Grain and cattle futures ended mixed on Monday.
Corn Bounces After Report Losses
Dec corn ended 3 1/4 higher on Monday trying to bounce after the 20 cent losses on Friday in reaction to the 2.7 bu. per acre yield increase in the October WASDE.
Darren Frye with Water Street Solutions says part of bounce in corn was technical buying off support.
“You know, I think most people would have thought we were going to trade and test Fridays low, but we didn’t do that. We maybe tried in the overnight, but we bounced pretty good and we closed decent.”
The market was also trying to determine if USDA’s yield forecast is correct.
Report Disbelief?
There is skepticism about USDA’s national corn yield increase but even more regarding the 11 bu. per acre yield bump in Nebraska considering corn is only rated at 46% good to excellent. Nebraska account for the largest share of the production increase on corn.
Frye says, “It was about half of the total increase. It represented 1.2 bu. over the national average, but obviously there was another 1.5 from other places. But a lot of it came from the Plain States. Very little of it came from anywhere else. I don’t know how we
had those type of moves when you have a 46% good to excellent Nebraska, as you said.”
There are also questions about ear counts which went up 1,700 ears per acre in Nebraska, a big change from September.
“I know they used more irrigated plots this time than non-irrigated plots. I don’t know why they switched that from September to October other than they were trying to correct a mistake. But it seems a little bit sketchy when you have a lot of non-irrigated fields in Nebraska yielding under 110 bushels per acre. And we know last year they were pretty much record yields. So you just wonder how they’re going to come up with a yield even anywhere close to 188 for Nebraska.”
In September USDA had just 10% of the samples from irrigated and 90% non-irrigated which was why the September estimate was so low at 177 bu. In October the ratio was 55% irrigated and 45% non-irrigated.
Plains States See Higher Corn Yield
It wasn’t just Nebraska, South Dakota was up six bushels per acre at 151. Texas was up eight, Kansas up nine. North Dakota up two. It all came from Plains states.
Last year those areas had some record yields so it stands to reason yields would be lower this year. However, this season’s weather indicates the yields should be much lower.
“And to see some of these yields come in pretty close to last year, like Nebraska, for example, 188 versus 194, that’s awful close to the same crop. And you had an excellent year versus not such an excellent year. So a lot of questions and a lot of answers from NASS will have to be dealt with here over the next month or two,” he adds.
When Will USDA Make Adjustments?
Will USDA make corrections and if they do when? Frye thinks the USDA will keep the yield somewhere between 179, 182, all the way through to the final report in January.
If the crop is really that big it will show up in the Quarterly Stocks report but Frye says that could take until March.
“I don’t think we have enough data in the December one. So we could be living with this type of yield, this type of carryout for some time.”
Stimulating Demand?
Dec corn continues to hold the 200-day moving average technically but that also seems to be an area that stimulates end user demand.
“At $4.80 corn you look at your feeding margins and ethanol margins and there was profitability there to begin with especially on the beef side,”
Funds Liquidating?
The funds or managed money had liquidated another 61,000 contracts as of the latest Commitment of Traders report and Frye says they probably exited another 50,000 to 60,000 on Friday report day. So, will they continue to sell?
“I wouldn’t be surprised that number really carved back to a reasonable level here when we get into Tuesday and find out what it is on Friday this next week or this current week,” he says.
Soybeans See Harvest Pressure
Soybeans were down 4 1/4 cents on the November contract likely seeing hedge pressure with harvest so widespread.
The new crop supplies coming into the soybean processing plants has also started to pressure the meal market. Meal had rallied on the shortage of old crop soybeans and the gap to the new crop while the harvest was delayed in the western Corn Belt.
Now that bean are finally moving and those new crop beans are being crushed the meal market is slowly seeing the air let out of the futures but Frye says that may take awhile.
“I still have an upside target of $400 on meal. I think after that, then you could see a nice correction.”
Wheat Mostly Higher
Wheat was mostly higher on Monday except for hard red winter wheat wheat. Corn was supportive but the market continues to struggle with the lack of exports.
“I can’t understand really why, but Black Sea continues to see this war intensifying with no cease fire in sight. They’re blowing up more things. And so I just don’t see how a grain corridor is going to open. I don’t see how the war is going to end. I don’t see how we’re going to get back to anything reasonable, even in the Middle East with Iran and the United States, the Houthis and Saudi Arabia. And so war is going to continue.”
He says eventually that will be friendly for the market as war is usually supportive grains.
Exports Lag
However, the wheat market may not take off until the U.S. gets some exports from the Black Sea disruptions.
“You know, we’re not competitive. And so we’ll have to continue to price our way out so we don’t export any. But right now we’re just trying to find that equilibrium where we can find a bottom and start to rally again. We just haven’t found that yet.”
Cotton up Slightly
Cotton futures were up slightly on Monday despite USDA increasing production by 200,000 bales.
Frye says the market was adding weather premium on fear of hurricane damage. “But it landed a little farther east and it was a little weaker than what was originally expected. And I really think what’s going on is a lot of people don’t believe the cotton umbers either. It’s kind of like the corn numbers.”
The market was expecting abandonment to be raised and yield lowered and USDA did the opposite.
It did not. They expected the yield to be
“If you look at all the crops, every single one of them, we had more production. So it was like across the board, it was almost
like, hey, we got to get food inflation down. Let’s raise everything up. And I’m not saying that’s what happened. But boy, it sure felt like that when you looked at the figures on Friday,” he adds.
