Markets Now Closes 5/19 Grains Pause Awaiting China Buys/Details Before Next Leg Higher

Añadido: 2026-05-19

[00:00:00]Welcome to Markets Now. I'm Michelle Rook with Brian Grady of Commtock Investments. We did see livestock futures mixed today. Cattle higher, hogs lower, and the grains actually mostly lower except for a few of the wheat contracts. And Brian, let's talk about why we didn't see more follow-through buying activity in the grains after that big update on Monday. Is the market at the stage where it needs to see some proof of some of this China business? I think based on Tuesday's trade it is because we finished strong on Monday, saw a little bit of follow-through in the overnight, nothing too spectacular, and then we pulled back from those levels. And so, um, you know, it was still a volatile day of trade, but it wasn't anything like we saw recently.

[00:00:40]Last Thursday and Friday, the huge liquidation days, Monday, the money flow was back into the long side of the market. Today was a quieter day and and so I think that the market's just kind of waiting at this point in time, waiting on details to come on the more details on the trade side of things and andor any confirmation from China on on some of those purchase levels.

[00:01:00]>> Yeah. How soon do you think it might be before we start to see any purchases and will it maybe be till fall or what time for soybean purchases in particular?

[00:01:11]Yeah, timing is one of the uncertainties that we don't know with the deal. And I'm going to use soybeans as an example because everything from the US side of things so far has indicated that they would buy later in the year and that would indicate new crop purchases. So, China could come in now and book new crop purchases. That wouldn't be unusual for this time of year, but they could also wait if they want to. And so, they have time on their side. And I think that China's probably going to wait. Um, one of the other uncertainties is whether this will be um, open to commercialbased um, purchases by China.

[00:01:44]And the key to that is whether there will be tariff roll backs. Now, China's foreign ministry said that there would be some uh, tariff reciprocity, but we shall see. They, you know, if the US takes off the 10% fentanyl tariff on China, then they'll roll back their 10% on uh, soybeans. And so that would really open the door, I think, to becoming more economically feasible. But even then you have a seasonality. So Brazilian soybeans are priced um at a much better price than what US soybeans are right now.

[00:02:14]>> Yeah. If we get the commercial considerations um as part of this and you get commercial buying then we won't have all the government entities buying.

[00:02:22]That will be helpful. Do we know whether this is going to be marketing year versus calendar year yet?

[00:02:27]>> No. That's another uncertainty. If you and if you remember back to October there was all the confusion there. you know, US officials came out and said, well, they'd make the 12 million tons of purchases by the end of 2025 calendar year. And then it was, oh, by the end of January or February, and then al, you know, all kinds of confusion on on that.

[00:02:47]And what we saw is the 12 million tons was purchased. It was by the end of March basically. And so we don't know if it's calendar year uh which governments work on calendar years or fiscal years, but uh markets work on marketing years.

[00:03:00]And so those are are different. And even within the marketing years, China's marketing year is uh October through September and here in the United States obviously it's September through August.

[00:03:10]>> Is there an enforcement mechanism that we know of yet?

[00:03:14]>> Ah, good question. I there needs to be um because if you remember back to phase one um the under the first Trump presidency uh China bought gang busters the first couple years that culminated in 2022 and after that point in time they started to drop off pretty significantly and they never did get to their end goal of what was agreed to under phase one. So a couple differences we changed administrations during that time frame. Um and you know this one is a uh deal that would end at the end of 2028 at the end of President Trump's second presidency here. Uh so there won't be that change over but 3 years is a long period of time to govern or keep track of whether China is on track to make its purchase agreed to purchases.

[00:03:58]So I think there needs to be um some sort of compliance mechanism in this one. Uh but that's one of the uncertainties at the moment.

[00:04:05]Do we have enough US a products to supply 17 billion dollars a year in addition to 25 million metric tons of soybeans?

[00:04:14]>> Absolutely. Uh there may be some changes in trade flows around the world. Um so we may, you know, let's take soybeans for example. If we send a bunch of soybeans to China, uh that may mean that somebody else has to step up and buy Brazilian beans that are displaced by US soybeans going into China and those types of things. So whatever we're talking about whether it's corn, wheat, sorghum, uh meat products, it it's going to take all those to get to that 17 billion beyond the soybeans and and so there will be a change in trade flows, but we will supply them with uh their needs.

[00:04:47]>> So if we get the whole 25 million metric tons soybeans to China, where does this take ending stocks here in the US on soybeans?

[00:04:55]>> Oh, it would tighten them up. Keep in mind uh 2026 is prrated. So we'll be working with a different set of numbers as we move into 2026 27. Now uh USDA lowered uh its projected ending stocks for 2026 27 from where they are in the current marketing gear. So things might get tight. Um but I'm sure there there will be something there. On the soybean side of things, any exports that go to China, we are now seeing more domestic use because of bofuels. And so, uh, that brings up an interesting conundrum because we will support, uh, the the domestic biouels.

[00:05:29]>> Yeah. Did we also hit some chart resistance? We got up into the upper end of the trading ranges in the grains today. So, was that some profit taking or maybe even some farmer selling?

[00:05:40]>> Yeah, I think so. In terms of the profit taking, the resistance, a big double top on the July corn chart that needs to be cleared. And so, questions there. Can it happen or not? Who knows? Farmer selling. Uh, I believe there probably was some farmer selling. No real way to confirm that, per se. Uh, but if farmers aren't selling, they probably need to be, especially if they're behind on their sales right now.

