Howdy market watchers. It’s May and that means it’s Kentucky Derby time. This weekend’s race marks the 150th running in fact.
Wouldn’t it be nice to enjoy some mint juleps while watching it rain? Well, that just might be the setup for a lot of areas that need it most across the Southern Plains and the Midwest. The U.S. Drought Monitor has lost a lot of color identifying drought recently with welcome precipitation wrapped in severe storms that also have produced unwelcome tornadic activity and hail cores.
While southern and western Kansas, western Oklahoma and northeast Iowa remain the driest crop areas, some relief has come, though still limited, but more is on the way. Chances this weekend need to materialize or the fate will be sealed for winter wheat areas.
The drier start to spring has allowed row crop planting progress to accelerate ahead of schedule that we saw again in this week’s Monday update. The U.S. corn crop progressed to 27% planted, in line with expectations, but 5% ahead of average. Similarly, soybean plantings reached 18% complete, one percentage point ahead of expectations and a whopping 8% ahead of average. Spring wheat planting came in 15% ahead of average at 34% complete.
As I wrote last week, I felt that corn was a sleeper market that had upside potential. We did, in fact, see the start of that move starting Wednesday with an outside day, higher high and lower low, with upside breakout Thursday and overnight and early surge on Friday above the 100-day moving average. However, it was a disappointing close with less than a one cent gain despite a 10+ cent high-low daily range settling right at the 100-day moving average. The 200-day moving average above is all the way up near $4.88. The crop is getting planted quickly due to dry weather, which is bearish, but I’m expecting progress to slow with wetter weather moving in that could lead to further upside support.
News out of Argentina that soybean harvest delays are mounting with corn harvest modestly behind average amid more port strikes ahead will be an added bullish feature in the week ahead. I will call your attention to a chart gap on December new crop corn all the way up at $5.03 with the 200-day moving average around $4.95. Now, it may not be until we get further into the growing season, but I believe we will fill this gap. If you’re a buyer of corn for feed, I think this is an area to protect the upside. There will be volatility ahead. If plantings accelerate, July corn has the potential to trade back down to the 20- and 50-day moving average crossover now near $4.50, but that only strengthens the case to protect the upside, in my opinion.
March corn usage for ethanol was up from February and seems to again suggest that USDA’s annual estimates are still too low. The summer E15 mandate will only increase usage in the key driving months ahead, that was only recently permitted, as will elevated crude oil prices that encourage blending. Speaking of, crude prices have plummeted nearly $6.00 this past week, but there looks to be strong support around $77.85 where the 100- and 200-day moving averages meet and just below Friday’s close.
Equity markets surged Friday with some bad news in the jobs report leading to good news boosting hopes of interest rate cuts sooner rather than later. Non-farm payroll’s came in at 175,000 job gains in April, well below the 240,000 jobs that economist expected. This increased unemployment by 0.1% to 3.9% and one of the first indications of a weakening labor market that has been extremely resilient despite higher interest rates. On this news, the U.S. dollar extended its two-day selloff in hopes of earlier rate cuts coming that also led to further follow-through strength in grains. The U.S. dollar index closed lower on Friday, but recovered well off session lows to close near 105.00.
U.S. soybean exports were reported this week that provided a boost to soy futures on top of South American crop delay strength. July beans closed Friday near session highs around $12.16 and look set to continue to the 100-day moving average at $12.22. November new crop beans broke above their 100-day moving average around $11.95 closing above $12.00 for the first time since mid-March and look set to head towards $12.16 and then possibly the 200-day moving average at $12.34. However, I would expect some chop before we get to that level unless Argentine strikes emerge next week in conjunction with further harvest delays, U.S. export demand and perhaps U.S. planting delays, although it still remains early.
U.S. March soybean crush did come in lower than expected while prior months have continued to move higher.
The wheat market found strength to finish the week after a mid-week correction. Winter wheat conditions slipped again this week, but only by 1%t to 49% good to excellent, but in line with expectations and still better than 21% last year. Kansas, Colorado and Nebraska both slipped 5%, while Oklahoma and Arkansas were lowered by 3%. Kansas G/E conditions are now 31% versus last year’s 13%. I do not expect much decline for next Monday’s report given recent rains, although they’ve been pretty spotty. Broader coverage is expected over the weekend.
Heat and dryness in Russia and Ukraine also have supported the hard wheat markets. July new crop KC wheat bounced to a high on Friday at $6.62¼, just shy of the April 29th high at $6.64. This is a decent area to sell wheat in storage if you’re still holding. However, there is potential to go higher, but I’m still expecting a better correction before doing so. That adjustment may come early next week if weekend rains are adequate.
The cattle markets managed to survive a wild week of headlines that ended better than the week started out. The bird flu hysteria continues to hold a cloud over the cattle complex. As ridiculous as this all seems, it continues to swing the futures contracts wildly. On Tuesday, the USDA announced testing ground beef for bird flu that led to markets nosediving. The high-low range on May feeder cattle futures from Tuesday to Wednesday was $8.00 per cwt! End-of-the-month selling also was a factor in cattle and indeed other markets as well. Markets stabilized Thursday after the test came back negative. Given that didn’t work, there was then news on Thursday afternoon that Cargill was recalling 16,000 pounds of ground beef from Walmart due to potential E. Coli contamination.
With the equity surge Friday following the jobs report and developing cash trade, I was expecting more recovery to finish the week, but action was muted. If we get some grain weakness early next week, but upside follow-through in equities, I believe we could see more upside in the cattle markets. Packers likely are going to need more cattle and not be able to hold out longer with cold storage inventory already tight. Having said that, the cattle longs are proving increasingly sensitive to headline news risk. Bottomline is to stay protected if you need it as the unexpected should be expected in this environment.
Wishing everyone a successful trading week!
