Early Thursday soybeans were higher with corn lower and wheat mixed. Cattle were mostly lower.
Corn Lower Divorcing From Crude Oil?
Corn futures were lower early Thursday despite the rally in crude oil as Iran has not accepted the cease fire terms.
Allison Thompson with The Money Farm thinks the grains markets and corn in particular are starting to divorce from the influence of war headlines and the crude oil market.
“I think the markets become somewhat accustomed to it. So we’re not seeing the big whiplash that we originally saw when the conflict broke out in the Middle East. And I think grains are also trying to find their own story here, too.”
Technical Selling
She says with the big move higher in grains on Wednesday the market also saw some consolidation early or some technical selling.
“I mean, yesterday we had a very big move in the grains and technically we did print some reversals on the daily charts in a few markets particularly in soybeans and also in wheat exchanges, so some of the pullback that we’re seeing here is also going to be technical from that standpoint. So, just breaking above those resistances we’re getting a little bit of a pullback but at the end of the day too the story hasn’t
changed so so far pullbacks have been being bought,” she adds.
The markets are all holding strong support as well so as long as that continues the market should trend higher longer term.
What Story Keeps Funds Buying?
So what is the story in the grain markets that will keep the funds buying?
Thompson says there are several factors helping to push the markets.
“Demand’s the big thing behind this market that’s really been pushing us, obviously we have some policy news that was hitting yesterday we have upcoming talks with China as well being announced those were big headline items this week but also we’re looking at next week’s USDA reports.”
Weekly exports were also strong for this time of year according to Thompson, “Weekly exports were also above expectations for soybeans and soy meal and those are things that we need to really see, especially when we’ve seen export and flash sale announcements be very quiet on a daily basis. Even in corn and wheat exports were within the range, upper end of the range, those are good signs. So, we’re still seeing demand, even with prices coming up.”
Acreage Report
The grain market is also gearing up for the USDA Prospective Plantings Report on March 31.
Early trade estimates are showing 94.371 million acres of corn, down from 98.8 million last year. Soybeans at 85.549 million, up from 81.125 million and wheat at 44.786 million compared to 45.328 a year ago.
Thompson says over the last couple of weeks, with the Iran conflict breaking out, there’s been a lot of speculation there will be some movement in the acreage numbers.
“But I think you have to remember back to when the surveys were taken of where planting intentions were going to be. And a lot of that was before the conflict started. So, whatever they print next week is still going to be up for debate until the crop actually goes in the ground. So, we might actually be waiting more so until that June report and there is hesitation with what they printed this last year being so different from the end of the season.”
Weather will also play a big role in what gets planted but she thinks overall there will be less corn and more soybeans. How much will depend on fertilizer prices and availability.
Quarterly Stocks
Quarterly stocks are more important in her opinion and early trade estimates show higher stocks compared to last year. However, there has been a pick up in farmer selling with the rally in grains off the lows that could result in a surprise.
“The stocks report tells us whether grain has moved and when we had the December report we saw big stocks which wasn’t a surprise. However, I think a lot of the farmers have been making sales. I know my clients have not had a problem making some old crop sales for grain that’s on hand and on top of that we’ve had really good demand since December too. We’ve had really good export sales, we’ve had good ethanol grind, good soybean crush numbers. So I think we could have chewed through more grain than anticipated. The other thing that
China Summit Set
The soybean market rallied on Wednesday as the White House announced the China summit date was set for May 14-15. So, will the U.S. get old crop or new crop soybean sales announced with that meeting?
Thompson says, “Honestly, I wouldn’t be surprised if it’s a little bit of both. The good news for old crop is that they’ve actually slowed shipments out of Brazil compared to what they were originally expecting. Brazil was looking at getting a big chunk of Chinese demand really early. And with their harvest obviously pushed back, and of course, you know, them talking some trade deals with the U.S., they haven’t necessarily been buying a lot from Brazil, even with the price differential. So that’s behind last year. I think it’s around 15% to 18% behind. I think we do have some opportunity to capture some of that market.”
Will Part of the 8 MMT Get a Price Reaction in Soybeans?
So even if the U.S. got part of the 8 million metric tons of old crop soybean business that President Trump announced, does the old crop market go back up here and negate the big washout from March 16?
She says, “I think it does. I mean, the big washout had to do with the delay of the China meeting and we just saw it spiral on top of itself. So going forward, yes, I think a lot of, you know, we’re trading some speculation on what demand is going to do.”
Biofuels Demand
She says when combined with biofuels demand soybeans futures could go back to $12 or better.
The RVO levels are expected to be announced any day and at levels close to the initial proposal which has soybean oil moving higher. But how much of the news and demand is priced in?
“Well that’s the million dollar question. I think the markets have been pricing some of that in. Like I said, the rally in beans started before the conflict broke out. And that had a lot to do with biofuel policy and also China coming to the table. So we’ve seen a good buildup into this. And obviously, again, technicals are going to be key when the announcement is made, whether that’s this week or next week. When it comes out, we’re going to need to see the market continue to go higher. So we’re going to need to see some new highs or some technical level being broken on that news. Otherwise, yeah, we are susceptible to a buy the rumor, sell the fact kind of scenario coming out of this. And that could very well be the case.”
HRW Wheat Gaining on SRW
Wheat futures were higher on Wednesday in all classes and the hard red winter wheat is gaining on the soft red class putting in some weather premium with hot dry conditions in the Southern Plains.
She says, “In fact, on the overnight, that spread got as wide as 24 cents. So it’s pretty wide compared to what we’ve seen over the past few months. So, obviously a lot of it is weather premium and not only you know the us is making a lot of headlines right now because of our forecast and it looking hot and dry here especially over the next week. There is relief in the forecast but it needs to show up and it needs to show up sooner than later. So, if some of these forecasts end up getting delayed we could see that premium continue to build further and it’s probably going to spill over into the other wheat exchanges but it’s not only here that we’re worried about its global.”
The crop is coming out of dormancy in the EU, Russia, Ukraine, and they’re not immune to having some issues here this year either. Plus the geopolitics are driving up fertilizer prices and may be cutting some acres.
Wheat supplies and stocks are ample but she says it wouldn’t take much to really shift that picture.
End of Month and Quarter
The funds have bought aggressively in grain markets like corn the last month so as we get into the end of the month and quarter do they defend that position?
She says, “I think they do have a good position to defend, and especially this time of year too. I mean, there’s a lot of risk yet, a lot of unknowns yet in the grain markets. We don’t know what the weather’s going to be this spring. We don’t know what crops are
going to get planted. We don’t know what production is going to look like. And I think that gives them an ample position to defend here, especially as we’re going into month end, quarter end next week. And of course, some big data coming out here in that time frame as well. Biofuel headlines. We’re looking at two big USDA reports. I don’t see them necessarily flipping positions here ahead of those things as well.