[00:06:02]>> Yeah. And fast planting across the US, well ahead of the 5-year average. Was that a pressuring factor at all?

[00:06:09]>> Oh, I suppose it could be. I mean, I think if you look at the the plantings and overlay that with uh top soil and subs soil and and drought conditions and all that, it's setting up as a halves versus the have knots. And right now, just rough numbers. About 2/3 or halves where they have plentiful moisture and and the crops off to a good start. About 1/3 is the have knots where uh drought conditions, soil moisture conditions are very dry and they need to have some timely rain. So, we'll see how that evolves. But uh this is definitely setting up early in the growing season as a halves versus have knots right now >> for sure. Winter wheat conditions 27% good to excellent is all I think 43% poor to very poor. Some of the worst conditions in history is at all priced into this wheat market.

[00:06:56]>> Yeah. So those are the second worst since USDA has been doing national uh weekly ratings uh since 1986 and uh only 1989 was uh worse than this year at this point in time in in midMay.

[00:07:09]And so um you know 43%'s poor to very poor 27% is good to excellent. Uh the port of very poor has a real risk of not being harvested this year. And we saw with USDA's first uh winter wheat crop estimate that heavy abandonment especially through the plains HRW states. And so um keep in mind as those fields are taken out of the harvest equation and uh zeroed out um then they don't count in the ratings anymore. So, we could actually see the ratings go up.

[00:07:39]But to your question, uh I do think that that's mostly factored into the market.

[00:07:43]Anybody that doesn't know about how poor the HRW crop is this year just hasn't been paying attention to be honest.

[00:07:50]>> Uh money flow. Talk about that.

[00:07:52]Especially when you look at, you know, what's happened with crude oil, the dollar, some of the outside markets.

[00:07:58]>> Money flow, money flow, money flow.

[00:08:00]That's one of my big things is because ultimately no matter what the reason is, whether it's fundamental, technical, whatever, money flow at the end of the day determines what happens on a uh price structure. And we saw last Thursday and Friday just massive money flowing out of long positions and it was a massive net long. Um so they they shed a bunch of that, but then they come back in on Monday and and buy a bunch and and so the money flow will be a key price determinant as we move forward here near term.

[00:08:28]>> Gotcha. cattle market back up today, but we have had record cash trade and the futures have been reluctant to follow.

[00:08:36]Why the disconnect?

[00:08:37]>> Yeah, huge divergence there. I think that the the trader at this point in time is just saying, "Hey, cash, you do your thing and we're going to sit here and wait on the cash market to eventually roll over and it eventually will and come back to the futures." And so, they've just decided they're not going to aggressively chase to the upside. That doesn't mean we can't make contract highs and and things like that.

[00:08:57]It just means that I doubt if they're just going to flip the switch and say, "Hey, you know what? Today's the day and we're just going to go up and really, really narrow up those wide discounts to the cash market." And as much divergence as there is in the front end of the market, the divergence in the back end, USDA's forecast for the fourth quarter, average cash price is 255 and the futures are trading well below that at this point in time.

[00:09:21]>> Yeah. Have the funds gotten spooked at all by either talk of the DOJ probe, um, beef imports, any of that?

[00:09:29]>> I think spooked enough where they're not willing to chase it anymore. Because if you remember back, uh, earlier in the spring, it seemed like late in the week, every time that they chased to the upside because the cash market was on fire, there would be a rumor that started about something, whether it's the border reopening or or some other market factor, and it just kind of tripped up the futures. And I think that quite honestly they're tired of it and they don't want to deal with the whipssaw back and forth and so they've decided not to chase anymore.

[00:09:56]>> Yeah. What about the Catalon feed report? Uh that'll be out on Friday, but could we see higher placements because we're starting to compare to those smaller numbers of a year ago?

[00:10:06]>> Yeah, hu huge uh range in the estimates on placements. So that will be the uh the read so to speak on the report. Uh the feed lot inventory is expected to be up about one and a half percent a little bit more than that from a year ago. And and like you said, we are now comparing apples to apples uh because the border was fully shut at this point in time in 2025. So everything moving forward will be apples to apples comparison.

[00:10:30]>> But hog market has been pretty darn disappointing. We can't seem to find a real definitive bottom. Why is there such a problem here? Well, if you remember back to late winter time frame in early March, we we caught fire and we rallied and everything looked really bullish at that point in time. The cash market just literally leveled out since that point and uh futures have been doing nothing but removing a bunch of that premium. So basically the cash market sideways and the futures down since early March when we had that uh the high in the uh both the cash index and the futures.

[00:11:05]>> Okay. So futures too premium to the index but we also put premium in those back months because of lots of disease and some of that has not materialized in terms of numbers. Right.

[00:11:16]>> Well the slaughter numbers actually line up really well with what the last HMP report said that we would run about in line with year ago or or um just a fraction off of that. And so we're lining up pretty pretty closely with what the HMP report said on that front.

[00:11:32]Uh but some of that disease talk and and everything uh we'll wait for revisions in the June report so we have that uh on the I guess medium-term horizon. Uh that should give us a better indication as we move forward through the rest of summer and into fall.

[00:11:47]>> Thanks so much Brian Grey with Comtock Investments and that is Markets Now.

[00:11:52]Okay. Excellente. Thanks, Brian.