Grain and livestock futures ended sharply lower on Friday.
Risk Off Selling Across Markets
The ag markets were slammed on Friday by fund liquidation and risk off selling across the complex.
Matt Bennett with AgMarket.Net says the broad based selling was tied to lower crude oil markets and headlines from President Trump that the Strait of Hormuz was going to reopened and the U.S. had struck a cease fire for the next 60-days.
So markets were removing risk or war premium he explains. “I mean, it’s certainly been an on again, off again deal. Anytime that we feel like it’s not going to open for a while, you know, you keep some of that risk premium in place. But the risk or war premium, if you will, certainly came out of the market here.”
End of Month Liquidation
Bennett says also contributing to the pressure was end of month selling by the speculative community.
“A lot of these funds had been long, all sorts of commodities, but corn, beans and wheat. And certainly they’ve been in liquidation especially as they got closer to the end of the month. I just think they went into the weekend with more of a risk-off feel,” he says.
Deal or No Deal?
However, the markets have seen this set up and head fake over a half dozen times going into a weekend. So, Sunday night will be important to see if the deal sticks or not he says.
“You know, over the weekend, that’s been when a lot of big news has come out. And so, you know, someone taking a big position heading into the weekend at this point doesn’t make a whole lot of sense to me. I kind of doubt that there was a whole lot of new shorts come in. I think it was traders liquidating longs,” he explains.
Bennett thinks funds sold a large amount of corn and wheat looking at the poor action.
Will Selling Pressure Continue?
So will selling pressure continue in the ag markets on Monday, especially with lower weekly closes and chart damage done to contract like July corn.
“Yeah, I mean, July corn certainly doesn’t look good on the chart. We were kind of hoping to hold that $4.50. If you look at support, it goes all the way back to the first of the year. We’ve kind of bounced off that several times here over the last couple of weeks, but obviously this week it did not. If you look at December corn, that chart looks a lot better. You essentially settled right on that 100-day moving average, but whether we will bounce off of that next week or not remains to be seen. Obviously, though, July corn chart does not look good right now after breaking that support.”
Technical Damage is Wheat as Well?
Wheat futures also ended lower and charts look challenged there as well, although uptrends are still holding, according to Bennett.
“As far as wheat goes, it certainly looks like when you look at that chart, the high looks like it’s in. I mean, you look, for instance, at KC wheat on the July contract, eight straight lower moves, eight days in a row. I mean, it’s just been pretty tough there. Selling pressures come in,” he says.
That comes at the same time wheat crop rating are some of the lowest in history.
“Obviously, that doesn’t make you feel good if you’re sitting there with a poor crop out in western Kansas. I mean, you know, obviously that crop is very challenged. So we continue to be reminded that the U.S. wheat crop is a small player in the world game. And that’s essentially the unfortunate reality we’re dealing with right here today,” he states.
Soybeans Holding on China Hopes
Soybean futures were down on Friday but are still within their trading range and holding awaiting China business. This comes as market talk had China looking at dropping its 10% tariff on U.S. soybean imports and 15% tariff on other grains.
“I mean, there’s been a lot of enthusiasm there. Obviously, we’ve been out of the market for quite some time. You change the tariff situation around, and it certainly changes the dynamics. Are we going to be able to step in and sell them more beans? Old crop, that’d be a tough call, but we do expect that they’re going to start at least on their buying program for new crop, 25 million tons.”
However, he cautions that those purchases won’t happen overnight. “Two years ago, we were worried going into harvest that they hadn’t bought any beans, and they bought a ton of beans during harvest. Obviously, that didn’t happen last year, but most people are kind of expecting that it’s a little bit friendlier tone, if you will, between the U.S. and China, and that that should shake loose some business.”
Soybean Oil Holds up Soybeans
Another reason soybeans held up better than corn and wheat was the huge rally in the soybean oil market, which ended in contract highs on Friday. It’s tied to biofuels expansion and this week hearings with the Treasury Department on final 45Z rules helped fuel the fire.
