Ag markets were higher except for hogs early Thursday.
Wheat Soars as Black Sea Exports Halted
Wheat futures were up double digits on Thursday as the fighting in the Black Sea has resulted in three of Russia’s main export terminals were restricting truck delivery. Word out of Ukraine was exports were limited out of the port of Odesa as well.
The market was putting in risk premium as a result says Darin Newsom, senior market analyst for Barchart, Inc.
“The situation in the Black Sea seems to be deteriorating. There’s getting to be heavier fighting, damaging some key ports. They’re bombing vessels and ports and grain facilities and so on. I found it interesting that Russia’s next plan is to arm grain vessels with machine guns and missile launchers. So this thing is deteriorating. It’s taken four and a half years and really no progress on any front has been made,” he says.
Newsom further explains that is raises a big question regarding Russian wheat exports to the rest of the world.
Russia has also tried to offer lower priced wheat with few takers due to the risk.
“But I mean, if we think about Russia’s biggest customers, they’re going to probably sign up for some cheaper wheat. I mean, talking about India, Egypt, you know, some of these other countries that just aren’t going to look at the United States, regardless of what’s happening. So, you know, if they can get some discounted wheat, they may be willing to take that risk.” he says
How High Will Wheat Prices Rally?
So how high does the wheat market need to go to price in the export disruption? Or is this just some short covering yet in SRW wheat the funds are short?
Newsom says, “I think what we have to look at is fundamentally the market hasn’t changed. If we look at the Sept/Dec soft red winter spread, it’s still covering a bearish 70% calculated full commercial carry. Hard red winter is neutral to bearish. We’ve got basis in soft red winter, national average basis here in the U.S. running at average at best while hard red winter remains weak.”
So he says that indicated the U.S. isn’t going to run out of wheat nor is the world anytime soon.
“So this looks to be more of a non-commercial play. We already know that funds have moved to a net long position in hard red winter and hard red spring but still short in soft red. So they’ve got more to cover now. And if there’s no real commercial selling, on top of this or commercials are sitting back waiting to see how high it goes, then I think there’s a bit of a vacuum up here that the market could spike
a bit,” he explains.
Wheat Pulls up Row Crops
Wheat was pulling corn and soybeans up early Thursday despite rain in the forecast which is bearish.
“Corn and soybeans are interesting in that they rallied overnight and through early Thursday morning, but there really wasn’t any big move. There wasn’t any big volume, at least not yet. So again, I think most of the attention here is going to be not only on weather
for today, but as we get closer to the weekend, you know, will the rains that are in the forecast pan out or will it just be another dry next few days?”
Corn and Soybeans Watching Weather
The rain chances Thursday to Saturday in the Midwest and dry Northwest Corn Belt weighed on the row crop futures on Wednesday with November beans falling nearly 30 cents.
So if the rains materialize could the rally be over in the row crops?
Short term says Newsom.
He adds that part of the selloff in soybeans Wednesday was rising tensions between the U.S. and China. News accounts indicated China was helping supply some missiles to Iran which broke the soybean market.
“I mean, you just you don’t just break 30 cents on on a forecast. You actually have to see something that’s happened, see a dramatic change, not in weather patterns and the long term pattern hasn’t changed. So to me, the bigger issue. remains trade, remains demand. I don’t think this is a supply.”
Newsom says the trade war with China is going nowhere and in the mean time Brazil and Argentina have benefited from the U.S. trade agenda.
Still China was in for 4.85 million bu. of new crop soybeans Thursday on a flash sale and accounted for over 19 million bu. in the weekly soybean export total.
Is the Rally Over?
Technically after Wednesday soybeans achieved a 50% retracement level with a nearly 60-cent break from the highs, while corn was holding support.
Newsome says, “One of the things I’ve been noticing is, you know, in corn, it’s been a 90-day moving average. It’s a little bit oddball because everybody wants to talk about the standard 100 or 50, 100, 200, moving averages. But if we break it down and look at it specifically, corn seems to be moving to its 90. And what we saw at Wednesday’s close was corn closed below its 90 -day moving average. But it didn’t trigger another round of fund selling, at least not yet.”
So he is watching the daily close only on the charts as both Dec corn and Nov soybeans have moved into short term down trends.
“That would tell us that there is some more downside risk, at least in the short term, making me wonder if there is still some some some little bit of weather derivative markets still alive in both. And they’re still looking at forecasts heading into the weekend.”
Fed Fallout in Outside Markets
The Fed left interest rates unchanged on Wednesday but the market saw a violent reaction with the financial markets tanking.
Thursday morning the U.S. Treasury yields were going up with the 30-year at the highest level in 19 years which indicates the market doesn’t think the Fed is doing enough to control inflation.
Newsom says the markets moved in opposite directions from the norm, “The market believes that there are a couple of rate hikes necessary here over 2026 and possibly more in 2027. But what we’ve seen in stock markets didn’t really fit what we’re used to seeing and the fact the U.S. dollar index weakened.”
He adds the general theme is there’s just a lack of leadership at the Fed right now and no clear signal as to what comes next as they are not going to be looking at dot plots and other key indicators as they had in the past.
“And the reason why, is that the person in charge, and I don’t mean Fed Chairman Walsh, but the person who’s actually in charge doesn’t
understand any of that. And so there’s no need to use it anymore. And what really stood out to me at the conclusion of the Fed meeting was the fact that there was three votes. There was three governor votes to raise rates this time, to do a 25 basis point hike this time.
And it didn’t happen. It was nine to three vote. And so I would not be surprised, legal or not, to see the next round of headlines that the U.S. president’s trying to get rid of those three Fed governors. I think it’s just a matter of time before those headlines break.”
Inflation Data Out
In the meantime, PCE was out on Thursday with the Core at 3.3%, which was a little cooler than expected. While GDP, was only up 1.5% and well below estimates indicating the economy is actually growing at a slower pace than expected.
“And I think to most people, that is a concern, but it’s not a huge surprise,” he says, “And as far as inflation goes, we know it’s stronger than what a lot of these indicators come in at,” adds Newsom.
He is basing this on higher general prices for goods ranging from automobiles to food to fuel to homes.
“There’s just inflation everywhere. And so it’s not going away. And so the Fed really has no choice but to raise rates on the idea that it should strengthen the dollar. The problem that the dollar is facing right now is that theoretically it should be going up on the idea interest rates are going to go up. But the rest of the world is basically given up on the United States, anything associated with the United
States. So we continue to see selling in the dollar. They’re looking for other currencies as a benchmark.”
Cattle Recovery Continues
The cattle futures were up again on Thursday, extending gains in recovery mode after the border reopening news.
So can the market continue to recover?
Newsom says the news on Monday was met with commercial buying and bull spreading as the fundamental supply situation will not change dramatically, even with the border seeing a phased reopening to Mexican feeder cattle imports.
“And the commercial side of the market knows that the fundamentals have not changed. We are still looking at short supply situation. And by all indications, even with the GDP numbers that we saw this morning, by all indications, U.S. consumers or demand for beef has not slowed down. At least it hadn’t through the end of June as proven in the lower cold storage numbers,” states Newsom.
He says the supply of cattle will not change substantially in the near future.
“This is just one port and that’s in Arizona and that’s it. The market hasn’t changed and it’s not going to change anytime soon.”
