Schwieterman: Beef market keeps rising

The March supply and demand report wasn’t eventful, in fact there was only one change to the US corn, wheat, and soybean tables and that was a surprising cut in the wheat export estimate. We certainly have the sales pace to meet the old export estimate, but I think what USDA is looking at is the slow shipments pace and the fact that we are running out of time in this crop year. Other than that there were no changes, which is basically what traders were looking for. The big excitement will come at the end of the month with the Prospective Plantings report.

The supply and demand report was about the only dull thing about the markets this week. There was an over abundance of volatility and there seemed to be a desire to get out of markets and avoid that volatility. That is certainly understandable, and for the most part the grain markets have been in need of a correction. It don’t want to be overly optimistic, but it looks like Friday’s early morning plunge marked the end of the corrections in the grain markets and probably the crude oil market as well.

The July corn finished Friday’s session with a mid range close after reaching the 62% retracement of  the move up from the January low. My only hesitation in saying that the corn correction is over is the fact that the front months of the corn were limit lower at one point in overnight trade, at it is highly likely, that after limit lower move, the market will quickly revisit that low. I will go so far as to say, that if Friday’s low doesn’t hold as support, the trend line just below it will. It is only a matter of time until traders return their focus to our tight stocks levels and the likelihood that USDA will cut the ending stocks estimate in the April supply and demand report, since they didn’t do it this time around.

The wheat market suffered the worst this week. The negative supply and demand report certainly didn’t help, but the market had saw a great deal of weakness both before and after the report, so that was far from the only factor this week. We did have moisture in some of the dry areas of the HRW Belt, but I seriously doubt that the half inch or less of moisture many of us got will be enough to make a wheat crop. I think they call that backyarditus, but it is very hard to ignore the poor conditions in this part of the world.

From a technical perspective, the wheat market is definitely oversold and due for a corrective bounce. The July KW dipped below, but closed above the 62% retracement of the move up from the November low. Followers of Elliot Wave theory suggest Friday’s low was the completion of an A,B,C correction, and if that is the case, gains next week would be the beginning of another 5 wave move higher which would take the July KW above $11.00 eventually. Time will tell, but export sales are good enough, and crop conditions are poor enough, that it can happen.

The July soybeans avoided taking out the February low and posted a mid-range close on Friday, which looks ok on the charts. Looking way down the road, we may have completed 2/3 rds of a W bottom, which in the long run suggests we will see new all time highs in the soybeans. Fundamentally, export sales are back on track and a couple more weeks of solid sales will force USDA to increase the export estimate in the April report. Plus, the recent price break has done nothing to secure acres for the bean market and the bean market really can’t stand to lose out to cotton, corn, or spring wheat. Basically, this market is primed for a turn around.

$118 cash cattle trade was obviously very supportive. The beef market keeps rising, which is also very bullish. The big question next week will be how the earthquakes affect Japanese demand. There is a good chance it won’t affect it at all, which will mean the cattle can keep on climbing. The key next week will be the beef market, it is as simple as that. If beef stays firm, the April LC chart suggests a move to $122.00 or better is likely.