The Port Closure That's Rattling Global Grain Markets

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[00:00:28]Graden complex had a strong day on Wednesday. Wheat leading pulling quart of beans higher. A lot of war concerns and more there. Meanwhile, cattle had an ugly day Wednesday. Let's talk about it.

[00:00:40]Mike Zulo, Global Commodity Analytics is with us here today on the show. Mike, good to catch up with you again this week. It was great to see you briefly in Kansas City last week. Man, oh man, my friend, between when we saw each other briefly till Wednesday's trade, a lot of volatility continuing, a couple big updates for this grain complex with wheat being the leader, Mike.

[00:01:03]>> Yeah. And the word of the day today on the show is Navros Cisk. That's the port that the Russian government shut down on Wednesday between midnight and 5:00 a.m.

[00:01:14]based upon a couple different reports I saw and actually had seen some inkling of this on Tuesday night when I was looking at some uh Eastern European news sources that I have that the Russian government was really starting to get nervous not just about fuel but also about grains. And I think this really turned the tide in terms of the trade from being somewhat concerned to it felt almost like an outright fear came into the market with the European wheat leading this market higher again. It felt a lot like 2022 quite frankly to me Jesse in the early days of that invasion when the crude oil was leading the wheat higher. And we don't want to forget the crude and we won't forget the crude in today's graphics because it was the real leader once again on Wednesday's trade.

[00:02:04]But this shutdown of this shipping port, it being the largest that Russia has for deep water ports based upon my numbers, it's the fifth largest in all of the European Union. This is big news and it kind of comes together and and brings together and confirms to the trade that this is not just a weather market. This is not just about what happens if this happens. Um, we've got Iran, we've got Russia, we've got Ukraine, and now we've got the Houthis in the eastern side of the Arabian Peninsula messing with the Bab al-Mandde Strait off the Red Sea. So you've got three major commodity intensive straits that we are seeing targeting commodity infrastructure and commodity supply chains. And this is what we talked about last week in Kansas City. Whether this would could or should happen, it's starting to happen.

[00:03:03]>> Well, I think the uh the war and weather bowls are out there a bit. Let's talk about this and and you know we talk about wheat being the leader but let's put this into perspective for the corn market first because that's been along for the ride with wheat here to some degree. Talk about some of the latest you're seeing with US and EU corn values as we kick off looking at charts here on the show today. Now, great point. And and this is why I wanted to feature this as one of our first charts we looked at is because we're dealing with about a $760 wheat price whether it's in Paris or whether it's in hard red wheat futures here in the United States. But look at where the Paris corn price is. It's essentially the exact same price. that really does smell as you say of not just the geopolitical and supply chain commodity fears that we've been talking about, but also the weather is starting to really still play a big role. I'm having a difficult time though, Jesse, saying to clients that we're really in a US weather market at this point as far as a leading indicator because of some of these new things that have been going on over in Europe and and we have some other, you know, charts to show, but I think it's really worth noting here, and this is not a price forecast, but this really keeps the US corn extremely competitive. I think only Argentina is close to us at this point as far as price, but you're talking about Paris futures being $3 premium to the Chicago US futures. You're seeing a similar structure in the Gulf of Mexico, Gulf of America corn price versus what we are getting out of France. Over $300 a ton for corn right now coming out of France.

[00:04:48]>> Let's talk wheat and the crude oil market that you mentioned here, Mike.

[00:04:53]And let's look at the WTI SRW correlation to tie in with that. And obviously seeing a big spike here in recent days on some of this.

[00:05:01]>> Yes, crude oil futures only only up two to 4%, but they've been running pretty much all week and late last week. So I I would argue that late last week we saw the crude oil start. It's never really back down. Monday it was joined by the beans. Tuesday the beans fell back because the trade was thinking a little bit more. Oh, well, maybe nothing big is going to happen now in between Ukraine and Russia and we've dialed everything in we need to. And then Wednesday changed that and made that complete opposite. And I think what I'm going to make an argument for here later in the program is some commodity fund buying might be going on as well. But you look at this WTI relationship with SRW uh wheat and you're at almost positive 98% on a four-week basis. We've looked at this chart a lot. That doesn't tell the whole story though, Jesse, because the Brent spot crude oil price in over in the North Atlantic that I've been keeping track of since the uh February attacks against Iran started. Um it it rallied over 8% on Wednesday. And so I'm really questioning whether we won't go back up to that 115 116 high in the WTI here at this stage of the game because some of these fundamentals that have been put together.

[00:06:19]>> Thinking about the energy component and we're going to go through these charts really quickly here today. But let's talk heating oil versus soy oil because soy oil's really been kind of in that energy camp here lately. And I don't want to forget about this soy complex because that's been part of some of this rally as well. Mike, >> it's a huge point to make and we've got to respect the soybeans. Even though I'm nervous about the fundamentals, especially after President Xi comes over here in September, I'm nervous that the November beans still have a gap in them from the blastoff from earlier this week. The de corn was able to fill its same gap that same time period. But you notice here exactly where we're at.

