Grains and hogs were lower early Wednesday with cattle higher.
Grains Fall on Peace Hopes
Grain markets were under pressure on Wednesday with talk of progress on peace with Iran and in the Black Sea region.
Kevin Duling with KD Investors says the algorithm traders continue to trade the headlines even though it is unlikely there will be any change in the status quo.
“Is there going to be a ceasefire? I don’t know. We’ve been talking like this for weeks, so it’s just the markets are tired of it, and so they sell off, and I don’t know we’re going to have a ceasefire factor in long before it even happens,” he explains.
Black Sea Exports Down Sharply
Russian President Putin’s political party won their elections over the weekend giving him no reason to end the war according to Duling.
“It doesn’t seem like he wants to really have any peace. I mean, you look at the destruction on both sides, you look at the economic impacts and the populations just have to be miserable. So, I don’t know how this ends. I have a hard time picturing it,” he says.
Both countries say they want a cease fire but continue to strike critical infrastructure and refineries and ports.
Duling says the bigger question is if there was a cease fire how long would it take to repair the damage and get exports back to normal?
He says wheat exports are down for September at less than 40% of normal.
“That’s with all the rerouting that’s taken place in the last month.That’s not going to work.You can’t take the number one number and five exporters offline and then run them down to 40% and have things work,” he explains.
Importers Buying Elsewhere
Importers are starting to move to other sources.
“In the U.S. we got the Sri Lanka business with quite a bit of white wheat but those numbers are going to grow the longer this goes because there’s a big line of boats waiting for the Black Sea to open,” he adds.
Russia has tried to refit their fertilizer ports to move grain and dropped their export tax through the end of the year to try to get exports moving and generate some cash.
“They’ve looked at just about every route they can.Last year I think Russia itself was around 4.5 million metric tons for the month of September. This year it’s going to be about 2.0 MMT.Theen winter comes so a lot of the crop in the north they’re trying to move is going to get shut down,” he states.
Winter Wheat Planting
Winter wheat planting is starting in the Black Sea and Duling says it looks like acreage is going to be down as farmers can’t make money at $7 or even $8 wheat as fertilizer prices are up nearly 30% from last year.
Plus, in the U.S. winter wheat planting is record slow due to the dry conditions in Oklahoma and Texas.
Grains Testing Support
The grain markets had a strong rally on Monday but were testing key technical support on Wednesday for Dec corn that is $5.25, for Nov soybeans that is $13 and for Dec SRW wheat its $7.10.
“We don’t want to stall where we’ve stalled because if we close below these levels the market could back off and roll over,” he adds.
So, the markets need a bullish infusion.
China Summit
Could progress on the talks between the U.S. and China provide that spark?
Duling says the market has already rallied in anticipation of a positive meeting so it will need some details or proof of additional purchases as part of the $17 billion package agreed on in May.
Duling says the cash market on Monday was acting like there were some purchases taking place.
“And China is really good at hiding the purchases. I mean, they’re really good at spreading it around the different units so they can stay under the 100,000 MT reporting mark.Ever since Monday, there’s been a lot of rumors going around on the China talks,” he says.
Bottomline, Duling says China does not want to show their cards and if they bought on Monday, now they’ll sit on their hands and let the markets correct.
U.S. Trade Representative Jamieson Greer said Tuesday China had already bought $4 billion of the $17 billion of additional ag and other products they committed to and it may not be grain.
Officials also stated China was not going to give specifics of the $17 billion.
China Buying Futures
Duling says it is possible China could have bought futures and there was talk on Monday of China buying corn in the futures market.
“I mean, they could have bought a lot on paper too, because Monday was a big day. And like I say, the cash markets were moving as well. So that shows me that there was some good movement on some grain and we’ll get the reports next Thursday,” he says.
The export report on Thursday may show China purchases but confirming futures activity is more difficult.
Diesel Export Ban?
The other market mover was news President Trump was considering a ban on diesel exports to curb prices. Just the talk had diesel futures correcting.
“So, we’ve already just talking about it manages to get the computers on the sell side and down we go. We’re down another nine cents this morning.”
Duling is not sure the ban will happen unless the price squeeze gets even worse.
“I think if we go up another 50 cents to a dollar, that’s going to put such a crimp on the country that they’re going to have to. But that’s what it’s going to take to make them do it. I think in the meantime, they’ll just talk it down and say, we’re going to start, you know, we might limit exports next week. We might, you know, and so that that’s going to keep the speculators, you know, flat or short and nobody’s going to want to buy into that.”
U.S. to Buy Belarus Potash
The president also said on Tuesday the U.S. was going to try to buy potash from Belarus. Will that have any effect on lowering prices?
Duling says it’s a political maneuver.
“I think that’s just a play to try and get better terms with Canada. At the end of the day, we’ve got to get it from Canada. I think it’s just letting Canada know that there are alternative routes and options, and it makes no sense to bring it in from Belarus, but I think that’s going to be the threat for the short term.”
Cattle Bounce After ICE Raids
The cattle market was back up on Wednesday with a profit taking correction Tuesday triggered by fear of ICE raids at packing plants in Kansas.
Duling thinks the market will continue to base waiting for cash development.
The feeder market has been very strong and that has helped support the futures and he is optimistic about a further recovery.
“We’re spent a decent amount of time between $340 and $380 on the feeders and i think we’re going to get back up into that area,” he says.
