Grain Bulls Wobble as Crude Oil Prices Slump. What to Watch Next.

Nymex West Texas Intermediate (WTI) crude oil (CLM26) prices on April 30 hit a high of $110.93 a barrel amid the closure of the Strait of Hurmuz that is choking off the global supply of oil. Crude oil is viewed as the leader of the raw commodity sector and its rising tide lifted many other raw commodity boats, including the grains. While crude oil was rallying, corn (ZCN26) futures hit a 12-month high and winter wheat (ZWN26) futures hit two-year highs. Soybean (ZSN26) futures were the laggard but did manage to hit a nearly two-month high.

However, reports last week of a potential U.S.-Iran war peace plan, along with a ceasefire between the U.S. and Iran that is mostly holding up, sunk the crude oil market, with WTI last week dropping to an intra-day low of $88.66 a barrel. The grain futures markets also sold off last week.

July soft red winter (SRW) wheat futures on Friday rose 6 3/4 cents to $6.19 but for the week were down 18 3/4 cents. July hard red winter (HRW) wheat (KEN26) Friday futures gained 8 1/2 cents to $6.75 3/4 and for the week lost 18 3/4 cents. July corn on Friday rose 3 3/4 cents to $4.71 1/4 but for the week was down 9 cents. July soybean futures rose 15 3/4 cents on Friday, to $12.08, and for the week were up 4 3/4 cents.

It’s my bias that the grain markets’ susceptibility to the price pressure from falling crude oil prices will quickly dissipate. It can be argued that lower crude oil prices are actually bullish for the grain markets, from a global demand perspective. The sharply higher energy prices around the world are squeezing global economies and are reducing their gross domestic product. That likely means less demand for grain imports in those nations. Lower oil prices would translate into better global economic growth and in turn better global demand for goods and services, including the grains.

Let’s Break Down Each Grain Futures Market

Corn futures on Friday saw short covering and perceived bargain hunting, following three sessions in a row of losses. Traders will keep watching the weekly USDA crop progress reports on Monday afternoons. Tuesday’s monthly USDA supply and demand report will be a highlight of the grain-trading week. Corn traders are expecting the agency to significantly reduce this year’s U.S. corn production level, from that seen last year. Traders are also expecting a slight rise in U.S. and global corn stocks, compared to the April USDA S&D report.

Weather forecasters say regular rounds of rain in the Corn Belt in the next couple of weeks will slow corn planting but maintain favorable soil moisture in much of the region. Frost and light freezes are possible this week from North Dakota and South Dakota into Iowa and Wisconsin early this week. 

Don’t be surprised to see some degree of a weather market scare in corn and soybeans in the coming weeks. More years than not, one occurs. They can develop quickly and then fizzle out just as fast.

Soybeans Still Plagued by Lagging Meal Prices

The soybean futures market on Friday saw bulls step in to buy the dip and do some perceived bargain buying. Prices are still in an uptrend on the daily bar chart. The sluggish soybean meal (ZMN26) futures market has been an anchor on any soybean futures rallies. That’s mainly because spreaders have recently been buying soybean oil (ZLN26) and selling soybean meal. However, it’s my bias that soybean meal futures will start to perform better in the coming weeks, including spreaders at some point having to unwind their long bean oil, short meal spreads.

Tuesday’s monthly USDA supply and demand report sees soy complex traders expecting a modest rise in U.S. soybean production, compared to last year. Traders expect a slight dip in U.S. soybean stocks but a slight rise in global stockpiles, compared to the April USDA S&D report.

Late this week, the summit meeting between President Donald Trump and Chinese leader Xi Jinping in China will be very closely watched by soybean traders. Bulls are upbeat about a positive outcome from the meeting that could mean China purchasing more U.S. soybeans.

U.S. fuel prices are likely to remain high in the coming months, which should offer support to biofuel inputs, of which soybean oil is a part.

Winter Wheat Futures Breaking Down, Led by SRW 

The winter wheat futures markets on Friday saw corrective buying and perceived bargain hunting. Tuesday’s monthly USDA supply and demand report is expected to show a significant decline in U.S. all wheat production this year compared to last year. Global wheat stocks are seen nearly unchanged from last year. Traders will be watching results of this week’s annual HRW tour sponsored by the Wheat Quality Council.

Weather in U.S. winter wheat country still leans price-bullish. Weather forecasters say U.S. HRW country will see drying over the next seven days. However, Oklahoma and Kansas may see some showers.

Wheat harvest in the U.S. southern Plains is expected to begin sooner than usual due to the quick maturation this spring. 

Tell me what you think. I enjoy hearing from my valued Barchart readers from all around the globe. Email me at jim@jimwyckoff.com.