Grains started sharply higher on Wednesday with cattle and hogs mostly lower.
Soybeans Add South America Weather Premium
Soybeans were higher on Wednesday morning with double digit gains. Jamie Gieseke with Paradigm Futures says soybeans were getting a push from South American weather. Hot dry conditions have persisted in Argentina but the emerging story is FOB values in Brazil are rising as there are reports of problems moving soybeans out of the ports. The higher values are lifting U.S. prices.
Biofuels Hopes
The soybeans are also getting help from the soybean oil market which is building in optimism regarding biofuels policy according to Gieseke. The EPA has closed the comment period for the RVOs and so those blending mandates should be released late February to early March. The Office of Management and Budget has also completed its proposal on the 45Z tax credit which will now go through a 60 day comment period. However, biofuels officials say they expect those rules could be finalized by the end of March. Gieseke says this optimism has given the soybean oil market new life and it is staging a chart breakout.
Soybeans Breaking Out Technically?
Soybeans are finally above the 200-day moving average on the March contract and a close above this level could bring in some fund buying. Some of the deferred contracts are also above the $11 mark.
Corn Follows Wheat, Gets E15 Boost?
Corn futures are seeing spillover support from soybeans and more importantly wheat according to Gieseke. However, President Trump’s speech in Iowa Tuesday included comments about his support for year-round E15 and he says leaders in the Senate and House are close to getting a bill ready to be voted on. When that happens Trump said he will sign it immediately.
Corn Seeing Strong Export Demand, Is China Buying?
Corn continues to see record export demand and Gieseke says the U.S. has seen it’s share of the global corn export market expand to over 50% which goes along with the record pace being set. China has also been buying European wheat due to problems with the quality of their corn which has aflatoxins. So, could this push China into the U.S. corn market? There have been several flash sales to unknown destinations the past few weeks and he thinks its possible if China isn’t buying U.S. corn they may need to down the road.
Wheat Adds Weather Premium
Winter wheat futures were also rallying in an attempt to add weather premium. Another Arctic blast is expected to hit winter wheat growing areas further increasing concerns about winter kill in that crop. Funds are a combined short in that market (futures only) of over 126,000 contracts and so if the market continues to move through chart resistance areas it could spark a larger short covering rally. Currently, he sees $5.40 as a level that will be difficult to take out in the hard red winter wheat futures.
FOMC Monetary Policy Impacting Commodity Sector
Gieseke says the Federal Reserve announced in October they would be pausing quantitative tightening and instead would be purchasing treasuries as part of quantitative easing. He says since that time the CRB Index, which tracks commodities, has been steadily rising. He says monetary policy change has been driving money into commodities like precious metals, with traders also going short on the U.S. dollar index which has hit a four year low. This could be driving some money flow into the grain markets and if that continues it could finally help the grain markets break out of their trading ranges and start a larger rally.
Cattle Pause Ahead of Report
Cattle futures were starting out lower for a second day with the market consolidating under chart resistance hit earlier this week. The market is waiting for cash direction and the USDA Semi-Annual Cattle Inventory Report on Friday.
