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Markets rally to test highs as movement remains tied to headlines

The markets currently are not being driven by fundamental or technical action; they are being driven by headlines. That might change next week with the release of some very important U.S. Department of Agriculture reports. But for now, it’s about headlines and money flow.

Wheat affected?
The situation in Ukraine plus continued dry conditions in the U.S. southern Plains continue to propel the wheat market.
File photo
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Editor's note: Catch Randy Martinson and AgweekTV's Michelle Rook every Friday after markets close on the Agweek Market Wrap at agweek.com.

The third week of March brought in a wave of profit taking. The grains posted losses for three out of the five sessions with the selling tied to expectations that either Russia would finish taking control of Ukraine or a cease fire would result in a peaceful resolution. To top that, weather is turning negative as rain is in the forecast for most of South America as well as for the U.S. southern Plains. It seems not only are the fundamentals turning negative, but so are the technicals.

That was the expectation of the market, the reality turned out to be exactly the opposite. Not only has the war not come to a close, but the likelihood of a peaceful resolution is also fading rapidly. Russia cannot face the embarrassment of ending the war in any version other than military victory. The Ukrainian people have other plans. But the fighting is coming at a price to the Ukraine ag community.

The fighting in Ukraine continued over the weekend of March 19-20 with Russia continuing to attack civilian targets. At this point it does not appear that Russia is willing to back down. And really how could Putin at this point? Ukraine is putting up a good fight and could still pull off the upset of the century and defeat Russia. But Putin cannot stop until he has completely taken Ukraine over, as if he doesn’t, who will ever be afraid of the Russian military if this war ends with anything less than Russia controlling Ukraine outright?

The realization that the war will not end peacefully or soon helped to push the grains higher at the start of the fourth week of March. Wheat was the leader followed by soybeans, but it might be corn that was the biggest winner for the week.

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The markets currently are not being driven by fundamental or technical action; they are being driven by headlines. That might change next week with the release of some very important U.S. Department of Agriculture reports. But for now, it’s about headlines and money flow.

The grains are set up in a trading range, and until new news starts to come into the market, the grains will likely continue to trade in their established trading ranges. It would take a peace treaty to cause the grains to retreat. The other driver in the gains will be next week’s Prospective Planting estimate and Quarterly Grains stocks report.

The March 17 Drought Monitor Map continued to show 60% of the US remains in some stage of drought. Forecasts are calling for rain to move through the northern and southern Plains, which will help to alleviate some of the drought situations. Let’s hope this is the beginning of the change in the weather pattern. Confidence is starting to decline on the amount and coverage for the southern Plains. This will help support the winter wheat contracts.

Agri Food Canada lowered Canada’s wheat stocks estimate 450,000 metric tons to 4.7 million metric tons. And it is likely Canada’s crop will continue to decline due to last year’s drought.

Argentina has increased their export tax on soybean meal and soybean oil by 2% to 33% in an attempt to control inflation. This has helped the U.S. to capture more oil and meal exports. Argentina is the world largest exporter of oil and meal so with Argentine officially trying to slow exports down, importers will have to source their needs from the U.S.

Wheat has regained the leader role. Support continues to come from the ongoing military conflict in Ukraine. Traders are convinced that the longer the conflict lasts, the more likely U.S. will start to capture some wheat exports. Russia is reporting that they are moving some grain through the Black Sea even through most of the ports are closed. But for the most part, 30% of the world’s exportable bushels of wheat are off the market, so one would expect the U.S. should be able to acquire some of that misplaced business.

Light support came from the March 24 Crop Progress report. A limited number of states release Crop Progress reports in March, with most being in the southern Plains. The report continues to show the wheat in the southern Plains struggling. Colorado’s wheat crop improved 1% to now be rated 19% good. Kansas’s crop improved 2% to 25% good/excellent. Oklahoma’s crop declined 3% to 21% good/excellent. Oklahoma’s crop is also 12% in joint versus 8% last week and 29% average. Texas’s crop was unchanged at 6% good. The Texas crop is 18% headed versus 17% last week and 9% average.

The market is starting to see positioning ahead of the upcoming acreage report. Cotton traded to new contract highs on March 17 in an attempt to secure acreage. New crop corn also traded to a new high this week as it also tried to secure acreage for 2022. The higher fertilizer costs and potential supply chain issues have producers leaning toward crops that require less inputs, which is adding support to corn and wheat.

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The Prospective Plantings estimate will be released next week. Private analysts are starting to come out with estimates for the report. USDA’s Ag Outlook Forum is estimating an increase in wheat acres, slightly lower corn acreage and a small increase in soybeans. IHS Markit released their acreage estimate this week. Their estimate has corn acreage down 2 million acres from last year to 91.4 million, soybean acreage increasing 1.4 million from last year to 88.6 million, and all wheat acreage increasing 800,000 acres to 47.5 million.

The Prospective Plantings estimate could bring a few surprises to the market. Most are looking for an increase in wheat, lower corn acreage, and an increase in soybean acreage, but it could be the minor crops that could see most of the focus. It seems more likely wheat acreage will decline along with corn while barley, sunflowers, oats, and canola acreage will increase.

Canola is also posting new contract highs this week in both old and new crop months. Sunflowers are also making a strong price movement. It appears that the minor oilseed markets are finally starting to feel the need to aggressively try and ration short old crop supplies and to aggressively look to buy acreage. Reports have Canada looking to increase canola acreage substantially, but with the continued drought concerns in the western regions, the market feels it needs to supplement those acres.

Technically all of the grains are trading at the top of or above their recent trading ranges. May soybeans are once again flirting with $17, and November is flirting with $15. Both are trading above those strong psychological levels and a close above those levels should open soybeans up to test dollar higher levels. To add to that, Minneapolis wheat is once again above the $11 level, and like soybeans, a close above $11 should help Minneapolis wheat push to test recent contract highs.

South America has reported good rains over the past week, which will likely not help the soybean crop as it is now 70% harvested. But the rains will help the second corn crop, which is 94% planted. Brazil is taking steps to curb the cost of fuel in country. Brazil removed import tariffs on ethanol and soybean oil in an attempt to lower rising fuel costs.

Cattle posted solid gains the third week of March but cattle markets turned mixed in the fourth week of the month. The lack of a cash trade pressured the live cattle market this week. Cash did trade late in the week at $138 to $141 but volume was light. No cattle were sold on the FCE Online Auction. Feeder cattle struggled this week due to the higher corn market. Light activity was focused on position squaring ahead of the March 25 Cattle On Feed report.

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