What Three Factors Sparked the Rally in Grain and Livestock Markets Wednesday?

Grain and livestock futures all ended higher on Wednesday.

Mark Schultz, Northstar Commodity, says a couple of factors combined to cause the commodity wide buying.

First, the U.S. dollar index was sharply lower and has dropped below 100 or par value.

“The U.S. dollar index is down at 99.50 on a technical basis you close twice below that level, you go down twice to that level and I think it opens the door to going down to 92 to 94,” he explains.

According to Schultz, that is friendly for agricultural commodities because it makes them more competitive in the export market and offsets a portion of the tariffs.

Second, there is growing optimism by the trade that the U.S. is moving closer to some trade deals being struck with top trading partners like Japan and the EU.

China may be the exception, according to Schultz, who thinks Beijing is going to dig in its heels.

Yet, there were news reports that China has appointed a new trade negotiator and that they might be open to talks if they were “respectful.”

At the same time, the Trump Administration is seeking to isolate China through trade negotiations with the 70 plus countries currently in talks with the U.S.

Was weather the third factor?

It may have been with forecast looking wetter for the Eastern Corn Belt and possibly inducing some planting delays.

However, Schultz argues it may be too early for that to be a major market mover.

He says if the delays become more prominent in the second week of May then it will grab his attention.

Although grain markets were higher Wednesday they are still trading under the recent resistance levels on the charts.

Schultz says to get above these levels it will take a combination of weather problems and trade deals being announced by the administration.

Cattle futures were up for the 4th day and June live cattle settled above psychological chart resistance of $200.

It may have been fund buying but Schultz thinks the huge discount the futures were holding to the cash trade has attracted some buying.

Plus, he predicts cash trade could be steady to higher this week.

Funds had liquidated some of their long position but that was before the reversal in the stock market, so the CFTC report will be interesting to see if they are indeed reestablishing those positions.

Lean hog futures continued to rally and the June contract is now about $9 off the recent lows.

Some is a result of short covering as prices got too low, but now futures are nearing chart resistance.

“I think we need to get June hogs above $98-$99 to keep the rally going,” he says.

However, there is also optimism about trade, even with China, that is helping to support the rally.

Schultz says he will be watching the weekly export sales report to see if there are any cancellations of pork or beef by China.