“I mean, there’s no doubt that crush margins have been fantastic, you know, and then you just continue to push soybean oil, which does nothing but affirm that. As you continue to build this industry out, no doubt it puts us in a better spot because of domestic consumption,” he states.
Add China business on top of that and it puts U.S. soybean ending stocks in a tight situation. “As you continue to outpace a year ago crush levels. Crush just continues to impress and because of margins, it’s going to continue to do so,” he adds.
Exports Disappoint
Weekly export sales on grains were also disappointing especially for wheat which saw net cancellations on old crop of nearly 30 million bu.
That cast a negative tone over he entire market and contributed to the sell off in the grain complex.
“It just kind of reminds us that the world wheat situation, it’s a lot different whenever you look at U.S. wheat. If you look at U.S. corn and soybeans, we don’t grow the biggest bean crop by any means. Brazil does now. But we do grow the world’s largest corn crop. When you look at wheat, we’re not even close. And so it’s just a stark reminder of that. Whenever you look at, for instance, corn sales still a million tons, I mean, it’s not a bad number, but it’s about half what it was a week ago.”
More Fund Liquidation and Selling Pressure?
So if the Iran peace deal does happen and there is no weather threat will grains see more fund liquidation or will the market be able to recover?
Bennett says sees more selling ahead for old crop corn due to large ending stocks, “I think when you look, for instance, at the new crop situation, it’s a lot different than the old crop situation. We know and we’ve known all along that we’re probably going to carry two billion or close to it into new crop.”
He is more optimistic about December corn and even more deferred contracts holding support.
“I think where it gets a little more problematic is what do things look like for new crop whenever we know fertilizer prices are going to be very expensive. And you’re looking at, for instance, these corn below that level, you know, $5. I don’t know, whenever you look at $5 corn and $1,200 anhydrous, it doesn’t work very well. And so I do think that maybe you see a little more support as you get farther away from old crop.”
Cattle Fall on Friday
Live and feeder cattle futures also saw more end of month profit taking and fund long liquidation to end the week and month.
Lower cash trade at $256 live in the South, down $4 and in the North dressed at $410, down $5, did not help.
Bennett says the big question is whether or not the market is rolling over?
“Every time we’ve thought the market was starting to roll over, you know, it’s come firing back. One thing we’ve noticed here lately, though, is definitely some resistance when you get above $250 on that front month. June, obviously, it’s getting a little long on the tooth. It’s going to go off the board here before too long. But bottom line is $250 and above seems tough to maintain right now, tough to sustain,” he states.
Funds have been long in the cattle for a long time due to the tight numbers but they may be exiting on strength, at least for now.
“I think farther down the road, numbers are going to get tighter yet, especially with some pairs selling out West. Some people just can’t sustain them. They don’t have enough grass right now. It’s going to do nothing to build a national cattle herd. I mean, we know we’re 75 year lows. I mean, I’m afraid that’s just going to continue to dwindle,” he adds.
NWS Case Spooks Market?
The speculative traders may have also been spooked by news from USDA that another case of New World Screwworm (NWS) was detected 52 miles from the Texas border.
Bennett says, “I think that a lot of people feel like it’s only a matter of time before we see something like that in the U.S., unfortunately. I mean, I don’t know whether it’ll happen or whether it won’t, but certainly it’s creeping closer and closer. So I’ve got to think that has to do a little bit with the funds maybe getting a little less there, being a little less excited about holding the kind of long that they’ve held for so long.”
Hog Markets Falls to Six Month Lows
The lean hog futures were down with the rest of the complex and continue to try to find a bottom but instead made six month lows in the August contract.
Bennett says it is hard for hogs to rebound if the cattle market is also going down.
“Whenever you look at, a substitution type argument, if you will, if cattle are running $250 and above and they look strong, there’s no doubt that hogs would have a chance here and there. And they have. Anytime you’ve seen cattle rally, hogs have kind of stabilized at times. But unfortunately, I think with cattle moving lower, it’s going to be pretty tough,” he explains.
