Grains Higher as Corrective Buying Continues: Cattle and Hogs Make New Highs for the Move.
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Welcome to markets. Now I’m Michelle work with Oliver Sloup, Blue Line Futures. A multi hire session on Wednesday with the exception of a few of the soybean contracts and Oliver let’s talk about the core market first of all, fifth day up. How much of this has been technical in nature, this rally that we’ve had? Well, the fifth day of gains is right.
Today’s gain, I think, was the largest that we’ve seen in what seems like a lifetime. But we’re right back down to the back to the breakdown point from the was they report for 52. For 52. I think that’s going to be a huge hurdle for the bulls to overcome. If we can get out above there, I think we could spark some additional short covering which goes back to the origin of your question.
Is this just relief? And I think that’s probably mostly what it is. You know, over the last couple of weeks, we’ve just gotten so much bearish news thrown at the market that maybe it was a purge of bad news and there’s no more bad news to throw at the market. We can’t accelerate to the downside. You start to see a little bit of short covering.
So I think that’s largely what we’ve seen here over the last week. Will it continue or not? To be determined, funds are aggressively short and my question is, what’s going to be the catalyst for them to cover in a more meaningful way? They’re short about 260,000 futures and options contracts. This largest 2020 and broken down, that’s 460,000 shorts versus about 155,000 longs.
And I don’t see a huge reason for them to exit those in a big way. And I’ve heard a lot of people say that they’ve extended their short position to where it’s not manageable and it’s too large. Well, I would advise you to go back and look at 2019 where funds amassed in that short position of about 320,000 futures and options contracts from the start of the year through April.
So unless we get a bullish catalyst, I think the bears still remain in control. Even if we do get a little bit more short covering from these levels. Yeah, and that was a record that year. But that’s a really good point that you make. So Corn probably got a little help from the wheat market, but is the market at all concerned about what’s going on in South America?
It does look like it’s turning a little hotter and drier, at least in Argentina, maybe. Yeah. South American weather is obviously the spotlight right now as it is every year during this time of year. And you’re starting to see, you know, a lot of estimates come out and it’s a lot of jawboning and back and forth. You know, where where are the markets actually trading and what production levels for for soybeans specifically?
That’s been a hot topic as of late, though. We’ve seen a lot of private analysts come out with estimates for Brazil production error, 150 million metric tons of got the USDA closer to 155. Our source is down in Mato Grosso call at 155, maybe a little bit more than there are. So it’s trying to figure out what is the market pricing in right now.
My guess is it’s probably somewhere in the middle. Then obviously that’s subject to change with this time of year. So I expect the volatility in soybeans to continue from here on out. And corn volatility has been rather stagnant. But I expect that to pick up as well, especially as we get closer towards March and we get kind of geared up for that prospective plantings report.
Yeah. So if that was kind of some of the news that maybe fundamentally helped us to push the soybeans here the last four days, you know, did we just run up into some chart resistance today or is the market getting a little tired? Yeah, well, the move out of the 1230 to 1235 was very constructive and really opened the door for an extension in the early morning trade.
But I think 1250 to 1260 is going to be a big barrier for the Bulls to overcome here, at least in the very near term. That was old support back in October. That’s now going to act as resistance, going forward. If the bulls can get out above there, potentially, we see some follow through and maybe work into the 1270s, maybe make another run at $13.
But I think if we do get up towards those levels here and the near term, producers who have some unsold bushels should probably look at being a little bit more proactive. Now, we talked about the fund positioning in corn and for beans. They’re holding their largest net short position since 2020 as well. 77,000 futures and options contract. So it would be interesting to see how South America pans out and then what we get an idea of how that’s going to pan out.
It quickly turns back to the United States. So like I mentioned, I think the volatility is here to stay and if not roll. Yeah, then to also short in the wheat market. So was today’s action short covering or response to that lower dollar? Well, I take a little bit of both. Any time you get a softer dollar generally correlates with a stronger wheat market and obviously, you know, that’s not guaranteed to work.
