Grain and hog markets ended lower on Wednesday, with cattle and crude oil higher.
Soybeans Plunge on Weather, China
Soybeans futures were sharply lower on Wednesday with November down 27 3/4 cents to $11.92 3/4.
Jamie Gieseke with Paradigm Futures says the market was removing weather premium.
Forecasts for rain in even the driest areas of the Northwest Corn Belt Thursday through Saturday.
“Soybeans were one of the leaders to the upside, so they had the most probably air to let out of this thing, that and wheat. But soybeans now that the forecast is moving into the first part of August. Critical time frame for soybean production here in the U.S. So you start to throw in an inch to three inches of precip in some of the driest portions of the soybean belt, you’re going to have a setback here on beans.”
November Closes Below $12
November soybeans closed below $12 and Gieseke says that contract is down into an area of prior consolidation and some retracement levels in the $11.85 to $11.90 area.
“This is also an area that we’ve seen some export demand here the last few weeks, too. So we suspect that will continue.”
The key is if the rains are confirmed will soybeans take out that support area?
“I think if the rain’s confirmed, the market’s done a good job at pricing a lot of that in already,” he states.
Will Lower Prices Stimulate China Buying?
If prices do dip will that just stimulate more China buying that will help restore the market?
Gieseke says, “I always point to the FOB prices and how we compare to Brazil. Brazil technically should be the lowest cost supplier in the world. I looked at FOB bids here on Monday night when beans were down and Brazil’s prices really were kind of reluctant to follow. Yesterday we were higher, Brazil was lower. I’m really curious to see after today’s price action, does Brazil follow along or do we drop and
Brazil stay the same?”
He says that will be the real trigger for China.
“If we start getting more price competitive than we already were before some of them first sales to China, I mean, I think they’re going to step back in in a big way if we start getting more price competitive.”
So Is the Rally Over?
If the rains forecast for some of the driest areas of the Northwestern Corn Belt confirm could the rally be over in soybeans?
Gieseke says, “You know, initially we thought maybe a two to three week correction here on soybeans, but I mean, we’re already back down in the 50% retracement. The rains now have to perform in my book. I mean, we’ve taken a pretty good shot out of this bean
market.”
Corn Falls With Soybeans
Corn futures fell with soybeans and to some degree weather, although it is getting a little late to make a difference on the yield.
“I think it did have something to do with some of the weather. Some people says it’s gonna reprieve some of the the damage but we all know once the damage is done on corn in July you don’t get it back. If you get rain in August you’re going to maintain the crop, you don’t actually increase the production.” he says.
No Technical Damage
The good news is although December for was down 8 3/4 to $4.71 3/4, there wasn’t much technical damage done.
“We’ll see if the market wants to hold above the 200-day moving average on new crop. So I don’t want to see a close below $4.67.”
Of course, it’s end of the month and the funds had extended their long position in corn so this could be some end of month profit taking as well.
“They had a light long position on corn here for their length, but that could have something to do with it,” according Gieseke.
To Follow Crude, Or Not?
Corn was not able to follow the big rally in crude oil on rising tension in Iran. However, Gieseke says corn and other parts of the grain complex will follow the energy market at some point due to tight supplies.
“We’re starting to pull out more refining capacity now here in the U.S., refining utilization was up this week, and I think you’ll see China start to step back in and increase their refining capacity. That in itself is going to pull more demand on crude oil. And the thing is, we still haven’t resolved that issue on crude oil production and supply.”
Instead the world has drained global reserves on crude oil and in the U.S. stocks hit a 42 year low.
Wheat Holds up Better Than Row Crops
The wheat market was down just 1-2 cents and held up better than the row crop futures.
Gieseke says it may be tied to the uncertainty about what exports are going to be able to move through the Black Sea?
“Ultimately we still had a small crop here in the U.S. and harvest is on the backside of us now. So I think they’re going to be reluctant to kind of sell that thing down. And ultimately what’s going on in the Black Sea isn’t an issue of production. It’s actually an issue of just cost.
And getting Russian grain to the market is actually going to cost more now. So ultimately that puts U.S. prices more competitive.”
Spring Wheat Crop Concerns
Spring wheat futures were actually up 2 1/2 cents at $7.05 as there are growing concerns about production in the U.S. and Canada.
Are the production losses adequately priced into the market?
“I mean, I think for now, I think we’re going to need more of a catalyst in the wheat market to push spring wheat to a new high. We’ll see on mid-August. That’s kind of the next round of heat that’s supposed to be coming in for the northern plains here. So mid-August. The market’s a forward -looking beast, so we might even see some action here next week. We’ll keep an eye on that for sure.” he adds.
Cattle Market Recovery to Continue?
The cattle futures were up sharply on Wednesday and have seen a nice recovery from the lows in reaction to the border being reopened on Aug. 24 to Mexican feeders.
So is most of that bearish news worked into the market and can cattle continue to recover?
Gieseke says the market has done a good job of pricing in a lot of bearish news.
“Part of it, more on the macro side too, is just the fact that I think the market’s been a little, you take a look at the stock market and
they’ve even been reluctant to buy here with the new Fed chair being more incognito and not giving forward guidance. And I think that kind of weighed on the cattle market too.”
Plus, feedlots are pulling ahead cattle as feedlot operators saw the heat was coming in July.
“They probably got more current on their inventory and forward sold. So all that just kind of came all together at once here in July.”
Cattle held chart support at key pivot points including $217 in the October live cattle and $341 in the August feeder cattle, providing a good opportunity to get coverage on.
Cattle futures may also be pricing in the reduced weights and loss of cattle due to the extreme heat and humidity.
FOMC Leaves Rates Unchanged
The Fed wrapped up the July meeting leaving interest rates unchanged.
Gieseke thinks September could be an interesting month as Fed Chair Warsh wants to give his action committees some time to get organized.
“That’s something new that he’s kind of taken on as the new Fed Chair. He also wants to be a little more reserved and out of the spotlight compared to the old Fed Chair, opening it up for more interpretation.”
