Grains ended mixed Thursday with wheat and corn higher, soybeans lower. Cattle and hogs were mostly higher.
Wheat Breaks to New Highs
Wheat futures saw a chart breakout and made fresh highs led by the hard red winter wheat futures which were up on the July contract 29 1/4 at $6.79 1/4, with July soft red winter wheat up 13 1/4 at $6.20 1/4.
Garrett Toay with AgTraderTalk says the HRW wheat market was adding weather premium with forecasts continuing to look hot and dry for the Southern Plains.
Can Wheat Continue to Rally?
Now that the wheat market has seen a technical breakout how high could prices run?
Toay says the charts look very constructive trading on a weekly continuation chart through the 200-day moving average of $6.75. “I mean, especially on that July Kansas City weekly chart. Now we open it up and, you know, it looks like there may be, you know, 40 or 50 cents, you know, 30, 40 cents, I should say, of upside follow through here.”
That opens up a move over $7 towards the May 2024 spike highs.
However, he says soft red winter wheat is getting pulled along for the ride.
“You also saw new contract highs in the KC Chicago spread, renewed concerns about drought, renewed concerns about the frost. You definitely have a kind of a tale of two wheat belts,” he adds.
However, he thinks the rally is may be capped by the fact that ending stocks are still ample and U.S. wheat prices are starting to be expensive on the world front.
Corn Barely Follows Wheat
Despite the big rally in wheat the corn market ended just a penny higher with July at $4.63 3/4.
Toay says the big supply keeps capping the rallies and the corn market doesn’t have a bullish story anymore if the war is ending in Iran.
“The Iran war started and everything got excited. So, you know, if the Iran war is getting in the final innings here, then we kind of revert back to that old story where there’s really not much of a story there,” he says.
Basis is firming on corn as farmers get into the fields especially as demand has been strong.
“So it’s a function of when does the farmer sell and move the remaining old crop stocks. And that’s probably going to happen here in the
next six to eight weeks for the most part. And then you’ve got another tranche of selling that will happen in July and August. So, you know, right now the farmer’s kind of uninvolved. They’re focused on, you know, getting the new crop planted. And, you know, so there’s really no story,” he explains.
Technically the market was held back on Thursday by lower soybeans.
Soybeans See Technical Selling
Soybean futures were lower again on follow through selling after the chart failure on Wednesday as the market went up to a 1/4 cent from the March high on the November contract and failed and July also could not break out of its sideways range.
“When beans are back testing their highs there just 24 hours ago, I mean, you had everything kind of firing on all cylinders. then we had the rejection and then everything fell apart you know you have to remember these markets are computer traded and they’re all tied together so that had a heavy influence,” he says.
Bean oil is still the strong leg of the soy complex with better than expected demand he remarks. “Considering the crush rates, bean oil is the straw that stirs the drink. And that’s still tied to the energy markets and crude approaching $100 a barrel again.”
So he’s not concerned about the key reversal scored in the bean oil market on Wednesday off the new contract highs because the market has already negated several of those.
“These bean oil stocks especially look at the the the last NOPA crush we had a record crush and bean oil stocks saw a draw so that that tells us that this demand for the product is extremely strong,” he adds.
Weather and Planting
Toay says so far planting is running ahead of the normal pace nationally but there have been some wet extended forecasts for the Midwest and Northern Plains that could slow planting.
He says the market doesn’t get concerned about impacts on national corn yield until May 10th or May 15th timeframe.
“So we still have some time, especially considering the size of the equipment that we have. But it’s going to be a struggle around here. I mean, looking out my backyard, I mean, we’re in northern Illinois. We had seven inches of rain last week. Things are just now starting to get fit. We’ve had three, four days of 80-degree weather and sunshine. And so we see sprayers out there and anhydrous ammonia bars. We’re in the area where probably 20%, 30% of the producers still put on spring anhydrous so that has to go on. So I think that there’s a lot of work to be done.”
China Meeting
Toay also thinks the soybean market is sensitive to the outcome of the mid-May meeting with China since the U.S. has not seen any new crop soybean business or any of the 8 MMT of old crop purchases announced by President Trump.
“Since President Trump mentioned the 8 million metric ton of additional purchases, I mean, they’ve kind of drawn a line in the sand that they’re willing to buy. U.S. ag products, but soybeans aren’t probably one of them. You know, the South American crop is big. It’s, what, six, eight million metric ton bigger than this point last year. You know they’re still cheaper than U.S. beans, even without the tariffs they imply. And, the private crusher isn’t going to want to buy anything out of the U.S.” he adds.
Toay thinks the quality of China’s corn crop was poor and they may need corn and they’ve been buying a lot of wheat. “Which they’re trying to blend off and feed. But, you know, export sales today, had 190 million metric ton of sorghum to China. That’s fantastic news, especially for producers in the Southern Plains,” he says.
The Iran war has also drug out longer than President Trump anticipated and is diverting his attention away from trade according to Toay. Still, USTR, Jamieson Greer reiterating this week that China wants to expand ag purchases.
Cattle Bounce or Bottom?
Cattle futures finally broke the six day streak of lower closes since the correction off contract highs on short covering.
The market saw early selling with news of a workers strike at the Ft. Morgan beef plant which slaughters around 4,000 head.
However, the market rebounded well off its lows as USDA Secretary Brooke Rollins canceled an appearance in Arizona schedule for Friday that had the market fearful of a border reopening announcement.
“With April expiration or first notice day coming up here and, you know, we’re right here at cash. So the back of my mind, we saw a similar type of price action in the last delivery cycle. And that idea hasn’t lost on me that we may see open interest liquidation by those who don’t want to participate into the delivery cycle or cash settle.”
Still cash is at $246, down $2 and the board is at $2.47 so he says the lows are in line with where cash cattle traded.
High Gas Prices and Consumer Demand
He adds that gas prices are still high at the pump even though crude oil has had a $20 to $30 break.
So he is concerned that beef prices may be too high relative to disposible income and consumers are trading down to cheaper alternative proteins like pork and poultry.
six weeks from a cattle perspective is that I realize it. beef prices are high.
