Corn, wheat and hogs were lower Friday with soybeans and cattle higher.
Corn Tanks on Yield Shock
Dec corn futures ended 20 1/2 cents lower on Friday in response to USDA shocking hike to yield by 2.7 bu. per acre to 181.2 bu. after the market was expecting a cut. Average trade guesses were .7 bu. lower than September.
Brian Grete with Commstock Investments says a yield decrease was built in ahead of the report with average trade guesses .7 bu. lower than September.
“And you get the not only increase, but huge increase. That’s the largest October yield increase back to 2004. And so it caught the
market completely wrong footed there. And you see the massive wave of selling pressure that we saw on Friday coming out of the report.”
Ending Stocks and STU Raised
That lead to a 234 million bu. increase in corn production to 16.03 billion bu. and resulted in higher ending stocks at 1.849 billion bu. which is up 282 million bu. from September. That takes the stocks to use ratio back above 10% to 11.3%, which is bearish.
“Now, keep in mind, the long -term average for stocks to use in corn is 12.5. So we’re still below that. We’re just not as low as what the September WASDE report projected at under 10. So we did change a little bit on that front. It’s not bearish, I don’t think, from that perspective,” he says.
Global corn stocks also went up 8.34 MMT, adding to the bearishness of the report.
How Far Do Prices Fall?
So how much lower do corn prices need to fall to price that in? Grete says, “I don’t think we need to go a whole lot lower, to be honest with you. You know, the comfort range for corn carryover, the upper end is about 1.8 billion bushels. So we’re only 49 million bushels above that level with where the ending stocks were projected. So I don’t think you have to do a whole lot.”
He thinks $4.60 is a strong level of support on the December corn futures chart.
The bigger concern now is money flow and what the funds decide to do because Grete says managed money was near record long going into the report.
“They’d shaved off some from their record position but still heavily long. So very much a herd mentality within the managed money community and so if they all decide that they want to get out in mass, and that doesn’t mean that they have to get out all their length by any means, but if they if they get out in mass boy then we’ve probably faced some more heavy near -term price pressure so I would watch more on the managed money and what the funds do than worry about the fundamentals at the moment,” he explains.
Do Big Crops Get Bigger?
The other concern is will yield go up in the November or futures reports?
“Well, that’s the mantra, big crops get bigger. And this is definitely in that category because it’s the second largest ever behind last year’s record. So I think that there is some risk of that. But boy, that 2.7 bushel increase in yield feels like USDA overshot it.”
He thinks yield ends up somewhere south of where USDA estimated for October but he says higher yield can’t be ruled out.
Where Did the Yield Come From?
Grete says the higher yield was a function of higher implied ear weights because ear counts were actually down in the 10 state area.
“Now, there were a couple of states that did have month over month increases in ear counts. That’s not unprecedented, but somewhat unusual. The big takeaway here is that implied ear weights, because you had the 10 state ear counts that came down, implied ear weights actually had to go up and go up a significant amount month over month there. And so I think that’s the underlying story here is can we hold on to those big ear weights that USDA projected?”
USDA Raises Soybean Yield
USDA also raised soybean yield by 0.3 bushels per acre to 53.1 bu. which would be a record and came as no surprise to Grete.
In fact, he thinks yield could go up from here as USDA had yield in August at 53.4 bpa.
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“I think that we will see that we have a record soybean yield when all said and done. It’ll be something higher than the 53.1 that USDA came with in October. We’ll see where it ends up, but it’s going to be a record,” he adds.
Did Quality Impact Yield?
Farmers in the western Corn Belt would argue their yields were negatively impacted in the last month by disease and quality issues.
Grete explains, “Yield and quality are two separate things. So yield is what comes out of the field. And that’s what the futures market pays attention to. Quality is a cash market issue that is reflected in discounts when you deliver to elevators, crush plants, whatever the case may be. So two separate things on that one.”
He adds that farmers with quality issues after facing the heavy rains through September are no doubt frustrated but the yield is likely still going to be record large when all is said and done.
Soybean Ending Stocks Only Slightly Higher
Production was raised to a record 4.562 billion bu. on soybeans but the good news is ending stocks were only raised by 5 million bushels to 315 million bu.
Grete says that helped to support the recovery in the soybean market with Nov ending 4 1/2 cents higher.
“Huge bounce back. You know, the initial knee jerk reaction was tied to the corn market and the heavy sell off there. I think it’s a positive that we saw soybeans divorced from corn and that will be key moving forward,” he says.
Soybean Meal Aid the Rally
However, he adds that the $8 rally in the soybean meal market was also supportive for soybeans. Crushers got caught short bought on their near term needs.
“And so they are out there actively trying to source supplies. That’s helping basis as well. So take advantage of those cash opportunities if you have them. But the meal market, that one’s a critical one for soybeans moving forward. As long as that support remains there, the downside should be limited for soybeans.”
He says that won’t last forever because once the pipeline is replenished with soybeans the basis will widen back out. However, for now processors got caught short and it will take time to work that out.
Wheat Sees Higher Ending Stocks
The wheat market saw an increase in ending stocks by 23 million bu. to 740 million bu. which was above estimates. World stocks were nearly unchanged at 276.24 MMT.
So, Grete says the market was lower just following the corn because it is getting tired of the geopolitical headlines.
Cattle See Chart Breakout
Feeder cattle futures benefited from the pullback in corn and rallied $7 to $8 helping to pull live cattle up as well.
December live cattle closed $3.50 higher at $227.05, seeing a chart breakout above the September highs.
Grete says both live and feeder cattle futures posted higher weekly closes and the chart breakout was impressive, “Really explosive price action. So we saw the feeder cattle market in particular react to the sharp downturn in corn. And so now we have upside breakouts on the daily charts in feeder cattle and live cattle that should improve the cash markets.”
Both markets have been dragging their feet so this should pump some optimism into the cattle market and get the funds back buying.
“So if this did flip the page and now the funds say, hey, look at the cattle market, it’s been beaten up and we get some positive technicals, the corn market’s backed way down. Yeah, maybe it does entice them and excite them and get them to buy again. If they do that, then we have an extended push to the upside coming.”
Cash, Cutouts
The one fly in the ointment is box beef values cannot hold especially as slaughter ramped back up after the ICE raids in packing plants. Plus the market continues to see record imports.
However, he is hopeful the cash market can find some footing and hopefully trump that.
“So if the cash is strong, then we’ll be able to look past the boxed beef market and all the other stuff. If the cash market continues to struggle, then we look to those things and they’re somewhat of a wet blanket on the marketplace.”
Hogs Hit Contract Lows
Lean hog futures hit more contract lows negating last week’s key reversal.
Grete says the market is struggling with too many hogs. “And they have to continue to discount the wholesale prices to keep product moving through the pipeline. They don’t have to bid up for hogs. There’s ample market-ready supplies out there. Looks like it’s a race to the bottom in the futures with new contract lows on a near daily basis here.”
The cutout values have also dropped below $80 for the first time since April of 2023 adding to the negativity.
