Soybeans ended higher on Tuesday with corn and wheat mixed. Cattle surged with hogs mixed.
Soybeans Rally on China Buys
Soybeans were sharply lower in the overnight trade and then saw a gap higher open during the day session on talk that China was in pricing U.S. soybeans.
Brian Grete with Commstock Investments says later in the day one of his export sources confirmed China had bought U.S. soybeans.
“I’ve heard that they bought at least two cargoes of new crop soybeans. And so probably not too much of a surprise. We saw the big price pullback, obviously, over the past month. And so U.S. soybeans, along with other commodities, are basically on sale. And China needs to buy some to meet its obligations under the trade agreement.”
He says U.S. prices are competitive with Brazil at the moment so it make sense.
“Now we watch to see how much more they purchase on this move.” he said.
How Much Will China Buy?
Grete says China is a shrewd marketer. “So, when the opportunity is there, they usually take advantage of it. So, that that is one thing. Now, the one thing that we haven’t seen yet is a tariff rollback.”
He says that will likely be a coordinated effort between the U.S. and China, which they’ll announce it at the same time.
“And when that does happen,” Grete says, “That gives us even a better price advantage. It’ll roll back those 10% tariffs that China is charging the U.S. over the top of Brazilian supplies. And that’s when you get the commercial buying to come in. And that’s when it turns more aggressive. Ahead of that, it’s probably state-owned firms that are doing the buying. But any purchases at this point in time, obviously, the market reacts to.”
Timing of Purchases a Coincidence?
The timing of the purchases coincides with the Iran war coming to an end and the signing of the peace treaty.
Is that just a coincidence?
Grete says, “I don’t necessarily know if it was planned or not, but you can’t rule anything out, I guess. And, you know, the interesting thing is we’re seeing war premium come out of the crude oil market. And as a result, soy oil is trading lower. And now you get China coming in for U.S. soybeans, maybe some other ag commodities. They’ve been a buyer of U.S. sorghum. Who knows? But that would be quite the irony if you’re taking war premium out of other markets and now you’re starting to build in physical demand premium.”
Will China Buy Corn?
The corn market was slightly higher for a second day in December corn with some spillover support from higher soybeans.
However, corn is just off contract lows so will China also see that value and buy U.S. corn?
“There’s a possibility, I guess from my perspective, I think the most important thing is we’re down to price levels that in the past has attracted buyer interest. Whether it be on the board or in the physical market and whether it be China or any other global end user we should see some demand pick up there,” he adds.
Corn export demand continues at record levels but from a price perspective, he thinks the market probably got low enough for now.
Weather Favorable
He says weather conditions continue to be viewed by the trade as favorable and corn is off to a strong start from a condition standpoint.
“And while that doesn’t mean anything to final yield necessarily, from a trader’s perspective, it probably does throw the brakes on them being aggressive buyers unless there’s some sort of a bullish catalyst. Now, soybeans could be the bullish catalyst or it could be something else, but we’re going to need a catalyst in there to get the corn to see any kind of sustained buying, in my opinion,” he says.
Crop rating on corn did drop in Illinois, Nebraska and Iowa, which was down 5% but the market didn’t really care.
“When you’re sitting at two-thirds of the crop in mid-June that’s rated good or excellent, boy, it’s hard to convince traders that there’s any kind of problem at that point in time,” he states.
Funds Done Selling?
After the massive liquidation by the funds the last few weeks could the hopes for China business help to finally stem their selling and bottom the grain markets?
Grete says, “I don’t think this is an environment where they want to be long across the board in grain and soy markets. So corn, the three wheat markets, and then the soy complex, soybean, soy meal, and soy oil. It doesn’t feel like they want to be long all of them. It also doesn’t feel like they want to be short all of them. I think their safest bet in terms of being long is soybeans and probably soy meal and soy oil, so the soy complex. And their safest bet if they want to be short something. is probably the winter wheat markets because we’re going through the winter wheat harvest and then corn because we are off to such a good start from a crop perspective.”
That was reflective of their positions in the June 9 COT report with funds slightly short corn and building a net short in SRW wheat and HRW wheat. They still had length in soybeans, soy meal and soy oil.
“And I think that that’s probably about where their comfort zone,” he adds.
So money flow will be very key from a day-to-day and week-to-week in terms of price action.
Wheat Ends Mixed
As a result of the fund positions, wheat saw some spread adjustment on positioning. SRW wheat was higher Tuesday as funds covered their short position, while the other two classes of wheat ended lower.
“They decided to get out of the wheat first, which made sense because wheat, if you remember, led us to the upside on the price
rally and led us to the downside on the the price decline and SRW was the leader there. They’ve built the biggest short position in that market so covering up some short positions is natural,” he adds.
Grete adds that the market already knows the HRW crop is poor and has priced that in. The SRW wheat is seeing some late season rains but any quality concerns will be priced in by the cash market.
Cattle New Highs for the Move
Cattle futures saw a sharp rally and made new highs for this move, also breaking out and closing above key resistance and major moving averages.
Grete says higher cash ideas and the futures discount were supportive as well as higher boxed beef values.
“We’ve seen the cash market pull back recent weeks, but not much and its kind of leveled off in here. I think the biggest thing is that we’ve seen is the feeder cattle lead the price recovery. And if you remember on the run up to the highs that we had, the feeder cattle were the leader on a day to day and week to week basis. And we’ve returned to that. Probably the biggest thing is that we’ve shoved
all the screwworm stuff to the back burner. So we had the big negative initial knee jerk reaction to that. Traders bought it and they’ve continued to buy,” he says.
The feeder cattle are now trading at a premium to their cash index for the first time in quite some time, which is also a big shift within that marketplace. Live cattle are trading just below last week’s average cash cattle price according to Grete.
“And so if they go premium, that would be a dynamic shift within that market as well. And so I think that really what traders are saying is we don’t care about the screw worm situation as it is right now. Push that to the back burner. We’ve gotten rid of that and we’ll trade cash fundamentals. And from my seat, that’s a positive,” he adds.
Retest the Highs?
So if the funds step back in to buy with confidence could the market retest the highs?
Grete is skeptical, “History would tell me that we probably don’t keep taking out the highs, but I’ve said that before. Historically, once you mark a high, all-time high, and you pull back from there in a significant way, you’ll go back and retest it, but you won’t move to new highs. Now, with that said, USDA’s price forecasts are the strongest when we get out to the end of the year, and they continue
to show even more strength as we move into 2027 and so Ican’t rule out a run to all-time highs at some point in time.”
Hogs Retreat
Nearby lean hog futures were also lower today despite the higher day in cattle. The funds are already short in the market and keep selling.
Grete says the fundamentals don’t really suggest the futures should be sold this hard.
“Honestly, the hog market in my 30 years in the industry, this is one of the craziest things I’ve seen. Just the contra-seasonal selling that we’ve seen basically since early March has been unrelenting. And, you know, the slaughter numbers are about in line with year ago,
and yet we’re trading the futures and the cash index well below where we were last year at this point in time. And so, you know, one and one doesn’t equal two in this instance. I’m hearing that maybe a marketing’s hole is coming when we get to July. We shall see if that plays out or not. But if it does, with all this futures price pressure that we’ve seen and the pressure on the cash market, boy, that would pretend to a strong rally at that point,” he adds.
So that’s something to watch on the near term horizon. For the short term the path of least resistance is down. The technicals are breaking down. The traders are removing premium in futures relative to the cash index.
“And it’s just ugly,” he says.
