Grain markets opened lower Tuesday but soybeans quickly recovered. Cattle and hogs were lower.
Corn, Wheat Fall Awaiting Macro News
The grain markets were all lower on the open with corn and wheat watching developments in the Black Sea region as well as awaiting a possible rate hike out of the FOMC meeting this week.
John Heinberg with Total Farm Marketing says, “We’re watching what the Fed’s going to do with interest rates tomorrow. I think some of the reason the funds are as heavy in the grains as they are is because of the inflation type play. So we’ll see if we get some confirmation with what they do with interest rates tomorrow. What’s that do to the U.S. dollar? So I think there’s a little bit of uneasiness going into that.”
Soybeans Recover on Strong Demand
Soybeans quickly found their footing and turned higher with help from strong product markets and strong demand. Heinberg says China buying was quiet on Monday but rumors of more China soybean sales ahead of the U.S. China Summit next week could be supporting the recovery in the soybean futures.
Heinberg says, “They’ve stepped in, picked up at least half, if you put some of the unknown sales in there, of that 25 million metric tons. Now the key for prices will be when’s the next 12.5 MMT come in. Is that going to be right away as they continue to lock in through the fall? Are we going to have to see like last year where they hold off until the second half of the fall or into the November window? I think that’s something we’ll have to really kind of watch,” he says.
The NOPA crush report is out at 11:00 am and the market is anticipating record crush. He agrees that is supporting prices and globally with CHS announcing Monday a new plant will be built in Wisconsin to crush another 80 million bushels per year. “So it just tells you there’s some story behind the crush side of it.”
China Summit
What is Heinberg expecting from the U.S. China Summit. Will there be more purchases leading up to the meeting or more announced at the meeting?
There have even been threats by China that Xi would not attend if the U.S. followed through on possible arms sales to Taiwan.
“It’s that point where we probably start getting all that political posturing before a meeting of this magnitude. Now, unfortunately, we’ll probably make markets a little bit jittery as we get closer.”
However, the key for the market will be if China drops their 10% reciprocal tariff on U.S. soybeans and grains or do they kick the can down the road again?
He is skeptical of China buying corn or wheat but says it would really give the markets a boost.
“I think it might be something that comes in a little bit later in the year as they’ve got to meet that $17 billion total in terms of agricultural exports, imports,” he concludes.
Soybean Meal at Two Year Highs
Soybean oil has been pushed by biofuels demand but the surprise has been soybean meal which has rallied to two-year highs. Soybean meal exports have been at record levels which is supportive.
“It’s maybe a little bit more of a global picture and feed demand and usage on that side of it as well. We’ve seen last couple of weeks here, the Dalian exchange soybean meal has been actually pushing strongly higher I think lifting global soybean meal prices. We’ve seen a little bit of export demand build here as well as overseas for that product,” he explains.
There is a concern about tight supplies with Chinese independent crushers having a hard time sourcing beans from Brazil as well as the U.S. with the 10% tariff still in place, which makes profit margins tight.
“So that just makes the profit margins tight, tightens up the soybean meal supply globally. I think we’re seeing that reflective in that price in terms of meal all across the world,” he adds.
Soybean Oil Following Higher Energy Prices
The bean oil market is also supported by biofuels demand with crude oil over $100 and diesel fuel over $6.
“Yeah, the correlation between soybeans and diesel prices and bean oil and diesel prices is very tight. And that’s one of the reasons I still stay friendly to the soybean market until we see something change on that side of the equation. Obviously, crude oil over $100 a barrel
only adds a little bit more to it,” he says.
Harvest Pressure
Rallies in the corn market will be difficult to sustain with corn harvest ramping up, now 8% done nationally. Some heavy rains this week are expected to slow efforts down in the northern areas but the rest of the belt is likely to have an open window.
“Typically, that’s the key in this time of the year is going to be one of those little wet blankets over the rallies will be harvest progress,” he says.
However, with the strong export program for soybeans any harvest delays will push prices higher. “Just because they’re going to want to try to pull those bushels in or you’ll get some basis improvement in that regard.”
Harvest Results
Heinberg says there is a lot of corn already sold with corn hitting $5 targets for many farmers.
So now the market is waiting to see harvest results. Early reports are have been disappointing on corn compared to last year while soybean yields have been better.
Heinberg says, “I think we’re going to see is a lot of variability. I’ve heard some of the same things in corn right now, and I know I’ve heard the other side. They haven’t started harvesting yet, but they are just pretty excited about their corn crop. Soybeans, I think, is going to be a bit of a mixed bag, too. It comes down to the timing of rains. I’ve got some producers in the southern half of the Corn Belt that have been dealing with the heat. Their beans are in trouble. But then, you know, just talking to a few guys yesterday, some of these rains might catch some of those late beans and help them finish out a little bit.”
Wheat Weary of Black Sea Developments
Wheat fell Monday with unconfirmed posts from President Trump saying Russia and Ukraine had agreed to stop targeting energy and food infrastructure with their attacks. However, overnight Ukraine hit another key Russian refinery.
However, wheat prices were slightly lower getting tired of the headlines.
“I think we need some fresh news again in here. Now, we’ve just been fading off of prices. Maybe we’re just getting back to a technical sellback point. There is some decent support here, just a little bit below where the market’s currently trading around that $7.10, $7 window. So maybe that’s what we’re in the process of right now,” he explains.
The higher dollar is also a headwind for the wheat market and is up on concerns of higher interest rates.
Cattle Market Corrects
The cattle futures were consolidating and seeing some profit taking after hitting new highs for the move on Monday.
The futures were pushed by technical buying, higher weekly closes and higher cash.
To continue to run higher Heinberg says the market needs to see higher cash again this week.
“We had a pretty good push out here off of those lows, especially the last couple of sessions here. So today’s probably a bit of a profit-taking day. Wait and see where the cash bids come in. It just seems like there’s a little bit of packer demand built up right now. I’ve heard talk of packers calling producers and saying, hey, let’s bring some cattle forward and get these later contract cattle moving if they’re ready. Things like that just kind of give me a good feeling about maybe where the cash market is directed here in the next few weeks,” he says.
Typically, cattle bottom the cash around Sept. 10.
However, even with higher cash the futures will need to get above $230 technical resistance on October, which is the August high.
Macros Headwind for Cattle?
Can the futures continue to press higher with a correction in the stock market, higher gas prices and a possible increase in interest rates?
Heinberg thinks most of the bad news is already priced into the cattle market.
“You know, maybe the market feels like it’s a little bit cheap. That’s why we’re getting back to these levels that might get us back to where we need to be. But again, those headwinds do kind of come into play. The inflation side of the story, fuel costs, all those things come into play in that cattle market. That was just part of the bad news that just helped pressure us in that regard,” he adds.
Lean Hogs Make Contract Lows
Lean hog futures were mostly lower Tuesday and again December hit contract lows.
How much lower will the market need to fall to find support? Heinberg says, “Now, I’m sure hoping that $70 level in December hogs can hold.”
He says the biggest problem for hogs is the lower cash and steady declines in the index.
“Again, I think the hog market’s got value here, but at the same time, momentum and the money flow with just negative fundamentals is what’s kind of putting a lid on anything that we try to get a rally going,” he concludes.
