Corn and wheat were slightly higher early Thursday with soybeans, cotton and livestock mostly lower.
Corn Bounces Off $5 After Stock Shock
Corn futures were seeing a mild bounce after 21 cent losses on Wednesday tied to the shock of USDA adding 173 million bu. to old crop stocks.
Mike Castle with StoneX says the market is trying to digest the added inventory. “Obviously a huge shock, a huge bearish shock. I think it was like 90 million bushels above even the highest analyst estimate.”
Castle says the increase can be attributed to feed and residual. “So overall, it’s effectively the USDA kind of ripping the Band-Aid off on that elevated feed and residual category they’ve kind of had throughout the year. We’ve continued to point to that being a problem that was going to have to be addressed at some point. Going back to the July WASDE, they actually raised their estimate again, which at the time I thought made no sense.”
He says USDA could have raised exports by the same amount without question but they chose to go this route.
The other surprise came as the trade expected USDA to cut corn production a similar amount as an offset but they only cut production 57 million bu.
“Yield was left alone entirely that was some small adjustments lower on harvested acreage kind of across the Midwest. So, overall very bear surprise on the corn market,” he says.
Will $5 Hold?
Corn was bouncing off the $5 psychological level of support and the close will be important Thursday.
Funds sold nearly 75,000 contracts on Wednesday but are still long over 300,000 contracts. So will the $5 level hold?
He thinks at $5 will uncover some good end user demand and funds may still be watching the long term inflation story and looking to grains as a hedge. Plus, funds are looking for investments after the disappointment of the China Summit.
“They love getting long commodities during times of inflation. That’s a good story to keep in mind, too. I know our consumer level prints have been pretty moderate here. There is a ton of inflationary pressures concentrated at the producer level right now. They will try to find a way to pass that along to the consumer moving forward. That is what Wall Street is looking at. They know that that inflation story is going to stick around here moving forward,”
Yield Cut Cushion
The 173 million bu. increase to old crop stocks gets added to the new crop balance sheet and that will provide a 2 bu. per acre yield cut buffer to get back to ending stocks of 1.567 billion bu. from the Sept. WASDE.
Plus, he says there is fear of lower exports for the year ahead. Weekly sales were only 21.1 million bu. on Thursday for corn and total sales are running 31% behind last year.
“It’s not looking good on sales pace so far,” he says. However, Castle says there are many factors that could shift more corn sales to the U.S. including lower Ukraine exports, a lower EU crop and Brazil is testing E35, which will take bushels off the export market.
Wheat Sees End User Demand
Wheat futures were higher on short covering after 10 to 17 cent losses Wednesday. Winter wheat prices have corrected over $1 the last month and the lower prices have also spurred some export interest.
“We saw a flurry of international wheat tenders announced in the last 12 hours or so. So I know there’s still a lot of pent up demand related to the disruptions in the Black Sea. The question is, when do those buyers start coming to the table? And this drop in prices might be the thing that kind of allows that to happen,” he says.
Weekly exports on wheat were only 10.6 million bu. and total 355 million bu. for the marketing year, down 31% from a year ago.
So, Castle says whether or not the wheat market can stabilize is a matter of timing on when export demand from the Black Sea export disruptions shift to the U.S. or wheat quality issues in Canada drive more U.S. exports. Until then funds keep selling.
Talks are ongoing between Russia and Ukraine on a cease fire on energy and grain infrastructure as the war reaches 4 1/2 years and both countries are finding alternative routes to move grain to export markets.
Soybeans See Pressure
Soybeans were pulled down yesterday by corn and wheat and deflected the friendly stocks figure which came out at 315 million bu. and was down 10 million from last year and September ending stocks.
Castle says the funds are taking some profits on their record long soybean position especially as sales have slowed down to China. A flash sale of 3.9 million bu. to unknown destinations was reported Wednesday but the sales will need to be bigger to feed the market bulls.
Weekly exports were strong at 38 million bu. with the total for the marketing year at 817 million bu. up 89% from last year.
While soybeans were left off the list of tariff exemptions from China, their state-owned buyers have had the exemption the entire time. So, the sell off in disappointment was was unwarranted.
“State owned buyers have the capacity to buy that 25 million even without the private crushers having to come in so That doesn’t really change the fundamental picture. It at least gives them some kind of negotiating leverage, I really think is what their goal by leaving beans off so conspicuously was. But again, they still, we’ve seen a couple of flash sales in the days that have followed the conclusion of that. We will need to see more progress.”
Cash Market Does Heavy Lifting for Soybeans
He says the strong basis levels are doing the work he points out.
“The cash market is showing you how tight soybean supplies are in these inland markets, especially you look into the heart of the Midwest where you’ve seen a lot of these rains delaying harvest. That demand is there.”
The negative consequence is the harvest delays may lead to weaker crush in 2627 if processors get off to a slower start. “Because the plants simply can’t secure enough beans to run at the full extent that they would like to at this point,” he adds.
Cattle Stall
Cattle futures were lower after a big rally Wednesday led by the feeder cattle futures on the 21 cent drop in corn prices.
The live cattle futures have ran into chart resistance and the early cash trade has been a bit sloppy.
The market also continues to watch for slaughter rates to pick up.
“Obviously there’s been some plants struggling with, employee absenteeism because of the presence of ICE in some of these areas.
As far as I know, they haven’t rated any actual plants yet, but that fear keeps employees, you know, at home essentially. And that leads to lower kill rates. So then you see kind of some softness in the cash markets.”
Cash markets in the north have been more willing to move cattle as well due to the excessive rain and mud hitting feedlots.
“So you’ve seen some of the more, I would say, significant weakness on the cash side in the north versus the south. But it does seem like that demand’s there. Hopefully, we can kind of churn through this and get back up to some higher kill rates. It sounds like some folks are trying to have some stronger Saturday runs as well. So if that would happen, you’d still see some optimism.”
EU Diesel Export Ban As China Restricts Market?
President Trump is still contemplating a diesel export ban but is targeting Europe.
He told Germany and France to pull diesel out of their reserves or face a ban from the U.S.
Castle says that might provide some immediate supply relief, but China and the U.S. pulling out of their reserves has been a buffer.
“China announced another restriction on their exports of refined products here in October. They did that back in March, eased it in July. Their exports had been massive. They had record high jet fuel exports in August. Their diesel exports as well were their highest since I think like March of 2024. It was around a 2 1/2 year high and working higher.”
China gets a large amount of crude oil from behind the Strait of Hormuz directly from Iran, which is now off the table.
“So it sounds like they’re trying to focus more on their domestic market. But losing those Chinese exports is a significant blow to the global diesel balance sheet. We’re obviously a big exporter, too. Europe is very exposed at this point. They need our exports to continue. So I think we’re pretty much just trying to see world leaders come together and do whatever they can to try and alleviate some of it. supply, you know, tightness and kind of upfront pressure.”
