Grain and cotton markets continued lower on Friday with cattle higher.
Grains and Cotton Slide Further After China Summit
Grain and cotton markets saw follow through selling and fund liquidation for a second day.
Shawn Hackett with Hackett Financial Advisors says the market was removing China premium after the disappointing summit as the market wanted more details on ag purchases.
“I just think the concept here was that most people believed, including myself to some extent, that we were going to have some tangible,
concrete evidence of increased purchases of other ag products whether it’s corn, whether it’s cotton and such forth. We just felt that for him to go out there and come back empty-handed was not a likely scenario and he came back the way it looks pretty empty-handed without anything
tangible anything concrete,” he explains.
Market Wants Proof
Despite USTR Jamieson Greer stating that China would commit to double digit billions of dollars of agricultural goods for the next three years the market discounted it.
Hackett says the market now wants proof of sales.
“It needs proof. It needs to know how much of which markets. When are those purchases going to start in earnest? Is it going to be a quarterly thing? Is it going to be just an annual thing? Can they do it whenever they want? So much of that has to do with what’s the appropriate pricing
discovery mechanism for today based upon the nature of these purchases.”
He points out that during the Phase One there were exact quantities.
“And that gave the market clarity on how to handle the supply demand equation in each of those markets. We’re left guessing and guessing isn’t going to bring confidence into our markets to bid them up from where they were prior to this meeting.”
How Much China Premium Left to Remove?
So the markets have been extracting China premium, especially cotton and soybeans and there was way more premium than people even thought.
Many observers thought the recent run up in grain and cotton markets was tied to weather and war or geopolitical premium, not trade premium.
“And given the way things. have played out the last couple of days it’s becoming clear that a lot of that late rally we saw leading into this meeting was more about the trade premium than anything else and I think the market got surprised in misdiagnosing what the premium was coming from and hence you know the big knockdown and the big surprise,” he says.
How Much Lower Will Grain Prices Fall?
So how much more fund selling will those market see and how low could grain prices fall?
He says, “Maybe we have another day or two, but I think most of the heavy selling is behind us. I say that because it’s so early in the growing season. I think the market, in order to get the funds to liquidate more, will want to see that we’re going to have a good growing season.”
Funds Stay Long Through Early Growing Season
He says it’s still too early for the speculator to give up on their long positions and the weather.
“In fact just if you look at cotton today it was kind of hard down lock limit through most of the day but then did come off limit here as we approach the end of trading and so that says to me that we might have gotten most of those short-term aggressive traders out of the market and we might at least stabilize next week,” he adds.
Chart Damage
Still cotton, soybean oil, corn and soybeans posted lower weekly closes and reversed from new highs early in the week and scored reversals.
So, how much technical damage was done?
“It’s a strong reversal but if you look at the up trends that we that began at the beginning of the year we’re still holding those up trends even after today but barely meaning we’re at a point where if we’re going to maintain any technical. credibility, we need to dig our heels in here and at least abide by the upward trend line,” he explains.
So it was a warning sign but he thinks as long as the uptrends hold it will prevent any additional technical selling.
Iran War Not Over
Plus, he says the Iran war is not over and energy prices are still going up, even though the grain futures ignored it on Friday.
“There’s too many uncertainties that’s going to want to keep the speculators holding some ground here,” he states.
That inflationary concerns are not going to go away. So at some point is that going to come back to be supportive for grains and cotton?
Hackett says, “Absolutely. I don’t see that this Iran situation, anything has really changed. The fertilizer situation is definitely not changed. The further we get on into the year, the more this fertilizer situation, especially in places like India and Brazil, where they really don’t have to import so much of this fertilizer, are going to start to show themselves into needing higher prices to effectuate the outcomes that we need. And so that’s a good long-term supportive mechanism.”
Near Term Weather More Favorable
Near term weather is looking for favorable with some rains in dry areas of the Western Corn Belt and Southern Plains.
“Good rains in Texas, the deep South, the Southeast areas that haven’t had a drop of rain in months. No doubt that the weather in the next couple of weeks is going to be quite productive. Doesn’t mean it ends the drought scenario there, but it takes the pressure off. It allows some planting to accelerate where they haven’t been able to plant because it’s been too dry,” he says.
So that is not going to give the speculator any reason to want to add weather premium.
Has Wheat Topped?
The wheat market has already been removing weather premium he says and may have put in a spike top the day of the USDA report.
“It looks like it traded the worst news you could trade on the bad U.S. winter wheat crop,” he says.
The results of the Kansas Wheat Tour confirmed the 54 year low in the wheat crop USDA printed but that even failed to move the market so the worst news is priced in.
“They didn’t say it was good, but they said it was a little better than the USDA said. And remember, we are only the fifth largest producer in the world and we’re only the fifth largest exporter in the world. Russia, Ukraine looks great. They look like they could have a record wheat crop and others don’t look so bad either. So I think you have to say, how much premium can we add onto the market?”
Bullish Grains for 2027
So Hackett says he is still bullish for 2027 grain and cotton futures, especially with the weather set up.
“Our view is we have this significant El Nino weather pattern coming for the U.S., which means very good crops. But once we digest this crop, everything that I see going forward on weather, everything that I see on cost of production says to me that in 2027, we should be looking at prices considerably better than what we’ve just seen before this big break.”
Cattle Rally With Cash and Futures Discount
Cattle futures were higher on Friday with another week of record cash and continued tight supplies. So how long will that hold prices at these high levels?
Hackett says, “We don’t have the animals. And so unless, you know, somehow we’re able to import some higher quality beef. I mean, we’re bringing the lower quality side, but the higher quality we’re not. Unless the Mexican border opens up, or Brazilian tariffs are cut, it’s just hard to see how you could get a big break in this market.”
Plus, grilling season demand should continue to support.
He adds, “The cattle situation will take years to get ourselves out of this, not three to six months.”
China to Re-List U.S. Beef Plants
News also out on Friday afternoon that China is relisting 425 U.S. beef plants for export.
Hackett says the U.S. doesn’t have a whole lot of beef to export and prices may be too high for them to buy anyway.
“I would argue, do we really need to be importing beef to China? I mean, I’m sure every cattle producer wants the highest price he can possibly get, and I understand that. But at the same time, I mean, we’re dealing with a terrible prolonged structural shortage of very, very high beef prices. The president wanting and demanding that beef prices come down. It just seems to me like we’re at odds.”
