Grain and livestock futures were mostly lower early Thursday.
Grains See Profit Taking, Hit Chart Resistance
After a sizable rally on Tuesday the grain markets were mostly lower to start Wednesday.
Brady Huck with Empower Ag Trading says most of the grain futures traded up into chart resistance and saw some profit taking after Dec corn got back over $5 and Nov soybeans got back above $13.
However, there may have also been some farmer selling and hedge pressure with a rally during the middle of harvest.
“These markets, they’ve been chopping around since last week’s big move. It’s been a dramatic, dynamic week. Markets are kind of settling in since that move. Funds are long in these commodities. I think that’s the fear for producers,” he states.
WASDE Positioning
Some of the choppiness can be tied to positioning ahead of the USDA reports on Friday.
“There is some nervousness as we all know added some bushels to the corn balance sheet and that impacts the ending stocks number that we get on Friday,” he adds.
Huck says the market is also watching to see what adjustments USDA makes on corn and soybean yields.
But he thinks demand is important as well as it could mean the difference in whether or not corn pushes back above the 10% stocks to use ration. The average trade guess on ending stocks for corn is just shy of 1.7 billion bu.
“I’d love to see us pin at a 10% stocks to use ratio or even drift below there. If we got a yield cut from the USDA that could position us to see a sub 10% stocks to use ratio. And that would very much excite this market. I don’t anticipate that to happen, but a guy can hope,” he adds.
China Buying?
Soybeans got charged up on Tuesday with talk China was looking for soybeans off the Gulf and President Trump had mentioned China was doubling their ag purchases at a campaign rally.
However, there were no flash sales on Wednesday as China is still on their Golden Week holiday. Plus, exports have started to trail off with the higher value of the U.S. dollar index, a trend Huck hopes doesn’t continue.
Huck is more inclined to think the strong crush margins in the U.S. are a bigger demand driver right now than exports to China.
Harvest Delays and Quality Issues
The slow harvest pace in the western Corn Belt and the emerging quality issues are gaining market attention.
Huck is located in Kansas and says heavy rains there have slowed harvest and quality is definitely a concern in his state.
He points out that lower quality grain will mean increased use of corn because of the lower ethanol conversion rate. “We just won’t get that normal conversion if we have poor quality starch in that product.”
Soybeans are not being docked for discoloration but that is not true for mold and other quality issues.
Higher Dollar
The stronger dollar index on Wednesday is also a headwind for the grain complex as it makes U.S. exports less competitive.
Slow Winter Wheat Planting
Winter wheat planting is also behind normal by 10% at only 36% done nationally.
Huck says he’s not concerned about that as farmers like to get the crop planted in Kansas by mid-October and they at least are getting some moisture to get the crop emerged.
“You can plant wheat too early if you’re going from a grain side of things. So I’m not too concerned about the slower planting pace. And we’ve got a nice rain. Typically the soil dries out and we have an opportunity to get the crop in. It’s more do we have enough moisture to get the crop up is typically the concern. So I’m not too worried about being behind on the planting pace right now. October, 1st of October to the 15th of October is a great time to be getting the crop in.”
Farmers that are grazing wheat are the only ones that need to have an earlier start.
More Acres?
He says acres are likely to be up this fall with the crop insurance guarantee on hard red winter wheat over the $8.00 mark.
“Wheat’s a great cash crop that balances out your, you know, a mid-season July injection of cash to producers. It bridges you on your operating note in a time when you need some cash flow. So it makes a lot of sense in today’s environment. And anytime you have an eight handle on wheat, that’s a great thing. We don’t have it on the board right now, but we’ve got that good insurance price
that’ll help things out for sure,” he adds.
Black Sea Exports
The other thing that the wheat market has been watching is the escalation of fighting and damage to key infrastructure in the Black Sea region.
The situation looks to be prolonged but Huck says it hasn’t resulted in more U.S. export business yet.
“But a rising tide and all global wheat values kind of lifts our values as well. I think a lot of countries were waiting to see how the Black Sea situation would shake out, chewing through some of their own reserves and stocks. Eventually, they’ll have to come
to the table and buy wheat somewhere. Will that be U.S.? We’d hope so, but it seems like the Black Sea region continues to get grain out regardless of the headlines,” he concludes.
Cattle Market Stalls
The cattle futures had a strong rally on Tuesday with November feeders up around $8. However, the markets ran up into chart resistance and are seeing profit taking.
Tuesday’s bounce, according to Huck, was tied to anticipation of higher cash trade this week. “We had a little support from boxes. Boxed beef continues to chop in the $380 area. It’s seasonally pretty strong.”
Packers have a positive margin right now as well which allows the feed yard to ask for higher cash, but he’s not sure if feedlots have the needed leverage to get the job done.
“We’ve seen lower placement data in the cattle on feed reports currently, but that isn’t going to play out for a while. So that leverage at the feed yard is really something that we need to get this market going.”
Risk Management
Huck says with the retracement on this board price its presenting some risk management opportunities.
“If you were scared or worried a few weeks, months ago, this is a nice bounce to go out there and get a little coverage on. I don’t want to limit where this market can go. But we’ve got some overhead retracement lines and resistant areas that we’ve got to push through. And we need a story to get us through those headlines.”
He is watching the 200-day moving average as resistance on the charts.
“And I think $10 to $15 above us here currently would be another area that would be that next leg in the target area for guys to watch.”
