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Welcome to Markets Now. I'm Michelle Rook with Shawn Hackett of Hackett Financial Advisors. Well, we saw higher grains on Friday, but lower cotton and cattle futures. And Shawn, let's talk about the grain markets. Wheat, the price leader, not only Friday but for the week. And we were putting in war premium. How much war premium do we need to add? Does it depend on how long this thing lasts?
Absolutely. I think we've appropriately put in premium for the idea that this would last through the end of the month. If it looks like this is going to extend out into August or longer, we have not put enough premium in. We would have to then, you know, re-rate another level higher to adequately suggest that maybe a good portion of these 30% export course that Russia typically moves out of the Strait of Hormuz don't come out, and that would be a big loss. So I really feel this coming week is very, very important on headlines and how the chess pieces are moving around to determine length of closure.
For sure. Now, so it's soft red winter wheat. Obviously, the funds were short there, so they've been covering some shorts. But I guess the other question is, technically, can we take out the May contract highs? That's the next objective here, isn't it?
Yeah, I mean, we're right kind of, you know, in the hunt for making new highs here on both winter wheat markets. And as I said, I think it's really going to come down to the headlines over the next week on duration of the Hormuz Strait closure. What I will say, however, is I'm really concerned about perpetual drought and high heat in the northern plains, North Dakota, the southern Canadian prairies impacting Minneapolis spring wheat. If there was a market to watch for where maybe premium isn't in there yet on weather, I think that that market might still be mispriced based on the weather I think the weather models are going to continue to show into the end of the month.
Yeah, I left spring wheat out by itself, but there is some weather issues in the northern plains in addition to drought. They have had heat here over the last several days. So, we're losing yield, aren't we?
Absolutely, we're losing yield. No question about it. And remember, we had a very, very tough planting season in this region and into the Canadian prairies. Acres were down more than people had thought. So, you have less acres, less yield. We could be looking at a pretty small spring wheat crop here to go along with the winter wheat crop, which especially for Kansas City wheat was really, really poor. So, to have all of that supply issues going on while the current trade is closed is the reason that we've had this rally that, you know, has a risk of going higher if we don't get something to put the genie back in the bottle here.
The corn market has been getting some help from the rally in the wheat market. And we did have a higher day Friday, a higher weekly close there. But is that market also adding weather premium, or is this just about it following wheat?
I mean, it's primarily following wheat. There is some very, very bad weather going on in Europe in the core corn areas there, especially France, as they're trying to pollinate the corn crop. Crop conditions for corn over there have plummeted. But I think there's a limit to how much that can drive the corn market higher if we're looking at a big above-trendline yield crop that will be primarily made by the end of the month. I think the US crop will outweigh those factors, and I'm not sure that's enough to drive the corn market higher without wheat helping corn along.
So, corn has gotten up into another layer of chart resistance, which is going to be pretty tough to take out here, right, without a bigger catalyst.
Absolutely. It's been very, very difficult to get through this 470, 480 on the December contract. We think unless the weather models completely change over the next few weeks, if we get timely rain, pollination's done, crop looks good, I'm thinking it's very difficult to get through those levels if we're talking about a 183 or 185 kind of a yield going into August. That's a big crop that the market will have to typically absorb with lower prices historically.
Soybeans also up for the week, and we did get the November contract to close above the $12 mark again here today. We've had demand from China. We've had the bean oil market screaming higher. Both of those are pushing this, right?
Yeah, absolutely. I mean, the monthly crush numbers were very, very high. The bean oil market going back up, making those crush margins continue to be very good. And clearly getting these repeated purchases to unknown destinations, which we know pretty much is China, is continuing to feed into the idea that this, you know, 300-ish million bushel carryout may be at risk of being reduced here in the future, and that keeps this market on edge.
If you get a weather problem in August, could this thing get really explosive? Is that what the funds are waiting for to really add on to their long position?
I believe absolutely that it is. I think the market is feeling that the corn crop's probably going to be made, but obviously, if we turn hot and dry in the first half of August into the middle part of August when we're setting pods against the backdrop we just mentioned, then we wouldn't even be close to factoring in a major weather problem in the corn-soybean belt, and that's going to be the key. And I think the funds are going to kind of key off what the weather models will be saying as we approach the last week of July and put that two-week forecast out.
Yeah. Did the market get concerned at all here about what the president said about China election tampering and the possibility of maybe unwinding this deal that we have with them or these soybean and ag purchases?
