Grain Market Bulls Look to Extend Friday’s Rallies, but Speed Bumps Are Ahead

July corn (ZCN25), soybean (ZSN25), and winter wheat futures (ZWN25) markets all posted good gains on Friday that bulls hope to extend this week. Friday’s technically bullish weekly high closes in July corn, July soybeans, July soybean oil (ZLN25), July soft red winter wheat, and July hard red winter wheat (KEN25) suggest that speculative, chart-based traders will be buyers early this week. 

However, geopolitical tensions are likely to trump the technical trade this week. The Israel-Iran conflict that continues to escalate may sap trader and investor risk appetite in most raw commodity markets, as well as in stocks and other financial markets. Risk aversion in the general marketplace is largely the enemy of raw commodity bulls.

Bull Spreaders Work the Corn Market

Friday’s price action in corn futures saw the bull spreaders at work, which is a positive sign that the corn market has put in at least a near-term price bottom. Bull spreading occurs when traders are more active buyers of the nearby futures contract, compared to the deferred futures contracts. Such suggests better near-term demand.

Corn traders have mostly ignored better demand for U.S. corn the past several months, until possibly now. Last week’s USDA monthly supply and demand report (WASDE) saw the agency increase its old-crop U.S. corn export forecast. And last week saw record U.S. ethanol production that shows strong demand for that corn-based product. The June 30 quarterly grain stocks and updated acreage reports will provide fresh updates on the supply and demand situation for grains.

Soybean Traders Get Bullish Surprise from Trump Administration

The soybean and soybean oil futures markets rallied sharply on Friday on the surprise news from the Environmental Protection Agency that it has proposed record renewable fuel standard (RFS) levels, including a 67% increase in biomass diesel fuel, made from soybeans and used cooking oil. July soybean oil futures on Friday closed above the 300-point daily limit at 50.61 cents. The EPA proposal also incentivizes the use of domestic feedstocks for production as opposed to imports. 

Corn, Soybean Weather Patterns Still Lean Price-Bearish, But…

“Rain makes grain” is the old trading adage from the floor of the Chicago Board of Trade. Plentiful precipitation over most of the U.S. Midwest and lack of extreme heat have the corn and soybean crops off to a very good start. Price-bearish weather has in the past few weeks been the 800-pound gorilla in the corn and soybean markets. Most weather services are forecasting timely rains to support normal U.S. corn and soybean crop development through the end of June.

Veteran corn and soybean traders know that as the calendar turns to July, rain spigots in the U.S. Midwest tend to start closing. After the Fourth of July holiday, grain traders will even more keenly focus on the critical growing timeframe that occurs, especially for corn. Mid- to late-July typically finds the hottest weather of the year in the Corn Belt. This period coincides with the extreme-heat-sensitive pollination stage of corn crop development. August is the most critical growing month for U.S. soybeans. U.S. winter wheat harvest is also wrapping up in July. 

The late Conrad Leslie, a highly respected crop forecaster and market commentator, told me many years ago: “Following the July Fourth holiday period, those who are interested in soybean and corn prices and production estimates look to the skies for the next two months for weather developments. Historical statistics indicate crops can either improve or decline….” Many more years than not there is some degree of a “weather scare” in the grain futures markets during the spring and summertime. 

Wheat Will be a Follower of Corn and Soybeans the Next Several Weeks

The wheat futures markets were boosted Friday by short covering and by gains in corn and soybean futures. A sharp rise in crude oil prices (CLN25) on Friday also supported speculative buying interest in wheat futures.The coming weeks tend to find weather patterns impacting the corn and soybean markets more. Wheat will likely be more of a follower of corn and beans in the coming weeks, especially if weather markets develop in corn and soybeans. 

Geopolitics, Baby!

Geopolitics and global trade will be main drivers of the grain futures markets price action in the near term. The next several weeks will likely provide a clearer view on the progress, or lack thereof, in trade agreements – especially between the U.S. and China.  

There has been some thawing in the U.S.-China trade war, but the coming months will determine how much success will be achieved. Much of the fate of grain markets prices lies in this balance. And of course, the present Israel-Iran conflict is on the front burner of the overall marketplace. This situation could get worse before it gets better. That’s not a good sign for the grain futures markets.