Markets were higher early Wednesday except for cattle.
Wheat Skyrockets as Black Sea War Escalates
Wheat futures were up 30 to 35 cents early Wednesday adding risk premium as Russia and Ukraine attacks have escalated.
Jamie Gieseke with Paradigm Futures says, “The region that’s most concerned is in the Sea of Azov. There’s a shipping lane that goes between the Sea of Azov and the Black Sea, and that’s the point of concern right now. Ukraine’s been bombing not necessarily grain ships of Russia, but just Russian ships. And in retaliation, we’re anticipating Russia to be bombing Odessa as well in the Black Sea on the Ukrainian side.”
So the market is putting in premium as Russia is the number one wheat exporter in the world and reports indicate Russian exports could be down 13% to 20% in July with shipping nearly stopped.
How High Could Wheat Rally?
If the shipping disruptions are prolonged how high could wheat prices climb?
Gieseke says, “I think certainly wheat could test the highs here. I’m looking at some KC wheat projections closer to $7.50. Of course, you always want to keep in mind what’s the risk. Right now, I think that July 9th, low. You can look higher as long as we keep holding that July 9th low at $6.39. Otherwise, we’re looking higher here.”
In fact he says wheat saw a technical reversal on the 9th which was the first sign of a chart breakout.
“The wheat markets have respected the 200-day moving average, which is a little bit longer term trend following that people will watch and then also just the the momentum indicators had reset they kind of were running hot here in May and April and then in June they kind of reset. Now we’re holding those key moving averages and the momentum indicator was pointing higher so that was a pretty good telltale sign for us,” he explains.
Can Corn Follow Wheat?
Corn was reluctantly trying to follow wheat Wednesday but has been unable to close above key moving averages as September and December stopped out at the 200-day moving average.
So is the strength in wheat is enough to get corn finally over that hurdle or not?
“I mean, the market will tell us right in time. Close above $4.53 on the September will be a very clear indication to us that, yes, this wheat rally was enough. Until then, it’s a little suspect here whether the market wants to start trading or continue to trade the 7 to 14 day,
8 to 14 day forecast that try and pulls moisture back into the West here” he adds.
Corn Yield Falling?
As far as weather the real key will be whether or not the heat and dryness lowers yield.
So is the market trading a 183 yield on corn right now, or something lower?
Gieseke says, “I think it’s trading something above 180, but below 183. When we look at crop ratings, they’re tracking pretty close with 2024. I know this Monday it popped back above the 2024 good to excellent ratings, butI think as we move forward into next Monday, our ratings will probably decline.”
He says producers he works with in South Dakota, Northwest Iowa, Minnesota, all says the heat is coming at the wrong time. It’s peak pollination in those areas and even with some rain before July 4th they are starting to trim yield ideas.
“I mean, quite a few like feed lots were calling around to producers of ours and requesting to lock in some acres. So that’s something that was definitely a shift here over the weekend,” he adds.
Global Balance Sheets Tightening
Looking at the global balance sheets for corn and wheat, they are starting to tighten quite a bit from last year.
“Really two years ago, you know, the stocks to use ratio on corn was closer to 23, 24 percent stocks to use. And now we’ve had back to back to back good corn crops in South America and in the U.S. and our stocks to use is down at 20 percent. So I just, you know, I think when does the market start to question, what’s it going to take to actually rebuild stocks if we’ve had exceptionally good crops here the last few years. What happens if we don’t?”
Soybeans Rally but $12 Illusive
Soybeans are seeing spillover strength from wheat as well Wednesday but even with China buying, weather and strong demand and basis levels the $12 have been tough to hold.
Gieseke says June was a tough month of liquidation for the grains, even soybeans so it is taking a while to turn the psychology back bullish.
“So you your first test of $12 was last week and of course we’re not going to break it right away but you know I think if we come come in next week and they start to pull heat back in that first week of August that’ll push it right through $12,” he projects.
Two Pronged Soybean Demand
Basis levels and spreads have been strong in the soybeans because of two-pronged demand including China and processing.
He is telling producers that harvest beans and deliver them right away in the fall to be patient on setting basis.
“It’s paid off so far. We saw some P&W bids perk up here this week, and we actually had some grain buyers come in and offer 10-cent better bids here in northern Minnesota. We set a little bit, but we’re holding on most of it.”
China has record soybean imports for the month of June at 13.55 MMT so that is proof of demand and that they will uphold the 25 MMT purchase commitment according to Gieseke.
Inflation Cooling...What Does it Mean for Agriculture?
CPI data on Tuesday was at 3.5% and PPI was at 5.5%, with the CORE at 4.7%. So, both showing inflation cooled in June, mostly due to lower energy prices. This may help the dollar weaken, which supports grains.
Inflation was hot in June and new FOMC Chair Kevin Warsh talked pretty tough on inflation and needing to take measures to curb it.
“And, you know, we had war resolution and that dropped commodity prices down. And I mean, one of the biggest decliners in the PPI was energy down 6.4%. So, you know, of course, that’s going to curb our CPI and PPI numbers. But the dollar appears to be hitting resistance here and now with the cooler inflation this week, we think the dollar might be able to roll over just for at least in the short term,” he states.
Iran Conflict Resumes
However, it will be tough to keep inflation and energy prices down as the Iran war has resumed.
That is also having an impact on input prices he mentions. “Getting quotes here this morning for the 27 crop and prices certainly haven’t gone down as far as on the producer front here as you try and book some pricing. And also it’s more difficult to actually lock in the supply on the anhydrous side is what I’m hearing.”
That could increase product costs and should support grains moving higher.
Cattle Could See More Downside Risk
Cattle futures were down again shortly after the Wednesday opening. For live cattle it marks the 13th day.
However, Gieseke sees more downside risk to prices.
“I think we’ll punch out another new low in the October live cattle, but the June low, you know, I fully anticipate we’ll take that out and move something closer to like a $218 to $220 and then find support in that area.”
