advertisement With other commodity markets heating up, the grain/soy complex is looking for reasons to keep pace. That’s not all that difficult for corn because usage is strong and planted acreage is expected to be sharply lower this year. And the wheat market is trying to weigh up how much the drought in the southern Plains has cut this year’s crop. It’s the soybean market that’s lacking bullish fundamental news. Yet that market seems to drawing support from other sources.
The implications of the surprisingly 3.8-million-acre cut in corn plantings from a year ago seem to be fully factored into prices for now. The large price gaps that were left on all the daily corn charts in reaction to USDA Prospective Plantings Report remain open and provide technical support. More than anything else, what the big drop in acreage does is force the market to respond to any real or perceived challenges to the national average yield. Going into this week, the possibility of planting delays after better-than-expected weekend rains are lifting corn futures—even though replenished subsoil moisture will benefit the crop later in the growing season.
Why is the corn market so goosey about possible weather problems at a time when the projected carryover is one on the largest on record? Because corn consumption has been taken to a new level and will be even stronger during the next marketing year. The surge in demand for ethanol is expected to continue for at least a couple more years. The longer-term outlook for U.S. exports is also somewhat positive because it looks like China will be exporting little, if any, corn in the future. This opens up opportunities for U.S. exporters in the Asian market. The combination of improving demand and lower acreage has raised the floor under the corn market. But it will take genuine weather problems to push prices sharply higher from current levels.
Soybeans are trying to tag along with the commodity rally, but given the underlying fundamental it’s going to take major and widespread production problems in the Midwest before prices will run a great deal higher. The combination of record supplies (both in the U.S. and globally) and the huge jump in this year’s U.S. plantings intentions will serve as an anchor on this market. If the national average yield ends up being at or above the historical trending, soybean prices will be far below current levels going into the harvest season.
Unlike the corn market, the soy complex does not have explosive demand growth to lean on. The long-term trend in worldwide soy consumption is still up, but the rate of increase isn’t as steep as the uptrend in production. South American farmers are harvesting a record-large crop at this time and despite serious financial problems in Brazil, there is no reason to think worldwide soybean production won’t continue to outpace the world’s appetite for soy products.
The wheat market is coming off a 3-day weekend in the midst of a weather market. That’s normally a recipe for high volatility and that’s certainly the way the week has started. The huge gaps left on the Kansas City wheat charts early last week provide technical support, but the market is clearly questioning whether last week’s gains in anticipation of low yields in the southern Plains were fully justified. The possibility of seeding delays in spring wheat country adds to the uncertainty.
The wheat fundamentals are very class-specific. Due to reasonably strong demand for hard red winter wheat and the ongoing drought in the southern Plains, the supply situation for that type of wheat is tight. However, soft red winter wheat isn’t being consumed nearly as rapidly, despite lower prices. Plus, growing conditions in the part of the country where soft red winter wheat is grown have generally been favorable.
Cattle futures have finally found support after the long sell-off that started in January. It looks like at least a temporary low has been found by the futures market. However, that does not guarantee that the cash fundamentals will improve a great deal anytime soon. It was encouraging to see firmness in the wholesale beef market last week and to hear reports of good movement into the retail sector. But the fact of the matter is that on-feed inventories are still record large and cattle are coming to town much heavier than ever before.
Late April normally means the start of a seasonal upmove in cash hog prices. There is no reason to think that market won’t see at least some strength over the next couple months, but supplies are far from tight. In fact, weekly pork production totals have been running at record-high levels. Throw in record poultry and beef production, and the word “glut” comes to mind.
