Soybeans, meal and cattle ended higher Friday with corn, wheat and hogs lower.
Soybeans Follow Surge in Meal
Soybeans were higher on Friday following a surge in the soybean meal market with end of week unwinding of short meal/long oil spreads.
Don Roose with U.S. Commodities says bean oil has been the leader trying to follow crude oil higher but now that trade is reversing.
“I think we kind of stalled out on the oil the end of the week, and the soybean meal found some strength and I think part of it is the
unknowns,” he says.
The tug of war between the product values has soybeans trading range bound he adds.
China Hopes
The soybean market was also higher for the week and seems to be holding a premium on ideas of China sales in the meeting in mid-May between President Trump and President Xi.
The Wall Street Journal reported that China is expected to make some big soybean purchase announcements at that summit, but Roose thinks they will be new crop, not old crop buys.
“China’s pretty well bloated with soybeans already. They’ve been an aggressive buyer of soybeans from from Brazil. And, you know, it’s getting into the time frame where Brazil soybeans are pretty well getting dialed into the market. The U.S. soybeans, you know, if we pick up some new business, it’s probably going to be for next year. Or they’re going to buy soybeans for this year and then remember, they can always cancel them. So it may be one of those flashes. Either way, I doubt if the meeting is going to have anything that you can really say is overly positive,” he adds.
Corn Falls on Big Supplies, Removing Risk Premium
The corn market was lower Friday and for the week as Roose says the market has quit trading with crude oil and energy values and started to focus in its own fundamentals.
“You know, weather looked like it’s starting to improve a little bit for planting progress. Some of the dry areas are getting some moisture.”
He says the WASDE also confirmed a 2.127 billion bu. carryout.
“That really told us that we have adequate excess supplies, you know, and the world ending stocks going up. So I think that was a bit of a negative. Then you see some of these reports out of the Argentina exchange that a real big discrepancy on how big the corn crop is. So I think it’s just the weight of the supplies.”
The quarterly stocks also confirmed producers are holding over 5 billion bushels of corn, 60% of the ending stocks.
“And we know. that those are an anchor on rallies that producer was selling pretty aggressively. So I think the pipeline just got resupplied going into spring,” he adds.
Corn Hits Chart Resistance, Funds Liquidate
Technically the corn market also ran into signficant chart resistance and with funds long he thinks they are starting to liquidate.
“I think they’ve seen enough with the weather and how the trade is reacting to the crude oil. You’re oversold. To get some kind of retracement here, Michelle, would not be a big surprise. If you don’t catch a weather issue here sooner rather than later, my guess is retracements are going to end up with the funds getting out of their long,” he explains.
Roose adds if weather problems don’t surface by the middle of May to the middle of June, he thinks the funds will go to a short position. “Maybe a pretty big short position just like they did last year.”
Wheat Removes Risk Premium
Wheat futures also were lower Friday and for the week on technical selling but also removing risk premium tied to war, weather and big supplies.
“There’s competition around the world. Some place is harvesting wheat all the time. I think we’re looking at the dry area getting smaller in the U.S. I think there’s no real weather problems around the world. And I think we have a lot of these other countries with wheat that’s cheaper than us,” he says.
The Eastern part of the hard red winter wheat belt saw improved moisture this week as well.
Cattle Make New Highs
Cattle futures saw more new highs for the move on Friday in the feeders and new contract highs in some of the live cattle contracts.
Roose says it came on the heels of higher cash trade with some $250 live sale prices paid in the North.
How much more upside is left in the market especially getting into the best demand time of the year?
He says, " Well, I think if you look at the cash cattle market, I think you have to say we’re getting that seasonal push to the upside. You know, grilling season kicks in right during this time frame. We usually put some premiums in. The packer chases the boxed beef higher.”
However, he says boxed beef is struggling around $380 on the Choice. “So I think what you have to be careful of is if we’re fully dialed in on the fundamentals on the bull side of the market. Funds are sitting long, and you have to be careful if anything goes wrong.”
Weights are also record large according to Roose.
“We’re putting on about enough tons to equal about 20,000 head of cattle a week. Plus, when does the consumer demand slow down? It has been quite remarkable that he’s been holding in on buying beef, but he’s been buying beef at the expense of the packer, which is partly why the demand’s still strong.”
Feeders Holding Back on Border Fears
Feeder cattle futures have not taken out the all-time highs like live cattle. So it that fear of the border reopening to Mexican cattle?
Roose says that may be one of the things holding the market back.
“If we don’t open the border sooner rather than later, eventually Mexico builds more packing plants. So I think we have to be careful we don’t send a signal, the wrong signal too long. So my guess is that we’re going to try and work gradually to slow walk the opening, but we’re going to get it done. And that’s going to add some pressure to the feeder cattle. That may be one of the reasons that even though corn market fell sharply, feeder cattle couldn’t make new highs while the fat cattle are making new highs. So I think it’s a concern,” he explains.
However, many called the top last October and the market is back trading at those levels again.
Lean Hogs Lower
Lean hog futures were lower again Friday and for the week. Roose says the futures got too premium to the cash index.
“Yeah, I think that’s the big thing, Michelle. I think the cash market down around $90, the futures market substantially higher than that. Usually we get a seasonal dip right here after Easter before we start to get a little bit of seasonal support middle of May. Then we have that run into the summer months. So I think it’s more just the futures just got too high,” he says.
Plus, globally China is struggling with big hog numbers and low prices at around $60 a hundred weight, and they’re still liquidating the herd.
So even though exports have been very strong, that may be fully dialed in.
