Grain and livestock futures were all lower to start Thursday.
Grains Continue to Slide with Crude Oil
Grain markets are continuing to slide lower with the falling crude oil market and the idea the Iran war may be ending soon.
However, Darin Newsom, senior market analyst for Barchart, says he thinks the odds of a peace accord with Iran and reopening the Strait of Hormuz are between slim and none.
So while the funds are liquidating positions in the grains to shed some risk, it may not last.
“It makes for nice headlines and as we’ve talked about before these markets are all driven by headlines. The reality is the war isn’t somehow mysteriously all over or miraculously completely over. I’m sure there’s still missiles firing. I’m sure there’s still bombs going off. And so what we’ll find out most likely over the weekend, because that’s when these things tend to happen, is that there is no peace, that there is no ceasefire,” he explains.
So he says the markets will need to adjust again coming out of this weekend.
How Far Could Crude Oil and Grains Fall?
Currently the crude oil market is buying into the peace talks and grains futures are falling as a result, especially corn and bean oil which are biofuels derivatives.
So how much lower will prices fall before finding chart support especially as many contracts are nearing some key technical levels?
Newsom says, “We’ve seen so much buying coming into the commodity sector we’ve had these predictive market sites promoting the fact that they’re better gamblers quote unquote investors, can trade commodities basically without regulation by CFTC. And so they’ve been hustling. They’ve been baiting folks and getting people into the markets.”
However, now these speculative traders are getting out.
“So, there’s no real magic level that these markets come down to. What they’re going to have to do is come back to where there is some intrinsic value support, some fundamental support. And as we see, basically across the board in the grain sector is that basis is weak. So the
intrinsic value is weak in relation to where these futures markets have gone. That leaves a lot of room for liquidation. It leaves a lot of room for these markets to come down,” he adds.
He thinks there will be some buying coming out of the weekend in the energy sector which will support soybean oil and soybeans, maybe even corn.
Buying Resume Ahead of China Summit?
Still, once the dust settles the focus will turn towards next week’s meeting with China and the possibility of soybean and other ag purchases.
President Trump’s social media posts have been optimistic regarding the meeting and Newsom says painting a picture about the strong relationship between the two countries and how it will lead to increased China demand for agriculture goods, which has driven some buying in the grains and especially soybeans.
Newsom is skeptical about a meaningful and transparent deal or one that focuses on agriculture. However, he thinks the market will buy into the meeting on those hopes.
“Yes, I would expect the grains sector, for those two reasons, to rally next week. Is there going to be anything really come out of this? No. There’s going to be talk of computer chips, and there’s going to be this and that. But as far as U.S. ag is concerned, nothing’s going to change,” he adds.
China News Priced Into Soybeans?
The other concern is that soybeans have already had a rally on hopes for that additional demand as they are nearly $2 higher than a year ago. That means the market could fade any deal with China.
However, Newsom says some of that premium has come from the soybean oil market and biofuels demand which isn’t going away.
“A lot of what’s happened in the soybean market has to do with soybean oil. Again, if we look at bean oil, we know that the funds have gone to a record large long and record large net long futures position here of late. So that’s really been what’s been pulling soybeans higher,” he says.
Soybean Oil Priced in Processing Demand?
Soybean processing demand has been stout due to record crush margins tied to the new RVO blending levels into biofuels and that has helped drive the soybean oil market into new highs.
“That isn’t necessarily going away,” he points out.
However, crude oil and heating oil or diesel fuel prices have also driven the rally and if they cool will it also mean a top is in the bean oil market?
“To me, we’ve most likely built in the bulk of this explosion in demand. And we can attach a bit of an asterisk from the biofuels standpoint,” he adds.
Additionally, diesel fuel prices are likely to stay elevated even if crude oil prices fall due to record tight inventory. So if diesel prices stay high, that should support bean oil prices.
“We just ran a study showing just the one-month correlation is up near 100%. And I know correlation does not prove causation but anytime you get 94%, 95%, it raises an eyebrow, and there’s been a tight correlation between the two markets. That has brought funds into the market,” he says.
Export Demand
Biofuels and record soybean crush are making up for some of the lost exports this year to China. While it is normal seasonally for soybean exports to cool, weekly exports were a marketing year low of 5.2 million bu. and to date soybean sales are down 23% from last year.
Corn exports were at 53.6 million bu. which were strong while wheat exports at 2.9 million bu. were also week.
Corn exports to date were up 29% from a year ago.
“But what we’re seeing is if we take those total shipments and we project them out based on the average of what we normally have shipped this point of year, that pace projection for corn continues to come down. The trend since basically last fall has been for that pace projection to come down. You know, yes, we still have solid demand. Yes. You know, it’s still going to come in above last year’s reported shipments by the time we get to the end of the marketing year.”
So the market has already built in the most bullish scenario for U.S. corn export demand.
“And at this point, you know. the future spreads and basis are still weak. You know, so if we look at national average basis, it’s still running at or below the previous 10-year low weekly closes. So, I mean, so it just tells us that supplies are still adequate. Available supplies are still adequate to meet demand,” he adds.
Wheat Rally Over?
The wheat market was the first to climb to two-year highs in the winter wheat contracts, but has had a big correction removing war and weather premium.
So is the lower production of HRW wheat factored in already? Newsom thinks so.
“The reality is that the hard red winter crop has been hurt. We know that. I’ve talked to folks from the Southern Plains. The 2026 crop has been hurt. Again, if we look at new crop future spreads, they’re still covering a neutral, at best, level of calculated full commercial carry. So the commercial side of the market was saying, look. We may have smaller production this year, but it’s not going, at least right now, it’s not that dramatic. It’s not going to change the supply and demand situation all that much. Plus, you know, basis versus the July and September futures contracts is incredibly weak at this point, heading into harvest, you know, across the far Southern plains.”
A few weeks ago the speculators were also buying wheat on headlines, so there was money flowing into the complex, even SRW wheat.
“So this money flow, particularly in the Chicago market, that’s the more heavily traded futures market, was coming into wheat for no reason whatsoever. I mean, we’ve got Chicago, we’ve got soft red winter spreads covering 90% plus calculated full commercial carry. That’s not bullish. That’s not fundamentally bullish. Yet the money was pouring in. And so that money’s probably starting to come back out. And so regardless of how much damage has been done to the hard red winter crop, if we continue to see selling coming into the soft red winter crop, it’s going to spill over into hard red winter, particularly as harvest starts rolling along,” he explains.
Oklahoma Wheat Crop Cut
That may be why the market did not react to the results of the Oklahoma crop tour. The crop was only 47.8 million bushels versus 106.4 last
year.
He says, “The market didn’t care about it.”
Cattle Fall, But Beef Demand Is Not
Cattle futures were lower on Thursday with the rest of the complex despite some light cash trade so far this week at higher money.
The market is seeing some profit taking but there is no evidence of consumer demand rationing yet on beef according to Newsom, even with higher gas prices. At least not yet.
“You know, the choice has to be made between fuel or high priced beef. And so, you know, yes, we’ve seen gasoline crumble this week. But again, I don’t think it’s permanent. So I think there is some concern. There’s still some concern in the cattle industry and the beef, that these prices just simply aren’t sustainable, that at some point U.S. consumers are going to have to make that choice. They’re going to have to
make the choice to pay more for gasoline and less for beef. And we haven’t really seen it yet. I’ve been anticipating, I’ve been looking for it, for this change to less expensive proteins, but we just aren’t seeing those signs yet. So it’s been resilient, but I still think it’s coming,” he says.
