Ag markets closed mostly lower on Wednesday except corn.
Corn Bounces
Corn futures saw a short covering bounce on Wednesday and managed to close the December contract back over the key $4.50 mark.
Was it just a dead cat bounce?
Mark Schultz of Northstar Commodity, says the market may be running out of sellers as the funds have liquidated a big chunk of their long position. However, it is too early to call a bottom with corn harvest still underway.
Even with the upcoming harvest disruptions due to rain in the Western Corn Belt the majority of the Corn Belt has finished.
“You’re going to be, I’d guess 75% of all the corn is going to be harvested by the time that occurs. So it’s not like we’ve got a tremendous amount out there,” he says.
Uncovering Corn Demand
Schultz says at least at these price levels he’s hoping the market will see some end user demand pick up because Dec corn at $4.50 is a value level for end user buying in his opinion.
“Tomorrow’s weekly export sales numbers need to be better than what we’re showing right now. So we’ll see,” he says.
Wheat Makes New Lows
Wheat futures in all three exchanges made new lows for the move again Wednesday with Dec Chicago wheat closing below $6.
Schultz says wheat continues to be an anchor on the corn market and is in free fall even after a $2 selloff from the highs. “We’re still going down in the 5 to 10 to 15 cents on a daily basis, that is really a little bit more disturbing to me in the big picture,” he adds.
The trouble is even at those levels the market is not stimulating any export business.
“Yeah, that’s the biggest surprise to me, Michelle, is that we just are not getting any business picking up. It is still lethargic on the export sales. You can’t even really put two weeks back to back of some respectable
sales. And when you’re sitting here at 10 million, 8 million a week being sold, that just is not going to cut it. So we continue to fall further and further behind on the export sales.”
Russia Exporting Wheat
The Black Sea headline that tanked the wheat market on Wednesday was work Russia was going to export wheat out of the Kerch Strait.
Schultz says President Trump is also brokering peace talks between Russia and Ukraine to end the war.
“Obviously if that were to occur then we’re going to start seeing a lot more grain moving out of the Black Sea region and that of course would be more to the negative tone as well,” he adds.
Soybeans Fail
Soybeans opened higher on Wednesday with corn but failed and made new lows for the move in the process.
Schultz says the biggest problem for soybeans has been fund liquidation.
“You’ve still got the funds with a lot of length, not only in the beans, in the meal, some in the soybean oil. But soybean oil was roughed up pretty good, too. That’s something I didn’t want to see, especially in light of the fact that you had energy prices higher once again. One would think that you would have kept the bean oil more in check. That did not happen. So you take it down.”
Soybeans Take Out Support
Soybeans closed below the 100-day moving average on Tuesday and January also closed well below the $12.50 area which opens the door to more selling.
The November contract is also likely to take out the 200-day moving average, “You’re going to probably see the next support level on the beans down at that $12.05 to $12.15 on the November being. So just something you got to watch there, probably another 10 to 20 cents lower yet to the downside. But the funds I think are in liquidation mode.”
The hope is that liquidation subsides after first notice day on Friday.
Strong Demand for Soybeans
The lower prices are stimulating demand and China has been looking for more soybeans to finish off their 25 million metric tons of purchases.
“My guess is they still got about somewhere between 200, maybe 225 million bushel left to purchase.
That’s still pretty sizable amount, but they’ve been buying beans and we are still going down.”
Schultz says he has been disappointed the market has not responded to the demand.
Brazil Real Vs. U.S. Dollar
U.S. soybeans have also gotten pulled down by the lower Brazilian real to the higher U.S. dollar.
“The real dropping sharply 14% from the high to the low. In fact, actually, if you look at the chart, you almost went from the high of the year to the low of the year in one day on the Brazilian real. And all that set up was a better opportunity to buy more. agricultural products out of South America. It’s recovered some, but our currency, the dollar index at 102, over 102, is certainly not helping matters.”
Soybeans Absorb Higher Yields
The soybean market is also trying to digest the higher yield reports out in the country and Schultz says their customer base reflects that.
Schultz says, “We do think that the soybean yield nationwide probably is on the way higher than 53 bushel per acre. I wouldn’t be surprised if it went to 54 or maybe a little bit more. The bean yields seem to be doing better. And even in the areas where it was a severe drought, at the end, the bean yields ended up being better than what they thought it was going to do.”
Dollar Watching Fed, Interest Rates
The Fed left interest rates unchanged at the conclusion of their October meeting but the market is fearful of a rate hike in December.
That will continue to push the dollar highs and serve as a headwind for U.S. grain exports he says, but demand could also start to falter with higher energy prices.
“You can keep our fuel prices high for a certain period, but you can’t go too long. And that’s what I’m afraid we’re starting to get into. Eventually, it’s going to continue to hurt more and more people as this continues to linger on. So not seeing anything pull back just yet.”
Cattle Retreat
Cattle futures were down sharply on Wednesday on a combination of profit taking and some lower cash reports in the north.
Schultz says, “You’ve had a really nice rally up on the cattle market so it was likely getting itself into overbought territory without a doubt. I was hoping we’d push up another $1.50 to $2.00 which I thought would be a good place in which to start selling some because anyone selling cattle is going to be losing money right now.”
Technically the market stalled despite a friendly to bullish Cattle on Feed Report on Friday which is a concerning set up.
“You went higher, and now you’ve had the big sell-off. You’re working on an outside-down week right
now, and that is scary in the big picture if that is going to mean something. Now, we’ve still got two more days to go. We’ll see.”
Beef Demand
His concern is if boxed beef prices stay at this level and prices at the grocery store are high that eventually
consumers can’t afford to buy beef.
“I still see the demand holding pretty good, but eventually it will come back to haunt us.”
Hogs Free Fall to Contract Lows
Lean hog futures fell to contract and six year lows again Wednesday.
Sluggish demand has weighed on the pork market due to higher gas prices and that has weighed on cash and cutouts.
“It’s going down at low levels and still accelerating to the downside. The cash market can’t even find a bid in this thing right now as that slipped all the way down to the $55 price range. So, you know, the futures are catching up to it. The cash index is in trouble.”
Pork cutouts are also at five year lows which is a drag on the cash market.
“The primal cuts, as you mentioned, They’re very, very low. Almost every one of them are at or below the five-year average low in here. And bellies leading the way to that horrific downside here. I mean, $1.10,
I think, is the five-year average low and the other day, we hit 69 cents. It’s just incredible,” he adds.
However, it is not just a U.S. problem, it is global.
