Soybeans and Hogs Could See Downside Pressure

Start of Business 042219
Soybeans in hand ( MGN Image )

Commodity markets began Monday facing fundamental headwinds as both grains and livestock struggled to get out of the red in early trade. During an interview with AgDay's Clinton Griffiths, Brian Splitt of AgMarket.Net and Craig VanDyke of Top Third Ag Marketing said markets are looking for something positive to trade.

"What we've been seeing is the breakdown in soybean values comparative to the corn and wheat market which have been sitting at or near contract lows for the last several weeks," says Splitt. "The July [soybean] contract this past week has been 50 cents above contract lows so it really hasn't joined that contract low party like the other two." 

Splitt says, however, last week soybean futures did drop below the March contract lows which were made during the quarterly stocks and planting intentions report. 

"I do think that is a significant breakdown of support," says Splitt.  "If we start taking out these monthly lows it's probably going to be a systematic breakdown where you take out a monthly level then test the next month low."

He says without new information to trade he can't see why the soybean market shouldn't be testing contract lows over the next several weeks. 

On the livestock side, Craig VanDyke is also watching markets, including the hog and feeder cattle spreads. 

"The front-month April, May to August and out spreads are very wide in the feeder market as well as the hog market," says VanDyke. "What we've seen the past two weeks or so is front-month hog contracts trading at a record basis to cash for this time of year."

He says that makes front-month contracts much more susceptible to downside risk. Cash prices are currently sitting around 80 cents per pound for hogs. 

"The ASF [African Swine Fever] storyline is taking a toll on the back month contracts and you've seen the June-July spread get to $5 or $6 right now," says VanDyke. "It's unheard of to think that that may be heading towards even."

VanDyke says there's a lot more risk if cash can't catch up to the futures forcing front month hogs to have more downside risk.

Watch the entire conversation with Clinton Griffiths in the video below.