Grain and hog markets ended lower on Wednesday with cattle and milk futures higher.
Corn Falls on Stocks Surprise
Dec corn ended 21 cents lower on Wednesday in reaction to a bearish USDA Quarterly Stocks Report.
The agency pegged stocks in all positions at 2.095 billion bu. which was up 171 million bu. from the ending stocks number in the September WASDE and above expectations.
Bryan Doherty with Total Farm Marketing says that was negative for the market and implies lower demand.
“There’s no way to slice it when you come in with a number that’s in particular north of 100 million, and this was well north of that. It likely has meaning on the supply and demand picture because it can be directly applied to the carryout number, which now raises the carryout number most likely on the October WASDE report,” he says.
So, it will take a yield cut to offset the higher inventory.
Could Lower Corn Yields Offset?
Doherty says with around 20% of the corn crop harvested he thinks yields will come down in the October report.
However, a 1.5 bu. cut to national yield will be needed to offset the higher carry in to the new crop balance sheet for corn and keep the stocks to use ratio under 10%.
“I think that’s very likely. If I look at a 4% reduction from 183 bushels an acre, or use the inverse, take 96% of that figure of 183,
you come up with around 175, almost 176 bushels an acre. That seems reasonable given the feedback that we’ve heard from producers throughout the country so far. We think that. That theme is a theme that sticks around for the remainder of the crop.”
Will Corn Hold $5?
Dec corn ended the day just above the $5 market but with the added supply shock can this technical level hold?
“You think about the market when it peaked, peaked early September. And then it just kind of went flat line, nice pennant formation,
but slipped out the bottom side of that. Maybe we had some kind of warning shots across the bow here early in the week with a dropout, but prices came right back,” he says.
However, Doherty is worried because of the length of the managed money funds who are long over 400,000 contracts in the corn market and has stayed long even with the correction in September off the highs.
“There are a lot of contracts after a day like today that may have been tripped or triggered and there could be a lot more to go so while Id like to think $5 fundamentally makes sense for the market to hold, the 100-day moving average may be a better support level, and that’s at the $4.85 area,” he explains.
The 50% retracement on the charts from the summer low to the July high was $4.92 so that may also be an area that will absorb some of the fund liquidation according to Doherty.
“It’ll be interesting to see if the funds basically kind of recharge and go right back at it. I think there’s a fundamental story. uh in the corn market it’s just it’s gotten bruised from this report, a higher U.S. dollar but I don’t think we’re changing the trend of the overall reduction in this year’s crop,” he adds.
Soybeans Stocks Tighten
Quarterly stocks for soybeans were friendly at 315 million bu. which was down 10 million bu. from last year and the September WASDE.
Unfortunately, soybeans got drug down by the big losses in corn and wheat Doherty says.
“I think that was supportive on the surface and rallied the market initially but it didn’t end that way. That’s still a pretty snug carryout.
So harvest is ultra critical here,” he says.
He says if yield is reduced by a bushel or USDA adds a bushel the carryout could swing either way. “It could approach 350, 400 million, or come in under 250 million.”
Yields Going Up?
However, he thinks yields may be better than expected.
“So I don’t want to jump to too many conclusions. What I would suggest, early feedback, farmers are probably pleased with their bean yield so far. I’ve heard some pretty solid numbers in many different states.”
Tight Ending Stocks
Historically stocks around 300 million bu. are tight and without the negative draw down of the corn market he thinks soybeans can rebound.
“I think the buying interest is in soybeans, both domestic and worldwide. I know there was disappointment that there wasn’t
anything out of the Xi Trump talks. And I kind of questioned who’s disappointed. The buying companies of China don’t have a tariff and they’re buying U.S. beans. So when you look at what they’re purchasing. I was not disappointed with that at all.”
He thinks exports will start to pick up for soybeans, but also corn and wheat because all of these prices are on sale.
Harvest Delays
The soybean market is also supported by the wet weather and harvest delays.
Doherty says farmers are getting concerned as the calendar flips to October and they have saturated fields and more rain in the forecast.
“It does look better on the six to 10-day outlooks. But it doesn’t look like there’s a lot of sun with the near-term forecast either. So I don’t think these fields are going to dry out really quick. These delays are going to become really important within another week or so. And we’ll see if the forecast can hold for drier,” he adds.
Wheat Fades Reports
The USDA reports did not help the wheat market out even though quarterly stocks were down 288 million bu. from last year at 1.846 billion bu.
While production was slightly above expectations at 1.534 billion bu., it is still down almost a half billion bu. from a year ago and the lowest in 56 years.
He says the market is seeing pressure from confidence that wheat is starting to be exported out of the Black Sea region.
Plus, the hard red winter wheat areas have been getting drought breaking rains that will help get the crop started and acres will likely be higher.
Wheat was also down with the big slide in corn prices and the higher dollar.
Cattle Rally Near Resistance
Cattle futures made new highs for the move on technical buying and the recent uptick in boxed beef prices.
However, the market is nearing resistance areas. So, can the futures get above those areas?
Doherty is not confident because the managed money has lost enthusiasm in the market.
“From a fundamental perspective, August was a pretty brutal month. Most of that what I’m going to call politically related. You had some cattle trickling in from Mexico. You’ve got talk of some longer-term incentives to grow the herd, bringing ground beef from the south,” he says.
None of that’s a game changer for the overall supply situation. so it really depends on the consumer right now and whether or not the economy and the stock market can hold strong.
“I want to think the momentum can carry it higher, but it too, you got to have with markets, when you start really pushing higher
end, you’ve got to have the demand behind it in conjunction with the speculative buying,” he adds.
Milk Bounces
Class III milk futures finally saw light buying on Wednesday but have struggled since USDA’s Milk Production Report showed a higher 1.7% milk production number.
Doherty says the increased supply was brutal for the market and demand for products like cheese is good, its just not good enough to chew through the bigger supplies.
“So you’ve got to build up with cheese at a time of year when we shouldn’t be seeing that. And so that’s a bit concerning.”
Plus prices haven’t dropped low enough on milk to encourage producers to reduce the herd.
Prices are getting cheap enough it usually does create a demand incentive but he doesn’t think the market is to that point yet.
