Soybeans and corn are holding grains early Tuesday with wheat lower. Cattle and hogs are sharply lower with the stock market.
Grains Trade Iran War, Inflation Play
Grains were all higher overnight but have turned mixed. Kevin Duling with KD Investors says the market is watching the developments with the war in Iran closely. The negative is the uncertainty means a crash in the stock market and a higher dollar index. The positive is with a rally in the energy markets there is some inflationary buying starting to filter into the grain markets by managed money. “We saw the hedge funds move out of their position, other short position fairly quickly and so they’re not wanting to be short in corn and wheat in this environment. We’ve seen the dollar spike pretty hard to last two days after the conflict started. And so that’s been the negative pressure for grains. But going forward, you know, with oil up, you know, $8 in two days, diesel up 60 cents. We’re basically the inflation chatter is coming back on pretty hard and that and that’s that’s the key driver today,” he says.
Do Funds Move Long in Corn and Wheat?
So the funds have been short in the wheat market the last four years and as of recent have been short in the corn market as well. They have covered a big portion of that position but do they move long? Duling says, “That’s a good question I’m not 100% sure. I mean the supply and demand chatter is still kind of rough but I mean demand has been fantastic across the board but what the funds do here I don’t know. There’s been some other types of funds we’ve got the index funds and some of the algorithms starting to move move in the longer side or the momentum group they’re moving to the longer side so the hedge funds might follow them um that just remains to be seen we’ll know that answer in about 10 days but days but and if they take the by size then look out we could have a decent move here.”
Duling says the wheat market is also trading weather in India. “We’re just coming into the weather season. It’s going to fire up here in a couple of weeks. So most of the Northern Hemisphere. So that one, you know, at the end of the day, did the funds look at this? And like, do they really want to be short going into this and they said no. So that to me is pretty encouraging,” he says. However, there is some rain the forecast for HRW wheat areas in the 7-day which may be limiting upside.
Corn and Wheat Hit Chart Resistance
Corn hit resistance on the May just under the 200 day moving average and the $4.50 level and backed off due to profit taking and farmer selling. Wheat futures actually hit resistance just under the $6 mark and that will be the level to take out to keep the rally moving on HRW and SRW wheat futures. The higher dollar is also a headwind he says. He says the good news is there are still world tenders taking place in wheat with Saudi Arabia looking for nearly 800,000 metric tons.
Soybeans Rebound on China Talks
Soybeans were up as much as 18 cents overnight but are mildly higher early on Tuesday. Kevin Dulign with KD Investors says it is in reaction to news that high level trade officials, including Treasury Secretary Scott Bessent, where scheduled to meet for talks in Paris next week. This is a set up for the summit between President Trump and Chinese President Xi in early April.
“Yeah, this whole situation is pretty is pretty amazing to sit back and watch. I mean, we had the Venezuelan situation, which was a key hub for Chinese energy, and now we have Iran, which is a key hub for Chinese energy. And then we have us
them to buy our soybeans and and so where do we go with this how is this going to work out the long run and so right now it’s it’s somewhat positive because the basically because the inflation trade the oil is taken off which is helping soybean
oil which is helping the products which is helping you know for the psychology behind soybeans. But in the background you know at the same time if we’re taking out Chinese main energy suppliers. How are they looking at that? How are they looking at us? Boy, big questions there. So it’s going to be a little chaotic,” he adds.
Why Isn’t China Mad at the U.S.?
So why has China not retaliated against the U.S. for its involvement in Iran or threatened to pull out of the April summit? Duling says, “At the end of the day, remember, the American consumer is huge to them. We have to be there for them. And I to that is they they can’t they’d like to live without us but they can’t live without us. I think at the end of the day is what I gather from that. So, there’s still a little bit of a I mean they’re still kind of hooked into us that way.” he explains.
Stock Market Crash Spills Over
The stock market was also down over 1000 points early on Tuesday which is impacting the money flow in the grain markets and creating a risk off environment in the livestock futures.
If the stock market continues to see selling pressure will it pull down the grains? Duling says he is hopeful it will not especially with the higher monthly closes in all of the grain markets. “The grains have made good moves on the longer -term technicals have all kind of turned the corner. But I wouldn’t be surprised to see a pullback here in soybeans just based on that. I feel like maybe we have to take a week to correct before we can push higher at this point.”
Sell Grains on the Rally?
So should farmers be taking advantage of this rally in the grain markets? Duling is advising some pricing as the markets move higher and present a profit or at least buying some put options to protect the floor.
“Make sure you’re not locking in a loss. I just don’t see the logic in that. I know some people do, but for the life of me, I think, if you’re going to lock something in ahead of term in November beans or December corn or whatever, make sure it’s a number that gives you some wiggle room for those input costs because they’re going to be obnoxious.”
He says profit price targets have not been hit in most cases but are close. So, farmers need to be ready to pull the trigger when those present themselves. “Corn’s right there. I mean, we’re a nickel within my target. So we may just pull
the trigger depending on how the price action goes today. Soybeans, we got a little ways to go for we can make money on those. Wheat, we’ve got to be up into the mid, mid upper sixes before we can really have a chance to break even. So, just not ready to lock in a loss yet ahead of the growing season.”
Diesel and Fertilizer Prices Rally
In the last two days not only have crude oil futures moved up $8 but diesel fuel is up 60-cents and urea fertilizer is up over $70 per ton. Duling says this is further weighing on farmer’s margins and the big fear is getting fertilizer products before the spring planting season. He says it could impact planting decisions. “Oh, man, I couldn’t come at a worse time for farmers. I mean, it’s going to be brutal for us. Right at the time we could go the diesel prices up, the fertilizer prices up, the spray prices aren’t going to back off. Yeah, the input story is just rough.” He cautions farmers not to lock in any prices at a loss.
Cattle Crash With Stock Market
Cattle futures held support areas on the charts Monday and bounced off those levels with some help from a recovery in the stock market. However, the DOW and S&P 500 have crashed this morning and that is spilling over into the cattle complex.
“It’s spill over from the stock market, plus that the cattle chart just kind of looked like it ran out of gas there. And you got to remember, I mean, back to the, when the government kind of stepped in to put their thumb on the cattle prices, I mean, the funds were long at that point and it kicked them out. And my theory was they’re not going to come back into this market in a big way because of that. So we started running up into those positions again or up to those highs and that’s where it started to look shaky,” he says.
However, if the cash stays strong the futures will be well supported with the discount the board is currently trading to cash. Still, he is concerned with downside risk in cattle. “To me, I really like the put spreads. Well, you could get about a $30 gap with a put spread that doesn’t cost too much. And you’ve got, and that’s about what I see as a risk. You have another $25 to the downside before it looks good technically again. So I mean, the cash side just looks great though. It looks strong. We got grilling season coming. I mean, so we’re going to see a big divergence here between cash and futures.”
