Grains ease Tuesday as the markets hit technical resistance on the charts.
Arlan Suderman, Chief Commodities Economist for StoneX, says the rally into new highs for the move was met with farmer selling, not just in the United States. “We saw a dramatic increase in farmer selling on both sides of the equator. When farmers are rained out of the field and they look at gains and they have the chance to really focus on sales that’s what they did,” he says.
Plus, the grain markets were overbought after a sizeable rally and were due for a correction.
The funds he says are also more comfortable after lightening their short position. “They generally still have a net short position, but they really lightened that load.:
So, are they done covering shorts or will they lighten even more?
Suderman says they might take a break as weather concerns have been mostly priced in. “We’ve moved the market more than was justified if you just look at supply and demand,” he says.
He points to a change in the weather pattern by the end of this week into next in the U.S. that will allow planting to resume.
Plus, Suderman says the last of the soybean crop in Southern Brazil will have yield loss due to flooding but it’s too early to know how much and even combined with losses in Argentina he says, “It’s still not enough to send export business to the United States to justify rationing demand with higher prices.”
The are also problems with the corn crop with insect issues in Argentina but again he says the combined losses with Brazil would have to exceed 15 million metric tons to make any kind of a dent in the U.S. carryout. Suderman adds that he’s not sure USDA will adjust their South American figures much in the Friday WASDE.
Longer term, he thinks with the inflationary environment the funds will over time decide they don’t want to be short commodities and will continue to buy grains in the second and third quarter of this year.
He thinks the grain traders also took a pause ahead of a potentially bearish WASDE Report which will have the first new crop estimates for production and ending stocks for corn and soybeans.
“The carryout on new crop is better than 2.2 billion bushels, which is a nearly 200 million bushel increase from this year. My estimate is lower than that but still above 2.1 billion. On soybeans the average trade guess is over 400 million bushels, but my estimate has a five handle in front of it.” Which he says means soybean prices do not need to be in the double digits.
Live and feeder cattle futures recover with a void of new bird flu headlines and with strong cash and cutouts.