[00:06:59]We're almost 100% positive price relationship on our four-week correlation in leadmon heating oil versus leadmonth soybean oil. Heating oil is our best gauge for the diesel market. And that old high, that old the the purple line, that old high is around 460 a gallon in heating oil. We're trading about 417 right now. Again, I would I would not be surprised at all if we go back up and try and retest that.

[00:07:26]So, we got to give the soybean oil some support and and some respect, especially and I would also add one other thing, Jesse, that we probably won't talk too much about from here on out in today's program, but the Indian monsoon is extremely concerning right now. And the the Royal Bank of India actually did a big meeting today and talked specifically about soybean oil and vegetable oils and pulses because the the monsoon rains have not come in a timely manner in July. And I think this is another one of those big global El Nino Godzilla El Nino features. if the funds buy, maybe they hold hold on a little bit longer than what we're expecting over the over the course of the next two to three months.

[00:08:12]>> Well, and that's an interesting nugget to think about. We've talked corn, soy, wheat. Let's put this in perspective to the uh Goldman Sachs monthly agriculture index chart. And to my earlier point, you know, maybe the bulls are starting to beat the drum a little bit here.

[00:08:29]What's your feeling when you kind of aggregate this all together, so to speak, Mike?

[00:08:34]>> Yeah, I've got two to four major agriculture indexes or indices that I keep track of. This is one of the top two. I I would say to you that because I think that the wheat and the crude are the leaders. Um those are heavy in most of the commodity indices. And if you look at the retracement levels and this Fibonacci white lines that I have on this chart that go all the way back to the 2002 lows, that premium deflation low that we had way back after uh the the turn of the century. Um we're talking about a a retracement level now we're coming up against um at that 400 level, 405 level, excuse me, 40 level or 41 level. And I think it's really important to keep an eye on this uh when it comes to the 38% retracement level at that 405410 level. I'll get my number straight here. Uh if we break through that, Jesse, you notice that 410 level.

[00:09:34]Um every other time we've broken through that, it's really added to a kind of a fresh breakout and it almost like stops uh buy stops would be uncovered and something new has energized this market.

[00:09:48]And so we're really up against some really critical time and and price points right now. And I think the funds are coming back in. You and I talked about them reloading potentially for the Godzilla El Nino. I think that's still very much in play.

[00:10:04]>> We're having a conversation with Mike Zuzalo from Global Commodity Analytics here today on Market Talk. Let's uh talk a little bit more here on this grain trade. Mike, and let's look at world ending stocks for corn. and you know thinking about okay we're talking issues in the Black Sea and shipping issues around the world and crop conditions in the EU and crop conditions in the US and I'm hearing some nuggets here and there of some crop stress for instance in the US in certain areas and more and so thinking about this from the global picture we know we're good at producing corn we know there's a lot of it out there but what happens if some of these issues compound upon each other what does it do to the balance sheet, Mike?

[00:10:49]>> Exactly. And I you set it up so perfectly. There's only one small thing to add that makes this chart so so important other than the fact that we're really getting ready for the northern hemisphere crop to be made in the next 7 to 15 days. And that is the wheat price is now 2.4 to 2.5 times the price of the new of the lead month corn. And so at that kind of a ratio, um, you're talking, excuse me, to two and a quarter premium per bushel. Uh, you're talking about it not being a feed grain anymore in terms of the wheat. And it puts more burden on corn and sorghum to be more of the feed grain of choice around the world. And I think it's really important now to introduce this to the clients and subscribers and to your viewers that we're already on a worldwide basis of the stocks after demands factored in at 2013 levels and and actually below 2013 levels and and would not take much to get us to 2012 levels if we had more weather problems in the northern hemisphere. And as far as US stocks go, we're at 11% right now for 2627.

[00:12:02]We were at 9.9% in 2223. That was the low for the last four years for stocks to use domestically. That's only a percent away. And I would also throw out, Jesse, that the wheat stocks are really starting to come down. We're already below where we were last year and below 2223 on world wheat stocks to use ratios. our current US stocks of 38.5 needs to come down to to meet 2022 down about 8% when it was 30.4%.

[00:12:36]So we do have an ample amount of US stocks right now but the world numbers are very tight relative to the last 5 years.

[00:12:46]thinking about the weather piece here a little bit more too and let's talk first Ukraine and this is an interesting chart to look at on the video feed and we'll explain it on the audio side here to folks but the the moisture map the root zone soil moisture data for Ukraine you know we think about all the challenges we've heard in France for instance in the EU and we'll touch on that in a second in this conversation but Ukraine's got some issues too Mike >> you're down at the second lowest amount of precept over the whole course of the country. And there's good areas, there's bad areas, but over the whole course of the country within the top one meter of the soil, you are at the second worst that you've been in the last 5 years going back to 2020. And I think this is something the trade is not looking at at all right now. They're probably looking more at the India monsoon than they are this. And I think this is where you're talking about roughly 15 to 20% of the world corn exports coming out of the Ukraine typically. And if you have, not to mention what's going on in this in the Black Sea with the the war and the conflict with Russia, you also tighten your crop up. It's going to be very difficult to get those supplies out to the world. And that's really the name of the game to me, Jesse, as it's shaping up here in 2026. What we missed in 2022 was we put the fear into the market, but then the supplies were available and we could breathe a sigh of relief. It's almost as if this year is the exact opposite. We haven't put the fear in the market yet until now. And those supplies are going to probably be very difficult to get out of these regions. It's not going to be as easy as we initially thought in the trade. I I think you and I have done a really good job of staying on top of this, saying this is probably going to get worse before it gets better.

