Corn, soybeans and hogs were lower Thursday, with wheat and cattle higher.
Wheat Soars Early, Then Fades
Wheat futures soared overnight and early Thursday with more reports of damage to three export facilities in Russia with restrictions to truck delivery.
Don Roose of U.S. Commodities says fighting has been escalating between Russia and Ukraine and the market is trying to price that in, plus the short crop in Europe.
The spring wheat crop in the Northern Plains has also suffered a set back with the recent extreme heat.
Seasonally he thinks the wheat market is trying to carve out harvest lows but faces the headwind of lower corn and soybean prices which have a grip on the overall market.
“I think it’s the weight of those still coming down and that market is still correcting this overbought condition, that kind of was an anchor on the wheat,” he says.
Black Sea Export Problems Linger
However, the situation is not getting better in the Black Sea so if exports continue to be halted will the wheat market eventually need to go higher?
“I think we will. I think that’s going to be a slow process as we move forward. Remember, there’s about what, two billion bushels of wheat traded in the Black Sea area, about a billion bushels of corn. So that Russia, Ukraine corridor, that’s a lot of stuff that could be disrupted. So, you know, we’re watching that very close,” he explains.
Adding to the global wheat tightness is the fact it is an El Nino year and Australia is supposed to be dry, with Europe already suffering drought.
Corn and Soybeans Capped by Weather
The corn and soybean markets tried to follow the strength in wheat but ended lower with good chances for rain in the Midwest, including the parched Northwest Corn Belt.
Roose says, “The weather pattern changed over the weekend. We took a lot of premium out of that market, 75 cents down in soybeans in just short order this week.”
Plus, the soybean market was overbought and saw some profit taking off last week’s contract high in the November of $12.56 1/2.
Roose thinks soybean have had their 50% correction and are close to support.
The key will be next Monday’s crop ratings.
“If the crop ratings come down again it will help, but you need a lot of bull news this time of year, Michelle, with the seasonality is just really an anchor on the market.”
Rain Helps Soybeans More Than Corn
The soybean market has corrected more than corn as the rain will help the soybeans much more as that crop is at a critical reproductive time.
“And that’s probably why the soybeans really took the most of the premium out of the market with the big break, he says, “But let’s just see what it does to the crop ratings. Again, you know, those August, those yields are so touchy here. A lot can change going forward yet. So I doubt if we’re going to take a lot more risk premium out.”
Soybeans Do Technical Damage
Still the soybean market has suffered chart damage and has turned the trend lower according to Roose.
“Realistically, we’re probably moving into that uncertain time frame where we are in a big range. Big breaks can’t hold, big rallies can’t follow through. So we’ll see if that’s the case, but most likely that’s where we’re at.”
However, that can easily be negated with China soybean buys he adds.
The Power of China Demand
China’s recent purchases helped push soybeans to new contract highs just last week and so that is still important.
“I think the real key is, you know, what’s fair market value with China lurking out here and with some weather issues in South America, maybe going forward. We know Indian monsoon in an El Nino year usually doesn’t function very well on their soybean crop, their wheat crop. So we’ll see.”
China did buy 4.85 million bu. of new crop soybeans on a flash sale Thursday morning which helped calm the bears after trade tensions flared with China again Wednesday.
Roose says even with the back and forth rhetoric it still looks like China, is going to try and follow through.
“September 24th, President Xi of China comes to the U.S. Our bet is. that they’re going to pick up the pace buying. They usually do in the olden days. They would always buy a bunch of stuff when their trade team came here. So we’ll see if that happens with President Xi coming,” he says.
China has been a slow buyer of not just soybeans, but other grains and there could be a bottleneck if they have to buy large quantities by the end of the year.
Corn Holds Up Better Than Soybeans
While soybeans have fallen 75 cents this week, corn has held up better technically and is still trading above the 200-day moving average on the December contract.
Roose says that is partly because corn did not rally initially as much as the soybean market but its also trying to determine yield.
“I think, it is just trying to see if we can base here, trying to really figure out what the size of the crop is. About 15% of the time we get a
contra-seasonal market where we go up into harvest because yield’s getting smaller, the ending stock’s getting smaller, not only in the U.S., but in the world. Are we getting smaller? Are we going to go into a normal seasonal slump? It feels like that’s already behind us because of that key reversal in September corn at $4.06 1/4. So it looks like the odds favor that we’ve socked in the seasonal low, but we’ll have to see how these cards come out going forward.”
Cattle Recovery Continues
Cattle futures saw strong gains again on Thursday and have seen a strong recovery off Monday’s lows.
So does the market have all the border news digested and is it trying to bottom?
Roose says, “Yeah, I think this is it. You know, we think we’re more so moving this year into more of a normal seasonal type of market. Remember, we topped, let’s just say, somewhere around $260 on cash cattle. And let’s just say that we’ve got the bottom somewhere around $230. So that’s pretty much a normal seasonal percentage break from the top to the spring high, summer lows.”
So the market should be bottoming right now.
Roose thinks cattle will also be supported with a pick up in buying for the school lunch program and Labor Day holiday.
Plus, the cattle inventory report did not provide any bearish supply shocks.
“In fact we are still shrinking a little bit on the cow herd although the replacements were up a little bit and dairy hard was up a bit but overall I think it’s a market that’s getting back into a more normal seasonal.”
He is watching to see if October live cattle can get past the $230, $235 area to confirm a low.
“The charts actually on our programs did turn positive today for the first time in five weeks on cattle and feeder cattle,” says Roose.
Cash Recovery?
The other key will be what cash does. Now that the board has rebounded will that support the cash trade?
Early sales this week were lower but on very light volume at $360 and $231.
So, he is holding hope for steady to firmer cash trade.
“I mean, you know, this heat coming at us was really an issue for the cattle guys trying to move cattle as quick as they could, you know, probably gave the packer a bit of an advantage. And, you know, the performance really wasn’t that good on these cattle here the last two weeks. So I think we’ve taken tonnage off of the total meat complex and not only the hogs, but the cattle. So that gives us a little bit of support, I think, also along with the seasonalities,” he adds.
Death loss is also rising with the heat which will take some inventory off the market.
Hogs Down a Second Day
Lean hog futures were down sharply for a second straight day with massive profit taking after running into chart resistance.
Is the market also seasonally in the process of topping?
Roose says, “I think the problem with the hog market is our demand really domestically never did really improve a lot. We did improve the weights because of the hot weather. You know, that was a positive. I think that’s really what popped us to the upside. Now you have these fall months up to risk management levels.”
So the selling could also be some hedge pressure as Dec got over $80 and October got over $88.
“I think it’s just that was a more seasonal press to the downside,” he states.
Plus, there was also some cattle, hog spreads being put on.