But I think we also got a few other tailwinds behind it as well. We’ve got some halfway decent fundamental catalysts. The last report is probably most friendly for wheat. Then any of the grain. So I think that is certainly a silver lining. On top of that, we’ve gotten out above $6, which I think starts to get people looking back at it as if attractive commodity as well.
So if we can get out above 620, I wouldn’t be surprised to see that ignite a little bit more short covering in a more meaningful way. Maybe make a push into the six 4650s. But I think that’s going to be a near-term ceiling for the market. So I guess in short, I’m optimistic here near-term that we can continue to work higher.
But a break and closed back below $6, I would would raise some caution flags and have we back to the drawing board. So that pullback in the dollar that you talk about was that in response to China cutting their reserve rate for the banks or was there something else moving it. Yeah. The news out of China has certainly been front and center here this week.
There’s been a lot of concern over Chinese growth. And so the, you know, stepping in and lowering rates is certainly a catalyst for a weaker dollar. It’ll be interesting to see how China continues from here on out, not just China, but also in the United States. We had some PMI, manufacturing data out of the United States this morning, which came in higher than expected, and that put bonds kind of on their back feet as well.
So it’s a very fluid market and really interesting times when we see all these things kind of go together. I don’t know if it’s the day of technology or what it is, but it seems like there’s a million moving pieces and these markets here. Absolutely. I’d have to agree with that. So what do you say about some of these outside markets, obviously, that should have been friendly for the meat sector today, but cattle new highs for the move Here are the funds back in their buy in to Oliver?
Yeah, the cattle market has been very impressive and it has exceeded my expectations over the last couple of weeks. I personally was in the camp that we’d see some consolidation and the April Live cattle contract between one 7175, but we broke out above that prior to the cattle on feed report and we’ve got some friendly catalysts working in the bulls favor.
We hear from some clients down in Texas this morning that Cargill had a bid at 174 that was being passed on. So certainly some things firming up, which is good to see. And the funds are long, only 13,000 futures and options contracts, which is very neutral, if not a bearish position for them. So if we continue to see the cash market firmed up, I wouldn’t be surprised to see funds step back in.
And from a chart standpoint, I think that’s certainly what you’re seeing as we continue to grind higher. Yeah, we’ve maybe got a little help, don’t you think, from product values we’ve had over a $25 run up the January lows on the choice cut outs, I think. Yeah, that is certainly been a nice tailwind for the market and it’ll be interesting to see if that can continue.
Like I said, if we do see that continue, I think the funds have reason to add and they’ve certainly got enough dry powder as far as I can see, as far as positioning goes and a chart breakout in the hogs do, it looks like a huge break. Yeah, we broke out above trend line resistance going back to the June highs, which was, you know, really kicked things off.
And I think a lot of that was on the back of news from China that China wanted to guide farmers to reduce hog production capacity, which is kind of a head scratcher because they made the step in increasing capacity in such a meaningful way. I don’t know what else they expected, but nonetheless, here we are breaking out two very impressive back to back days and now just a stone’s throw away from the November highs, 82 to $83.
We’ll see if we can’t get out above. They’re talking about the fund positioning. They’re pretty neutral there as well. So if we do get some fundamental catalysts that continue to firm up, we could start seeing some some fun money come back. And there is they’re short about 1800 contracts. Definitely impressive, especially I know last week we had some of those processing hiccups and whatnot and there was certainly probably a little concern about backing up a few hogs.
I that yeah, that was absolutely a concern. And I think the prices were reflecting that as we we’re just kind of tapping around. But I think that the news out of China here this week had certainly kind of lit a fire and maybe not necessarily ignited new buyers stepping into the market right away. But I think it was certainly a shot in the air to say, hey, if you’re short this market, I don’t think you want to step in front of a headline like that.
It’s clear the deck back to the drawing board and see where we go from there. Good stuff. Thanks for joining us, Oliver Sloup Blue Line futures. That is work. It’s.
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