Markets ended higher Wednesday except cattle futures.
Wheat Explodes Higher
Wheat rallied on Wednesday and ended 25 to 42 cents higher.
Oliver Sloup Blue Line Futures, says wheat prices skyrocketed adding risk premium on concerns about the escalating Black Sea war and the disruptions it is causing in the export market.
“These headlines have been starting to kind of resurface over the last couple of weeks. And if you look at a chart, you can kind of see it in the price action as well. Looking back over the last two weeks, we’ve started to mark higher lows and higher highs and got back above some key moving averages, got back out above $6.40, which was the highs from last month.”
He says that helped push hard red winter wheat back above the $7 but that will be the target for soft red winter wheat as well.
He thinks the softer dollar the last couple of week is also a tailwind.
“So if that continues and you continue to get disruptions in the Black Sea, I think that we could really be a leader and do a lot of heavy lifting for these great markets going forward.”
Retest Contract Highs?
With the funds short nearly 62,000 contract in SRW wheat, a short covering rally could take prices above the May contract highs.
“I think you can. I don’t think that would be out of the question at all. And, you know, over the last several years, funds have been net short, a very large quantity for about 99% of the time. They went net long briefly a couple of months ago when we posted those contract highs, but then they were right back on the sell side, hitting the sell side aggressively.”
So with funds spending a majority of the last three or four years on the short side, if disruptions in the Black Sea continue, he says they may exit those positions which would bode well for higher prices.
Wheat Pulls Cover Over Resistance
The rally in the wheat market finally pulled corn over key resistance areas on the charts.
The $4.66. $4.69 is the level that we’ve been eyeing for several weeks really even all the way when we were down at the $4.30 level we’re saying upward or tracement maybe $4.66, $4.69. You’ve got the 50-day moving average, 200-day moving average, the 50% retracement from that May 13th high to the June 30th low. You’ve got the breakdown point from June 2nd and 3rd, and then going all the way back to last fall,” he explains.
So if wheat continues to show strength, he thinks that could set up a clean breakout in the corn market. How high prices go depends on how high wheat rallies.
However, Sloup says, “The next levels from here, you’re looking at the 100-day moving average. That comes in near $4.75 and also aligns with the 61.8% retracement. So a couple key levels to keep an eye on here in the coming days and weeks,” he says.
Does Corn Also Need a Lower Yield to Rally?
Does the corn market also need a bigger weather threat or deteriorating crop ratings to indicate we’re losing some yield to rally fruther?
Sloup says even after the down draft from brutal fund selling in June he thought there were enough lingering catalysts in the background that the market doesn’t necessarily need a weather scare.
“When you have enough lingering catalysts in the background, eventually, you know, I guess the chances of one of those hitting increase. You’ve got, ongoing concerns in the Strait of Hormuz, higher for longer energy prices concerns, potential weather concerns around our crop, potential weather concerns in other countries’ crops, Chinese ag purchases, issues in the Black Sea,” he explains.
So, with all of that the probability of just one of those landing increases the more you add to it and that can produce a rally.
Funds Have Room to Buy Corn?
The funds are only net long 15,000 contracts which Sloup says is fairly neutral, so he wouldn’t be surprised to see a more aggressive bullish stance in the coming weeks.
Or those catalysts at least keep them from getting overly short he predicts.
Soybeans Close Above $12
Soybean futures closed back above the $12 mark, with the help of wheat and with a record NOPA crush figure of 214.34 million bu. for June.
Where does the market project to now?
Sloup says soybeans have been choppy and he thinks the strong close is a good opportunity to sell or put in some downside protection.
“This is one of those markets where just it doesn’t feel like it wants to go lower. Every time the bears tried to sell the market off on Wednesday it fought back and the dips continue to see buying.
“I feel like that’s probably a trend that you don’t want to try to fight at this point.”
He points out the next targets are $12.07 1/4 which is the recent high, then the high from May 19th.
“Above that, you’re looking at $12.14, the May 13th high. I wouldn’t be surprised to see us get the $12.25 and see how we trade around those levels. And if we can’t really... get meaningful momentum to the upside from there i would say
Will China Buy Beans Before Prices Get Too High?
So with prices moving higher will China get spooked and buy before prices get too high?
Sloup says, “That’s the million dollar question. I have a tough time reading what exactly China’s going to do. It’s definitely a chess match day in and day out and year in and year out. And they’ve got the long plan. But I wouldn’t be surprised to see that maybe kind of feed into a little bit of a narrative into the strength.”
Plus, he says funds are buying into that narrative.
“They’re net long 69,000 which is a pretty decent net long position and if we continue to get China showing up with these flash sales, maybe more aggressively, then yeah, I would say that’s a green light.” he adds.
However, there are still lingering weather issues in the soybean market beyond China and if wheat continues to rally that will also push soybeans.
Cattle Make New Lows for the Move
Cattle futures made more new lows for the move in all but the August feeder cattle contract.
August live cattle have been down 13 days in a row and took out major support again on Wednesday according to Sloup.
“I would have thought that we would have tried to hold a little bit better on that 200-day moving average today. That comes in at $231.42. It wasn’t able to hold. That’s now going to be a little bit of a resistance point,” he points out.
Where’s the Low in Cattle?
Fund long liquidation has brought the RSI down to 26, and that’s the lowest reading since October according to Sloup.
“So a little bit overdone, but it’s been orderly selling, which is a little bit concerning to me. If you’re looking for the market to post a low
after a bleed lower like this, I almost want to see more panic and capitulation before getting that low.”
Lower cash trade in the North at $240 live, down $8 and dressed prices at $377 to $380 also pressured the market in addition to lower boxed beef values.
Hogs on the Verge of a Technical Breakout?
Lean hog futures saw a decent rally on Wednesday with July expiring and the August contract getting above $100.
However, Sloup says the market can’t get above the 50-day moving average and that is needed for a significant chart breakout that will get the funds to cover their massive short position
October and December are at a big discount to the August and have more upside potential especially with how short the funds are setting.
“You break down the Commitment of Traders Report, they’re net short about 40,000 contracts, which is a record net short position. Lean hogs, similar to live cattle, when funds go net short, it usually doesn’t last too long. And when they do cover, it’s usually in a meaningful way because it’s a very narrow exit door,” he describes.
So, it the market can see some good technical closes it can see a nice short covering rally.
Improving Fundamentals
Cash and cutout values have also improved the last couple of week which will help push the rally.
“You’ve seen the cutout values improve a little bit. And so I do think that that has certainly started to see funds looking for the exit door.”
