Grain and cattle futures were mostly lower Friday with hogs mixed.
Grains Fail to Extend Thursday’s Rally
Grains closed mostly lower Friday failing to extend the rally and key reversals scored in corn and soybeans on Thursday.
DuWayne Bosse of Bolt Marketing says the trade action was disappointing as he doesn’t think corn prices need to be down to $4.30 at the end of June.
“We’ve got a lot of weather in front of us and I would have liked to see corn close up a couple more cents today so we would have a weekly higher close but still I still like the chart pattern yesterday and the way it reversed,” he says.
Option Expiration
One reason Bosse thinks the grain markets were unable to extend gains was Friday was option expiration.
“That’s a huge part of it. I know when it comes to option expiration for the large contracts, July corn, Dec corn, November soybeans, I like to say funky things happen here, guys. You know, there’s so many people getting out of positions. Open interest has been down all week,” he says.
He says farmers have been selling or rolling those positions all week.
“This wasn’t the funds selling at all. I think it was farmers sadly liquidating those cash contracts, those basis contracts they’ve got that are off the July contract.”
Markets Watch Weather
Thursday’s rally was also triggered by forecasts for a high pressure ridge to move into the Midwest the first two weeks of July, creating hot and dry conditions.
However, he points out, “You know, we’ve had rain in these areas before, so we have subsoil moisture. And then south of I-80, basically, they’re getting rain today. So I think the weather guys didn’t even know how to trade it today before a weekend,” he says.
If the weather stays hot and dry through July 8 it could warrant adding some weather premium to the market.
Bosse says areas of Northwest Iowa and Southeast South Dakota are very dry according to the U.S. Drought Monitor and the drought is expanding. “They got some rains early on after the crop got planted, but boy, it’s just kind of sitting there now waiting for another rain. So I think we come back next week, and if that hot dry forecast extends in the 8 to 14 even more to the middle of July, I think we need to build a weather premium in this market.”
He says the corn market has little if any weather premium built in and that could come more in focus if there are substantially less acres in the USDA report.
Soybeans, Corn Looking for China Sales
The rally on Thursday was tied to confirmed China business and talk they were looking for corn and soybean bids.
USDA confirmed 7.4 million bu. of soybeans sold to China in the weekly export sales report with another 19.4 million bu. to unknown destinations that the bulls thinks also went to China.
However, the market is looking for more confirmed sales of both corn and soybeans to match up with the rumors circulating in the trade and there were no flash sales on Friday.
“Unknown was a large buyer of new crop beans. And to me, this is perfect timing for China to step in and start buying new crop. A month or two ago when we were at the highs, we were getting this China deal done. Everyone was talking about China, but I was really trying to push out then that China’s not going to buy at the highs. And a China deal, which I think we do have, Michelle, doesn’t mean higher high prices. I think it just means a higher floor,” he adds.
Wheat Has Ugly Week
Wheat futures were lower again on Friday and ended from 24 to 42 cents lower for the week.
Bosse says some of that is harvest pressure, even with the severe production cuts in the Southern Plains.
“I mean, that’s why harvest is progressing so fast, right? When you don’t have to handle as many bushels, you move pretty fast across the field. But even if we have half of a crop you don’t have a supply shortage during harvest, right? The supply shortage could come later,” he adds.
Spring wheat also saw pressure from rains in North Dakota this week and a slight improvement in crop ratings.
The wheat market has also ignored this EU drought and record heat, even though it is cutting into yields.
“Yeah, and that’s a huge deal. I don’t think people realize how much wheat Europe in general as a whole produces. So its a big deal,” he emphasizes.
Squaring Ahead of USDA Reports
The grain markets were also positioning ahead of the USDA reports although the average estimates are very muted.
So, could the market be set up for a big surprise according to Bosse.
“I’ve noticed that in these trade guesses that nobody’s putting any wild numbers out there. And but I guess nobody really
thinks USDA is dead on the numbers either. I think people don’t want to get embarrassed that they threw like a wild number out there. But I’ll admit, like right now, I’m not too sure either on the acres.”
He thinks both corn and soybean acres could climb based on the amount of corn on corn he has seen in his own backyard.
The quarterly stocks report could also have a few surprises even though the market should know what demand is based on ethanol production, exports and the like.
However, there is always a surprise and USDA has been wrong in past reports he mentions.
Cattle See Profit Taking
Cattle futures saw a routine profit taking heading into the weekend and after running into chart resistance.
Bosse says the lack of fed cash news also made live cattle take a pause, “Showlists are larger this week and I think packers were trying their best to wait as long as they could to wait out the feedlots.
After the futures closed the cash market developed at $408 with live prices at $258 and $262.
Meanwhile the feeder cattle futures were also down on Friday but up for the week, led by cash.
“Every day I watch the feeder futures go up and I think, whoa, it’s above cash now. Then the cash index would come out in the afternoon and I see it matched all the rally. So yeah, today I think it was just we’ve gone a long ways. Let’s just pull back here a little bit.
So he thinks it was just a healthy correction in a long term bull market. Plus it is getting close to the end of the month and quarter when funds often cash in profitable positions.
Hogs Slightly Higher, Fading Hogs and Pigs Report
Lean hog futures were mostly higher on the close but the best gains came in the deferred contracts.
After a friendly USDA Hogs and Pigs Report the hope was that news could help the market bottom or at least get the funds to stop selling.
“The market’s been probably forming a bottom here the last week. I don’t know if it’s people buying it. I think we just ran out of sellers,
which I guess is your first step in forming a bottom, right? And this hog market has been sold heavily by the funds, but they got massive short positions now. And honestly, like you said, the hog and pig report wasn’t wildly bullish, but it wasn’t bearish. So I think we should find support at $94, $95,” he says.
Yet, Bosse isn’t sure the market has a bullish enough story to recover to $105 to $110 either.
