible. Again, if we look at what the market itself is saying, the commercial side seems relatively comfortable with the longer-term outlook. That said, the March-May and May-July spreads are starting to lean more bullish. That suggests the commercial side may not see a supply issue, but it may expect demand to stay strong.”
That may be tied to weather problems in other parts of the world, especially Europe.
“The United States does not sell a lot into Europe, but as we discussed, it could still pick up some of that business. The United States remains the world’s largest grower, producer, exporter and user of corn. That opens the door to another year of strong U.S. corn exports, similar to what we have seen this year.”
Plus, globally corn production and stocks are shrinking.
Money Flowing Into Weather Derivatives
Speaking of weather, Newsom says there has been investment money flow into the softs sector mostly into coffee and sugar.
He says it is tied to weather concerns related to production in Brazil and funds have been taking that bet with hedge funds being built around El Nino and the impact it could have on food production moving forward.
So, soybeans may be part of that story as well he adds.
Short Covering?
So was Monday’s rally mostly short covering in at least corn and wheat?
Newsom says, “Particularly in wheat, yes. We know the world is not going to run out of wheat. Europe is dealing with difficult weather, including hot and dry conditions, so the idea is that this could spark increased demand for U.S. wheat. But we did not see much commercial buying in the wheat market on Monday. That suggests most of the move was fund-related.”
Especially as the market sees net-short futures positions in both hard red winter and soft red winter wheat. In corn, there was probably some noncommercial short-covering as well.
However, he says longer term, corn futures spreads are not bearish; they are leaning bullish.
Cattle Rolling Over
Cattle futures saw early strength quickly erode, a pattern that has been familiar of late as funds sell any strength.
Newsom says the market looks like it is rolling over.
“From a fundamental standpoint, there are reasons to be concerned about the live cattle market. It will all come down to cash.
Boxed beef has been working lower, and even though I do not necessarily trust those prices, a consistent decline would matter.
If boxed beef keeps moving down, it is hard to believe the cash market can stay higher.”
With the June contract now off the board, August is running $17 to $18 under cash, which is an incredibly strong basis for early July.
“This opens the door to two possibilities: futures come up to meet cash, or cash comes down to meet futures.”
If consumer demand is starting to weaken and boxed beef prices keep falling, he says it makes more sense to expect cash to come down rather than futures to rise.
“That could begin to form the top we have been watching for,” he adds.