[00:14:43]>> That's a a great great point. Well, thinking about those weather issues as well in parts of the EU that I mentioned we've touched on, but even adding that in with what's going on here in the US and looking at the latest model runs at 7day, 7 to 10 day, what stands out to you right now here for the US as we're starting to hear some of those nuggets of crop stress. Mike, I >> I fear a lot of volatility because the GFS and the Euro, the two normal ones we've looked at over the course of the last few years, um, are very different.

[00:15:14]The GFS is putting a lot more rain over Iowa and a lot more rain over Illinois uh than this Euro model is. Both the Euro AI and the and the GFS AI and a couple other models that I use and have a lot of confidence in, they look a lot more like this. And so what I'm going to say today is this, Jesse, I've been talking about from De Mo to Indianapolis and that channel that looks like it's going to get missed. Well, this is shaping up now with these models on Wednesday that essentially all the way from Bismar down to uh Cincinnati, a lot larger area that is responsible for a lot more of the corn yields. It's going to be extremely hard to get 180 national yield if this 7-day and 10day preset forecast holds in my opinion.

[00:16:03]>> Yeah, [clears throat] there's a lot to unpack in this grain trade. Excellent stuff as always. We better talk cattle before we wrap up the show today. I mentioned it early on. An ugly session in cattle futures again. Feeders the downside leader. Live cattle following along. You know, we hoped we had ended the losing streak, but it appears we just restarted it again to some degree.

[00:16:24]I mean, talk about this sizable drop now in the cattle complex that we're seeing here, Mike.

[00:16:31]>> Yeah. What did restart and kickstart the resumption of the downward movement?

[00:16:36]Well, it's pretty easy to see the grain rally has been a big reason. Um, but I think more uh underneath the the uh surface of this market and one of the reasons why Oklahoma City feeders dropped $15 to $25 on Tuesday was just a sheer lack of buying. And there is a fear I think now Jesse in the feeder complex. And this is why the live cattle have been leading the market lower and feeders have been staying strong up until this week for the most part. Um the fear now is that there's not going to be much buying interest because the drought. I mean, we're talking about Garden City, Kansas being 104 to 107° this weekend and early next week before a slight uh respit back down into the upper 90s. And so I think the trade has said we're bringing in more box beef imports and more cuts via Brazil and and probably Australia because of these TRQs that have been met by China and other countries. Now we're going to start trading the drought as a bearish factor.

[00:17:44]And I think the third thing that we're probably starting to factor in, especially if we go lower and hit this long-term trend line, that's purple trend line and right near it, that major moving average in this live cattle chart, is if we get negative numbers Friday on the monthly cattle on feed and the semiannual numbers. I I still can't square that circle when it comes to live cattle that the trade is looking at 102 plus on feed as of July 1 in this uh report and yet we're still down 8.4% 4% year-to date on slaughter. Are we going to get any kind of indications as to why these numbers are still still so so far apart?

[00:18:23]>> Feeders as well. One more chart there, the monthly feeders uh chart here and the trend lines you're watching. Any notes uh more specifically on the feeder side, Mike? Yeah, this is where going and dvtailing with the last point is the beef on dairy is being talked about right now as far as that showing up on the semiannual report and maybe being able to connect dots there. I would say that this chart right here is a really big chart bigger than the cattle chart because you have a support line you're on right here right now. So, we need to bottom in the feeders after Friday's reports come out. Otherwise, we can open this thing up to the downside technically speaking to that white long-term trend line drawn off the 2020 low. We've talked about this before.

[00:19:04]That's worthy of going after on the short side. Makes no sense fundamentally to me, Jesse, given the drought and given the weather pattern over feed lot country if it manifests itself next week. But we still got to look at it.

[00:19:16]>> Good stuff as always, Mike. If folks want to reach out to you there, Global Commodity Analytics, what's the best way?

[00:19:23]>> Yeah, we're putting a lot of stuff out here for free. Please take the time to sign up for a four-week free trial and and think about subscribing and keeping the the market analysts, the private market analysts like me going and keeping their operational movement going on independent analysis. Globalcomress research.com. It's global comm.com.

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[00:19:45]>> I would echo your sentiment. Generous with your time and insight here today.

[00:19:49]And as always, Mike Zuselo, Global Commodity Analytics. Good to have you with us on Market Talk, sir. Have a great week. We'll talk to you next week.

[00:19:57]>> Thanks, Jesse. You too, and thanks for having me.

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