Corn and soybeans were slightly lower on Tuesday, with wheat bouncing. Cattle were down triple digits.
Corn and Soybeans Ease on Crop Ratings
Corn and soybeans were both slightly lower with a bit of Turnaround Tuesday action and a bump in crop ratings.
Kevin Duling with KD Investors says corn saw a 1% improvement with 68% of the crop rated good to excellent. Soybeans also saw a 1% bump to 65%. Those were above trade expectations.
“With all the heat we’ve had people are wanting an immediate reaction. The problem is a lot of it’s supported with some decent moisture. And so if we’re going to have a problem, it’s not going to be realized until a little bit later when we start looking at is there a tip back or not? And that’s a little while out,” he says.
Right now visually the plants look fine the question is how much damage has been done.
Weather Moderating
The other factor that pulled corn and soybeans off their highs on Monday was a moderating forecast.
Duling says the extended models are showing less heat and a chance for some precipitation.
“We’re going to transition into the northwest flow there and get some stuff moving over the ridge some and the ridge moving west some and suppressing south. So, yeah, it doesn’t look too bad.”
He says the models have been in poor agreement lately making it difficult to trust any forecast.
“There’s still major disagreements within the Euro and the GFS. You know, we’re only looking at about six, seven days and that’s that it gets pretty foggy. So absolutely. And so it’s hard to have confidence in that extended forecast,” he adds.
Corn and Soybeans Run Into Resistance
Technically soybeans could not hold above $12 Monday and December corn could not take out the 50 or the 200-day moving average resistance areas on the charts.
Duling says, “I mean, we hit the points and stall and everybody jumps in and sells, at least on the trader side.”
What is it going to take longer term to get over those levels?
“I still think we’re going to get through all those the longer term technicals, the picture looks good to me in the monthly and the weekly and have for a long time. It’s just coming out of these troughs is always difficult. And do we have a large enough catalyst to do it? I mean,
when I look at it, the world balance sheets on all of them say, yes, we do have that catalyst, but it’s not a catalyst that’s exciting like the weather.”
He says it is going to take demand and time to finally break through those levels. Until then the market just keeps hitting up on upper resistance and backs off.
Fund Position
Still the funds have covered most of their short position in the corn and are neutral waiting for weather to confirm.
“But we’re going to quickly run out of weather window here. I mean, two weeks from now, we’re going to be into August and I mean, things are going to move over to the bean side. So, you know, what do they want to do?What kind of position do they want to establish here? It’s very difficult to see.”
Wheat could rally and give the corn market some life with the wheat balance sheets shrinking but world corn balance sheets are also tightening.
Soybeans Watch Weather, China
Soybeans will be watching August weather but had been getting a push from confirmation of China business.
Duling says there was no flash sale to China on Tuesday morning after their 1 million metric ton buying spree over the last 4 sessions.
“I mean you’ve got a long ways to go but I want to look at that unknown category later in the week and see what they’ve done but I figured they’d be delayed with their purchases, and they have been. It’s a good way to push doubt into the market that they’re going to hold any agreements. And so, well, they’re going to sit on their hands, and they did, and now here they are. So we’re not seeing the big purchases yet. I’d like to see those, but I would assume the breaks are going to be bought by them, though,” he adds.
Which should support the market.
Wheat Bounces Assessing Russia Export Disruptions
Wheat futures were slightly higher on Tuesday morning as the market continues to try to determine the status of Russian exports after the closure of the Strait of Kerch to grain shipping.
Duling says, “I think that was the big news Thursday and Friday last week, and then this week it’s been muted. I’m not sure really why. The funds the computers really want to believe that everything will work out fine and the Strait will open and flows won’t be disrupted.”
However, Duling thinks the wheat market needs to add more risk premium especially with the declining world wheat balance sheet.
“There’s not going to be real room for some disruptive flows. So this market could have quite a bit of life in it here, actually. When we get past this corn weather situation, then I would expect wheat to perhaps hold on its own here, depending on southern hemisphere weather,” he says.
Strait of Kerch Important
Russia exports about 25% of its wheat through the Strait of Kerch and the Sea of Asov.
“There has been some rumors of them trying to move grain elsewhere but do they have the diesel to do it? Do they have the infrastructure to move stuff? Well, maybe some. So maybe we take the 25% and that drops to 18% or 20%. And so it’s not a massive disruption, but if that thing prolongs, it’s going to be a massive problem.”
Duling points out both wars are escalating and at some point the market will need to add risk premium.
“I would not want to hold a short position right now,” he adds.
However, the Strait will need to be closed and the disruption prolonged for a long period of time to get the market excited. Currently the market is gun shy because of the war headlines that never produced a major export disruption.
“All of a sudden the governments got together to have a safe corridor and the markets crashed. So, the markets have just grown weary of having holding a long position because they know they’re going to get something out of the the governments that will cap the rally,” he explains.
Wheat has also divorced from the Iran war and the movements in crude oil.
Spring Wheat Crop Hit by Heat
The spring wheat crop rating was at 58% good to excellent on Monday, a 1% improvement from last week.
However, with the heat in the north and western Plains the Montana crop dropped 10% and Duling thinks the crop will continue to deteriorate in the entire spring wheat belt.
“Well, my history with spring wheat is the minute the plant senses, high heat it just starts to panic so to speak and nothing good happens when you get numbers like that in the 100s. So, if they really cool off and slow down then they’ll probably be okay but man if there’s any signs of heat ridges Ithink we’re going to continue to deteriorate some of those numbers,” he adds.
Duling remarks that this year the U.S. does not have the big production numbers and the price is not up enough to slow demand down. So the balance sheet will tighten up a lot.
When Will Cattle Find a Bottom?
Cattle futures were down again on Tuesday and the question is when will it bottom?
Duling forecast the feeder market pushing towards $380 for a high and $340 for a low as the market has been trading in that range for quite some time.
So he expects that level to hold again.
“I think it’ll hold and if it does and demand continues to hold and not fall off and we see the retail side you know stabilize thenI think we can bounce again but you know that October the $340 mark is kind of the line in the sand,” he concludes.
