Grain and livestock futures ended mostly higher on Monday.
Soybeans Lead Gains on Corrective Buying
Soybean futures saw double digit gains pulling up corn and wheat futures on Monday. After lower weekly closes and soybeans correcting nearly $1.40 off the November highs the market was oversold and due for a bounce says Chuck Shelby of Risk Management Commodities, a division of Zaner Ag Hedge. Corn and wheat also posted lower weekly closes and saw some corrective buying and short covering.
Venezuela News Brings Surprise Risk On, Commodity Wide Buying
Buying interest across the grain, livestock and outside market complex was driven by a risk-on attitude in global markets. It was a bit of surprise as it followed news over the weekend the U.S. had captured Venezuelan President Nicolas Maduro. The agricultural markets, equities and other assets that are typically sensitive to geopolitical shocks reacted positively. Shelby says the commodity wide buying was tied to ideas of improved demand, plus the market was adding geopolitical premium.
“Venezuela used to be a very prosperous country. We did a lot of trading with them. The uncertainty in the world with the leadership that was there you know, the drug problem and all that. So as we go forward, I think, all the markets look at that as a positive situation going forward. And it’s going to be a difficult challenge there to straighten things out. But the way they were going and all the problems they were having, the way the country had deteriorated, I think the world looked at this as a good thing in the long run.” He adds the energy sector, if rebuilt, will also be positive longer term.
China Buying Rumors
Soybeans got a boost from market chatter that China, Specifically Sinograin, was in the market for 10 cargoes of U.S. soybeans. This was offset by concerns that the action of the U.S. government in Venezuela may have angered China. “After such a huge correction in the bean market, I don’t think it takes much in the way of rumors to see the market react the way it did. The question becomes, is China irritated or upset with the United States action in Venezuela? There’s two ways you could look at that. Will they retaliate some or make some different tariff moves or will they continue to buy as they agreed to?” Shelby thinks the move solidifies the U.S. trade position with Beijing as its seen as a signal of strength.
Weather Premium
Corn and soybeans may have also been adding a bit of weather premium as the forecast looks dry in Argentina. Shelby says that could trim some yield in the country. However, Brazil has been fairly routine showers and is showing no threat to the crop at this point. Shelby thinks its too early for a South America weather rally. “Your real concerns currently are in Argentina, which is one of the world’s bigger corn producers. So maybe a little bit bigger impact on corn but we’re entering into the growing season where it becomes critical whether it rains or not. So as each week as we go forward in January the weather forecast there is going to be a market factor.”
Corn Recovers with Soybeans, Still Range Bound
Corn saw spillover buying with the rally in soybeans and some light spillover from the wheat market. However, corn is still in a sideways pattern and is likely to remain stuck until it gets some positive news from the January WASDE. Shelby says corn will need a yield cut of more than three bushels per acre to move the market and create a rally because of the possibility that USDA will lower feed and residual to offset a cut in corn yield. “I think 182 would certainly give the market a reason to break above the 200 day moving average and give us a little uptrend as we move into February.”
Wheat Futures Follow Corn and Soybeans
Wheat futures were also higher following the rally and corrective buying in corn and soybeans. Plus the market was also oversold after hitting new contract lows in March soft red winter wheat on Friday and that brought some short covering into the complex. “Holding above the $5 level is pretty critical but the market has dropped back 60 to 70-cents so it’s just kind of following along.” However, he thinks the sleeper is the war in Ukraine and if Russia continues to attack their grain infrastructure and disrupt exports. “Russia continues to push cheap wheat in the world to finance the war. So, wheat is struggling, but holding above five dollars,” he says.
New Year, New Money?
With the start of a new year the buying seen in the ag markets could also be tied to portfolio reallocation. Shelby says grains are under valued compared to commodities like precious metals and could be ripe for some buying. He thinks there was some evidence of that Monday “I think you saw some index fund rebalancing. If you were an investment fund and you looked out there and you saw something that was undervalued like grains have been for several years it may look like an opportunity,” he explains.
Cattle Futures Mostly Higher
Live and feeder cattle futures ended higher except for Feb. live cattle after making some new highs for the move. Shelby says the market has been pushed by strong cash and additional New World Screwworm cases in Mexico. However, to continue to rally the market will also need evidence of strong consumer demand and that includes higher boxed beef prices.
“The question I have going forward in the next month or six weeks is what kind of demand are we going to see? Is demand good enough to hold us up here? We know supplies are tight. We know we’re going to get some more imports from South America eventually. So I think the cattle markets kind of fair value and kind of maybe in a in a sideways trading range for a while,” he adds.
Lean Hog Futures See Strong Gains
Lean hog futures hit their highest levels since mid-October, with the summer months above the $100 mark. This comes despite a softening lean hog index which was down $.41 coming into the session and with the futures at a premium. However, Shelby says hog futures got some spillover from the rally in cattle and the market is looking ahead with consumers gearing up for a big summer of grilling.
“When you look out there at the summer months at $103 to $105 its a really strong price. So I think it was just more buying today, money flow into that market. However, we’re going to have a 250 year celebration, fourth of July. So I think maybe market’s looking ahead as some really good demand,” he adds.
