Grains ended higher Friday with cattle lower.
Grains Recover Friday, Follow War Headlines
Grain markets recovered on Friday with crude oil as the hopes for a cease fire and peace deal with Iran started to fade.
Dan Basse with Ag Resource Company says grains chopped following crude oil most of the week.
“Headlines have been all over the place. We came into the week with crude oil sharply higher, thinking that the blockade that was on from the United States and of course also by Iran was going to be long lived. And the market was even looking and saying that that blockade of the Strait of Hormuz may last to the end of summer,” he says.
Grains and a lot of commodities added war premium because of that and then reversed lower on news of a peace deal later in the week.
“When the we saw a mutual letter of understanding, a one pager by President Trump to the Iranians trying to find a way to open the Strait and maybe get to a 30-day negotiations over Iran’s nuclear ambitions. That gave the market a drop, if you will. And then on Friday, as tensions started to come back up as the U.S. attacked a few tankers, the market added war premiums. So in my mind, war is still the big factor in grain trade. We’ll see how the next week plays out. But next week,
Strait Reopening is Key
The big key is getting the Strait of Hormuz reopened and Basse is giving that about 33% odds.
“I’ve increased it a little bit because I do believe that there’s pressure on the Iranians as they run out of storage for their crude oil production to maybe get back to the negotiating table,” he says.
He says a forced deal in which the U.S. military and Iran will go back and forth will open it up for short periods of time, otherwise the U.S. may continue the blockade.
“But as you go forward, again, we’ll see how Trump is able to negotiate. And the Iranians at this point are not anxious to get to the negotiating table, which concerns me. But we’ll see how Pakistan really nudges them forward along with the Chinese,” he says.
Corn and Wheat Rally Over?
Without a re-escalation could the corn and wheat rally be over, especially after lower weekly closes?
“Managed money or funds are along about a half million contracts of grain, corn, soybeans, and wheat, it does show the markets put a tremendous amount of war premium in the price. We’ve done some analysis at AgResource. We think it’s about 45 cents on corn, $1.40 on beans, and about 25 cents on wheat in terms of war premium. If that war were to end, that premium comes out. I also believe the markets will be more focused on new crops,” he adds.
So he thinks farmers should be rewarding the market rallies.
Soybeans End Higher on China Purchase Talk
Soybeans led the rally on Friday with the summit coming up May 14 and 15.
Basse says, “The summit is expected to produce maybe some Chinese buying. Rumors from China on Friday had them buying some 12 to 13 million metric tons from the United States. If I combine that with the 12 million tons they bought last November through of, let’s say, the end
of January, that would take us to 25 million metric tons. And remember, back in that November meet, the United States talked about China committing to buying 25 million metric tons of soybeans a year. So we’ll see how this all plays out. I do not think that buying 12 or 13 million metric tons by the end of 2026 is all that bullish.”
That’s because it will lead to lower soybean export figures but still the market saw this as demand from China and it got the market moving higher on Friday.
China Summit Deliverables?
So what is the market looking for to keep the China premium built into the soybean market intact?
Basse says, “The USTR and Ambassador Greer has been talking about a board of trade idea. And the board of trade is not in Chicago. It’s a board of trade concept in which the United States would start to sell additional ag commodities to the Chinese under some separate terms. So maybe that includes wheat or corn or beef or other products. And so whether or not Ambassador Greer can get that across the finish line next week will be important. If we broaden commodity mixtures to China, from the United States, that would be more bullish.”
He thinks it will take another summit in November to get that done.
Will China Buy Other Crops?
China has said they want to buy non-soybean row crops though, so could the soybean bulls be disappointed.
He says its entirely possible, “Listen, when we head into these kind of negotiations or summits, it’s all political. And that is something that, you know, as an analyst, we can’t look behind the curtain very far. I am troubled about several things, though. Again, I’d like China to drop its tax on soybeans. It has a 10% duty on U.S. soybeans coming in, a 15% duty on grain. So that needs to end. But on the other side of that, I would be hopeful that maybe we can start to sell some grain to China. and wheat and other meat products. That would just help the U.S. farmer broaden things out.”
He also hopes the two countries can normalize trade with a market-based system.
“Not where presidents Xi or Trump, decide what’s going to happen.”
Global Tariffs Struck Down, Leverage for China?
In additiona, the 10% global tariffs were declared unlawful on Friday. So, does that give China more leverage in these discussions next week?
