Turn-around-Tuesday corrects 3-day weekend pinch gains.
Grain futures dutifully opened higher last night and traded firm, with corn making new contract highs on the slow start of the planting progress reports, and wheat futures challenged Monday’s high, with only Kansas City briefly breaching Monday’s high. The stage was set as we discussed in Monday’s newsletter that the sharp price rise on Monday after a three-day weekend would lead to trend exhaustion and a price zenith that would roll into correction and consolidate a robust one-week price run. Index funds are near record length and filled a large volume of length yesterday that is now at risk of a price bubble.
South American weather was widely traded yesterday in the corn market, and the realities of yields again being lowered as dry weather dominates during the pollination. Yesterday, institutional inflows were responsible for open interest jumping roughly 7,500 contracts in corn and soybeans. Wheat only gained 82 contracts.
Interest rates continued to rise in the secondary market, with the 10-year US note reaching a three-year high with an interest rate of 2.90%. Central Bank governor Bullard stated the Fed could hike the US Fed funds rate by .75% in the next meeting to catch up in its war against inflation. This created a downdraft in commodity action and futures indexes early this morning as the US dollar jumped to 101.00.
Winter wheat ratings are the lowest since 1996 and suggest there will be abandoned wheat acres, but still, yields will be 10-15% below trend. In addition, 30% of the Texas HRW wheat crop is heading, with a significant 81% of the crop rated poor/very poor. Overall, the US winter wheat crop was rated 30% GD/EX, down 2% from last week, with 37% of the crop rated poor/very poor. Wheat futures are recovered sharply from the mid-March low and have stalled at significant Fibonacci price resistance on current news.
Central US weather has a fast-moving and strong jet stream producing another three storm systems before a change in the upper floor pattern develops into a broad Ridge/trough pattern across the US around May 1. This pattern shift will lift the jet stream northward, allowing the US spring planting effort to gather steam across the Northern Plains and the upper Midwest during the closing days of April and opening days of May. Although the pattern change is still some 10-12 days out in the forecast, confirmation of the pattern is needed to boost confidence.
Live and feeder cattle were lower on Monday, while the cash cattle markets were quiet to start the week. Cattle feeders are looking to raise cash sales on firming beef prices this week but could be held to steady sales if the CME weakness is maintained. This allows feed yards to pick up $1-3 on basis. During the week of April 9, grading percent reports showed that 73.45% of the fed cattle slaughter was graded choice. This was a new low for the year as grading follows the typical seasonal trend. The percentage of cattle making the choice grading has been a record high all year long. Year-to-date, 74.5% of fed cattle have been graded choice, up from 73.4% last year and 64.3% ten years ago.