Grains were sharply higher on Friday with livestock lower.
Wheat Lead Gains on Black Sea Export Concerns
Winter wheat futures rallied 22 to 34 cents on Friday and posted higher weekly closes.
Naomi Blohm of Total Farm Marketing says wheat was adding geopolitical premium with fighting escalating in the Black Sea region as Ukraine hit another major Russian export port in the Baltic Sea.
She says the market is getting concerned it won’t be able to get wheat, and even corn exported.
“So we’re putting some war premium back in. We’re seeing the marketplace just be a little bit concerned if they cannot find peace negotiations soon. So looking ahead to the next week or two, it’s all going to be about the Black Sea region. If they can, by chance, come to some sort of a peace agreement, at least to get civilian ships out and see some of the commercial traffic moving, if they can get to an agreement, we could then see a little bit of that war premium reduced from the wheat marketplace,” she explains.
However, because of the drought in Europe and a smaller U.S. wheat crop, wheat global ending stocks are trending lower and the stocks to use ratio is getting tighter.
“So with strong demand in general for wheat, it’s going to keep the market supported,” she says.
Can Wheat Take Out July Highs?
Blohm says to take out the July highs in winter wheat the market will need to see an even more dramatic escalation in the Black Sea with further weather damage somewhere in the world
“Wheat, for sure, we need a new fundamental catalyst to get that market to get through the July highs.”
She says the market needs a new spark to get through resistance on the charts.
Corn Follows Wheat
Corn futures were also adding war premium and following the rally in wheat.
However, Blohm says the market is also trading the shrinking balance sheet with USDA lowering corn ending stocks 137 million bu. from July to 1.653 billion bu. and tightening the stocks to use ratio to 10.1%. A scenario that has changed in just six weeks.
“So, the USDA report told us that production was essentially unchanged from the July WASDE. They reduced yield, they increased acres, but the net result was on the production side nearly unchanged from July. Where the report was friendly the USDA increased export demand and that brought down our U.S. corn carryout number,” she says.
The European corn crop is also smaller due to drought and when combined with the smaller U.S. crop is affecting the global balance sheet.
“So corn right now has every reason to be at the level it is at for prices,” he says.
Can Corn Take Out the May Highs?
However, Blohm does not think the corn market has enough fundamental strength to get through the May highs.
“So looking ahead, corn prices in the short term are likely to trade in a little bit of a sideways pattern. We don’t have enough bullish news to get through resistance right now. But at the same time, because of this tight ending stocks number, we don’t really have a reason for corn
prices to fall apart lower. So I’m guessing sideways trade for a good couple of weeks here,” she explains.
The corn market will be focused on Pro Farmer Crop Tour results, exports and watching September option expiration next week, plus geopolitical concerns.
Strong Technical Close for Corn
The corn market though had a strong higher weekly close and closed above $4.75 resistance.
“It’s a very important resistance number. So now the next resistance area for December corn futures $4.90 and then of course $5 above that. So lots of big hurdles ahead for the corn market to have to leap over from a technical standpoint.”
At the same time, she thinks the market is well supported at $4.60 in the December contract.
Soybeans Close Higher
Soybean futures also closed higher on Friday and for the week but the $12 level is still illusive.
Growing weather concerns is part of the story plus China demand has been solid with Beijing putting another 5.0 million bu. of new crop soybeans on the books.
“From a fundamental standpoint, China is coming in almost every day buying little bits of soybeans here and there so it looks like they are on target to do their best to meet some of those objectives that they had talked about for buying U.S. soybeans and then also the marketplace is aware of the rain that’s happened throughout the Midwest but doesn’t really understand the impact of flooding. So, we’ll see if the crop tour next week goes into some of those flooded areas we’ll see if the rains recede or not and how that affects the crop,” She adds.
She’ll also be watching Monday afternoon’s crop progress ratings and the planting progress in South America which will start soon amid El Nino really being potentially hampering.
Did the WASDE Confirm Pre-Harvest Lows?
So with the tailwind of the WASDE did the market confirm the pre-harvest lows on June 30?
Blohm says, “Yes absolutely, so in hindsight the technical bottoming action that we saw after the June 30 report and heading into the first week of July. I think that was the low. And then recently with the USDA report, it just solidifies that the marketplace is well supported. Now, I want to emphasize, fundamentally, we do not have a reason to go straight up from here at this time, but the market is well supported for now because of the current fundamentals.”
Late August Farmer Selling
The one caveat is usually at the end of August the market can see a push lower as farmers sell old crop inventory to make room for the new crop or have to exit or roll positions ahead of September delivery.
“That is what I was kind of referring to as far as corn maybe trading in a sideways pattern. That’s part of the reason why it’s going to struggle to rally. And there’s going to be contract rolling from September to December, as you pointed out, because of first notice day approaching for the September grains at the end of the month. So that is something that would weigh on the marketplace. So we do need to be mindful of that as it could result in a pullback,” she adds.
But the pullback could just take grains back to recent lows.
Cattle Retreat on Tyson Plant News
Live and feeder cattle futures were lower on Friday and for the week with news of Tyson closing their slaughter plant in Joslin, IL and a case ready facility in Eagle Mountain, UT, plus selling their Pasco, WA plant.
Futures ended off lows so is the news factored in?
Blohm says, “I would say that with the market gapping open lower on Friday’s trade action, but able to come up off the lows, that the market for now has digested that news. The bigger thing is that the funds are exiting the cattle complex. So that’s really something to be aware.”
She says futures are testing major support and uptrend lines on Friday that are holding and so she’ll be watching those areas next week to see if they can continue to hold.
“It does feel like the cattle complex has lost its luster and the funds exiting their long positions. That’s the biggest component for me that makes me feel like the big cattle rally has wrapped up. Now, we don’t have a reason to just fall apart and sell off and it might be that we take two steps lower and then have a recovery bounce higher but the fundamental perception is shifting with the border opening and the U.S. is also importing more beef.”
She also monitoring consumer demand with school starting she says a lot of family budgets are stretched and they may be opting for cheaper cuts of beef or cheaper proteins in general.
Cash trade and the Cattle on Feed Report will be important for direction.
What If Support is Breached?
If the six year uptrend lines on the cattle charts are breached how low could futures fall?
She says, “It could be a washout of maybe like $20 to $30 lower just from a technical perspective.”
The bull market has been resilient but she points out when the funds decide to exit a market it can turn the trend.