Basse says, “Oh, it sure does. You know that a 10% tariff was on China. If we remember back to the last meeting that happened back in November, that tariff rate was somewhere just shy of 50%. So the Chinese like to trade. In other words, if they’re going to get a lower tariff, they’ll do something in terms on the buy side. And we saw that with the fentanyl tariffs back in November. If there’s no tariffs on China, which would be the implication of that, that 10% tariff being wiped. out, I wondered what else the United States could provide China. Maybe there’s something on Taiwan. Maybe there’s something elsewhere. But the availability to trade tariffs for China doing something is diminished with this decision that came on.”
He says it’s disappointing that this happened right before the trade summit.
Wheat Topped?
Wheat may have topped but with the Kansas Wheat Quality Tour next week could that shock the market into causing some weather premium to be added?
“I think that we’ll all look to the Kansas tour and the NASS production estimate that comes out on Tuesday as kind of giving us what the probabilities are in terms of how small is small. There’s some of us that see the hard red winter wheat crop down in the 575 to 585 million bushels. If it goes below that, then that will be somewhat bullish,” he explains.
However, he says the world wheat carryover of old and new crop wheat is a near record supply.
“So there’s no shortage of wheat in the world. We just have a shortage of hard red wheat in the Kansas or the Plains. And then the question is, what do U.S. millers do accordingly? But I worry about export demand going forward because we are hearing that Russia is selling wheat
into Mexico. We’re hearing Russia selling wheat into places like Brazil. These are traditional U.S. customers. I hate to see that business being lost to the Russians,” he adds.
He thinks USDA may lower the winter wheat crop between 200 to 225 million bushels with ending stocks dropping 100 to 125 million bushels.
May WASDE Expectations
Will USDA raise corn exports in the May WASDE and lower soybean exports?
“Yeah, I think that’s the popular tone that people want to raise exports a little bit on corn, maybe cut the ethanol estimate because of the inclusion of sorghum in the weekly grinds or monthly grinds. That’s all possible. I think USDA kind of holds pad, if you will, and we don’t see a big change on end stocks. We still stay above 2.1 billion. And then on soybeans, you know, we’re looking at around 340 to 350 million bushels, maybe down 5 to 10 million bushels there. Maybe exports need to be trimmed a little bit in soybeans, but crush numbers need to rise. Wheat won’t change much,” he adds.
For new crop corn ending stocks his estimate is above 2 billion bushels as USDA sticks with trendline yield of 183 bu. Soybeans will also see trendline yield of 53 bu.
The wheat number will change based on the NASS production report of winter wheat.
China export demand is still up in the air. “And a lot of that depends upon the summit on Thursday, Friday. So if I’m USDA, I’m not going to make a big change in Chinese soybean demand just yet.”
The biggest changes could come with USDA raising the Argentinian corn crop, six or seven million metric tons. They also could do the same to Brazil. The Brazilian soybean crop could nudge up just a million or two tons, he adds.
Cattle See Profit Taking?
Cattle futures ended lower despite record cash trade. Is that just profit taking or is that a bigger concern?
Basse says, “I believe it’s somewhat of a concern. Seasonally speaking, as we tend to get into the early part of June, excuse me, May, and we normally make a top in the beef market. That top usually corresponds with the Mother’s Day weekend. So coming after that, I expect beef prices to start decline. We also see cash cattle numbers rising, or at least fed cattle numbers rising for the next three or four weeks. Slaughter has been relatively low relative to on-feed estimates over the last four or five weeks. I believe those cattle will now come to market maybe at some heavier weights, and that could cause some easing, if you will, of cash prices.”
But he doesn’t see any end to the longer term bull market in cattle because there is no dramatic expansion in the cattle herd.
“So tightening supplies longer term is still the theme. It’s just that the market could have a correction here,” he adds.
Brazilian Beef Imports
The talk of higher Brazilian beef imports and the DOJ investigation of meat packers may have also spooked the funds.
“Well, we did have President Lula at the White House on Thursday, and there was a discussion of better or improving beef trade into the United States. A lot of that beef will be used for the grind. In other words, hamburger in Brazil was the biggest importer customer into the United States looking backwards to 2024. So I imagine that there is that potential there, but the Brazilians are going to take a little while to have it all happen. And now we’ve got the Section 122 tariff news, there’s a little push on that. But again, I don’t think it’s enough to really collapse the market. I do believe it’s something that could give us a correction,” he states.
