Crude oil prices sink below 89.00 on hopes of a return to normalcy in the Strait of Hormuz.
The grain trade is under heavy pressure early this morning as crude oil tumbled below 89.00 a barrel. Iran has agreed to shared management with Oman for monitoring traffic through the Strait of Hormuz, and has committed to restoring the number of commercial transit ships through the Strait to prewar levels within a month. It is also agreed that US military forces will withdraw from the Strait lift the Naval blockade. Pres. Trump meets in Camp David with his staff, as they determine whether the current negotiations are acceptable and sustainable.
In the mix of weakness in the grains, corn and soybeans are only down 3-4 cents, pushing them into raw support at 450 for July corn and 1180 for July beans. Meanwhile, wheat prices are under heavy pressure despite declines in crop ratings. Harvest is on the way, and the seasonality of driving prices down ahead of the “feast before the famine” maintains its seasonal supremacy. For now, what is being ignored is that Chinese wheat crops are receiving 200-400% of normal rainfall, hampering winter wheat harvest. These rains are occurring in the highest-production areas, which will severely hamper quality.
Another standout is that heat is intense across European grain production areas, with temperatures in the low 90s. It looks to be persistent for a few more days, but below-normal rainfall remains in the forecast. Winter wheat is now in the reproductive phase, and yield concerns will start to build. Below-normal rainfall remains in the near- and long-term forecasts out to 15 days. The wheat bears may have a short shelf life with their seasonal price decline pressure.
Yesterday, cattle futures opened softer from the Friday Cattle on Feed report and then pushed sharply higher in a recovery phase. An early-recovery rally found willing sellers, pushing cattle and feeder cattle futures lower again during the session. With crude oil sharply lower this morning and outside markets friendly, cattle futures look set to resume a recovery rally today due to their excessive discount to cash. Failure to mount a substantial rally today and hold with August live cattle needing to get above 243 and August feeders above 356 is an important near-term bearish price hurdle.
Box beef values yesterday had choice picking up $2.63 while select bolted $5.30. Along with Friday’s Cattle on feed report was the Cold storage report, which showed that April beef stocks were unchanged from March but still off 3% from the year ago. We are working with the tightest April stock figures since 2014.
The seasonal cash break from a second-quarter high is underway, but the extent of the decline into the summer months may have already been priced in on the board. The concern is that imports are rising, with Mexico bringing in more processed beef since feeder cattle are not allowed in, and the lingering fear that the Trump administration may still lower tariffs on beef imports beyond quotas. USDA Sec. Rollins still seems to be the only line of defense against that. This last part is what could cause further price erosion if it takes place.