Markets retreat despite problematic planting delays

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

The third week of April was a rough week for the grains. The markets started the week on a strong note posting gains and giving us the appearance that the cold wet conditions in the northern Plains mattered. But as the week advanced, so did the selling pressure. How could the markets retreat so much with all of the planting delays and potential production issues?

Part of the selling was tied to improving weather forecasts . The futures markets trade the future of collective expectations of future supply and demand conditions, not today’s expectations. The rally that took place mid-March to early April was pricing in the delayed planting conditions and the sell off the second half of April was due to weather forecasts calling for warmer drier conditions in May.

The retracement appears to be getting a bit overdone as the grains are approaching oversold market conditions. But along with the negative weather forecasts, other negative news is starting to creep into the market. When it rains, it pours.

The biggest concern in the marketplace, outside of weather, is the harvest activity in Brazil. Argentina is a non-event this year as their production is likely going to continue to decline. The latest production estimate from Buenos Aires Grains Exchange (BAGE) has Argentina corn production at 36 million metric tons and soybean production at 22.5 million metric tons.

Adding CONAB’s Brazil soybean production estimate of 153.6 million metric tons to BAGE’s Argentina soybeans production you have a combined production total of 176.1 million metric tons. Brazil is going to produce a record soybean crop this year, but South America’s combined production will not be much larger than last year. And it is likely Argentina will need to import 10 million metric tons of soybeans from Brazil.

Brazil is approaching 90% harvested for soybeans and that means there is a lot of product that is moving towards the ports to be shipped, and Brazil does not have the facilities to store that much grain. Thus, their domestic cash price has dropped sharply, putting Brazil’s soybeans at a $2 discount to U.S. soybeans. This has resulted in a quick shift to Brazil’s soybean, with even the U.S. buying three cargos.

Dr. Michael Cordonnier lowered his Argentina soybean production estimate again, this time 2 million metric tons to 24 million metric tons due to reports of lower-than-expected yields.

Corn yields are also coming in below expectations but most are saying the corn yield has fared better than soybeans.

As of April 21, Brazil’s soybean harvest was estimated at 91% complete versus 92% average. First corn crop harvest was estimated at 73% complete versus 79% average. As of April 20, Argentina’s soybean harvest was estimated at 19% complete versus 35% average.

Corn harvest was estimated at 20% complete versus 30% average. Yields are still being reported as very disappointing.

Wheat and corn are also being influenced by Russia’s comments on the Black Sea Grain Initiative . At this point Russia will not sign on to an extension of the export program that is set to expire May 18. Russia says the west is not living up to the bargain, which was supposed to also lift sanctions against Russia and allow for a little freer movement of product.

There are also reports of countries starting to ban imports of wheat and corn from Ukraine as they attempt to limit supply and stabilize price within their own countries. News broke late in the week stating that vessel owners and captains had to sign a guarantee letter which states that they are aware that the grain corridor closes May 18.

Corn and soybeans are also seeing some spread activity. The front months are seeing pressure from the rolling of front month positions into deferred months as May is about to go into delivery. The remainder of April is expected to see much below normal temperatures for the eastern half of the U.S. This will continue to slow down planting progress, and could put the northern Plains back into the same scenario as last year.

With the current weather forecast it seems unlikely ND, SD, and MN will be able to plant the additional 1.2 to 1.3 million of each of corn and soybeans, unless this weather breaks dramatically. If so, then it is also likely the U.S. has already seen its highest acreage estimate for the 2023 crop year.

The inversion between the May and July corn futures traded to another all-time high, before settling back a few cents. The spread traded to a 38-cent inversion. Soybeans are also inverted, which is a signal that the market wants grain now. The tighter than average basis also suggests old crop supplies are tight. Seems like the futures market needs to get in step with cash. That won’t likely happen though until we flip the calendar to May, and the weather issues remain.

Cattle’s run continues as both live cattle and feeder cattle pushed higher early in the week. Strength continues to come from tight supplies and strong cash bids as packers are short bought and in need of product. The strength was enough to push live cattle to a set of new all-time highs almost daily while feeder cattle traded to new contract highs.

It is going to be increasingly hard for the average consumer to justify paying sharply higher prices for beef when pork and poultry as so much less expensive. This debate is starting to take place in the grocery stores and in the end the lower cost product will win.

Selling pressure pulled the cattle off their highs late in the week with selling tied to position squaring ahead of USDA’s April Cattle on Feed report, which was expected to be friendly. But USDA’s report was negative cattle: On Feed: 96% (1% above expectations), Placed: 99% (5% above expectations), and Marketed: 99% (as expected).

The economy has taken a back seat and has not had as much of an impact on the cattle performance this week, but the Federal Reserve could not leave well enough alone. Late in the week the Fed made an announcement that even though a few inflation indicators were neutral to friendly to the economy (inflation slowing) the Fed will still likely increase rates in their May meeting. Expectations has the Federal Reserve increase rates .25% to .5%.

Where the cattle run will end, no one knows, but cattle are extremely overbought and in need of correction. Don’t be surprised if a $5 to $7 break hits the meat in the short term.

Producers should consider placing a floor under any unhedged calves.

“The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results.”