April goes out like a lion, slashing the grains

Editor's note: Catch Randy Martinson every Friday after markets close on the Agweek Market Wrap at agweek.com.

The last week of April, and for that matter the last two weeks of April, were not friendly to the grain complex, especially wheat and corn.

The last week saw Minneapolis and Chicago wheat drop 39 to 42 cents, while Kansas City wheat slipped 49 cents, corn saw losses of 20 to 30 cents and soybeans were 22 to 30 cents lower. For the month of April, Minneapolis wheat dropped 90 to 93 cents, Chicago wheat was down 71 to 73 cents, Kansas City wheat was down 70 to 85 cents, corn dropped 39 to 51 cents and soybeans were off 56 cents.

What caused the selling pressure at a time when seasonally the grains trade is in the opposite direction? Seasonally the grains see strength in April and May as traders work in uncertainty premium into the gains. There is always a little concern early in the growing season as to how many acres will get planted and how the growing season will advance. Too much rain, not enough rain, etc. Also toss in timing of planting .

This year the trade seems to be comfortable with the Prospective Planting estimate . Remember all wheat acreage was up 4.1 million from last year at 49.86 million, corn up 3.4 million at 91.99 million, and soybeans steady with last year at 87.51 million. So, traders have taken all of the acreage concerns out of the market.

Another premium that usually gets worked into the market is planting and growing concerns. As of the end of April, corn and soybean planting progress has been moving at good pace, in central and eastern Corn Belt. Corn’s planting progress has been running close to the five-year average while soybean’s planting pace is tied with the record pace. But on the positive side, spring wheat planting progress is far behind average and winter wheat conditions are near record low levels.

The biggest surprise is the lack of planting concern premium in the market, especially with the delayed planting progress that the northern Plains and western Corn Belt are experiencing. Going back to the planting intentions estimate, North Dakota was expected to increase corn planted acreage by 800,000 acres this year, South Dakota corn acreage was expected to be 150,000 acres higher, and Minnesota was looking to add 350,000 acres of corn. These three states account for 1.3 million of the 3.4 million increase in corn acres. As of April 30, North Dakota had no corn acres planted (3% average), South Dakota was 1% planted (10% average), and Minnesota was 5% planted (23% average).

For soybeans, North Dakota was expected to increase acreage by 850,000, South Dakota to increase by 200,000 acres, and Minnesota increase by 100,000 acres. That brings the total extra soybean acreage from these three states to 1.15 million. As of April 30, South Dakota had no soybeans in the ground (3% average), North Dakota had no soybeans in the ground (as usual), and Minnesota had 1% planted (8% average).

The above numbers make it a little more difficult to understand why the selloff in the grains was so steep. At the time of this writing, all three wheat exchanges retreated enough to be trading at or near two-year lows, virtually removing 100% of the war premium and any premium for production concerns. Corn had retreated to year lows. Soybeans were trading near major support, but still above the lows for the year.

The main catalyst for the selloff was fund selling. The funds have been adding to their short Chicago wheat positions for the past month, and by the middle of April were ready to step in and start selling all of the grains. Technical selling was also evident as once the charts started to look bearish, the market pounced on that contract. The selling was also due to improving weather conditions.

Light selling was also tied to another disappointing export shipments estimate and a second Chinese corn sales cancellation. Corn and soybeans prices in Brazil have dropped sharply lower as the country nears the end of harvest for their soybean crop and first corn crop. Storage is a concern as the country does not have enough storage to hold this year’s corn and soybeans, so it has to move out in the export market, thus a fire sale on corn and soybeans from Brazil.

Russia continues to downplay the possibility of renewing the Black Sea Grain Initiative. Russia wants certain sanctions lifted before they will agree to the extension of the export program. The G7 expressed their desire to have the program expanded but without Russia getting at least a few of their concerns met, the deal will likely not be renewed on May 18.

Monday afternoon’s Crop Progress report did not support the market as much as it should have. It was close to expectations as very little progress was accomplished last week due to the cold wet conditions. This week will likely be close to the same as the same weather pattern is expected to plague the Midwest.

Wheat came under heavy selling pressure from the surprise from Stats Canada. The trade was not expecting Canada to increase wheat acreage as much as the report stated. One concern about the survey, it was conducted in December when prices were higher and now that wheat has declined in price, its likely Canada won’t see the increase. But that will be a story for another time, for now the market is taking the report on face value. Stats Canada is estimating all wheat acreage in Canada at 26.97 million acres, up almost 700,000 acres from last year, a 6% increase. Spring wheat acres are estimated at 19.39 million versus expectations of 18.9 million and 18 million last year.

Kansas City wheat was pressured by rain as the first measurable rain fell in southwest Kansas and eastern Colorado for the first time in over a year. This rain will help stop the deterioration of the crop, but it likely won’t improve the crop too much. What it might do is lead to more wheat abandonment as producers take the insurance claim on wheat and take the chance on a second crop.

Corn was lower on Wednesday mainly from spillover pressure from the lower wheat complex. Weather forecasts calling for improving conditions for the Corn Belt added pressure. Forecasts are calling for open weather the next two weeks for much of the central and eastern Corn Belt. Cheap Brazilian corn added pressure as they will be the main destination for exports in the short term. July corn traded to lows not seen since last July, and traded low enough to close a gap that was created on July 25.

Soybeans continue to hold up the best, ending the week with small losses. Expectations that soybean acreage will not see a big increase in the U.S. due to improving conditions for wheat and corn planting help soybeans stabilize. The lower-than-expected canola acreage from Stats Canada’s report added support. Canola’s acreage was estimated at 21.6 million versus expectations of 21.8 million and versus 21.4 million last year.

The last week of April brought a mixed performance to the cattle market with live cattle ending with gains, while feeder cattle closed mixed with the expiring April ending higher and the deferred months slipped lower. For the month of April both cattle contracts closed with gains with the live cattle trading to all time contract highs while feeders posted new contract highs.

Cash traded sharply higher in April with packers jumping cash bids in an attempt to entice feedlots sales. Packers pushed bids early in the month but by the last week of April packers had enough product and started to pull back on their cash bids. This started cattle to trade a little sloppy and has both cattle contracts looking tired and ready for a retracement. Light selling was also tied to economic concerns as traders positioned themselves ahead of the Federal Reserve’s interest rate increase on May 3.

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