Ag markets closed lower on Wednesday except for wheat.
Risk Off Selling
Grain and livestock futures saw risk off selling tied to inflation concerns with the CPI coming in hot at 3.7%. That sent interest rates higher, with long term rates at multi-year highs and the dollar was up as well.
John Heinberg of Total Farm Marketing, says, “You saw the impact in the equity markets, livestock markets, as well as the grains when that inflation data came out. Now we’ll see if it correlates in further interest rate hikes down the road. We did see the reaction in the interest rate markets today with bonds selling off.”
That also sent the dollar higher on the day. “The dollar index traded to its highest level since April today,” says Heinberg, “It kind of looked like that dollar chart was trying to maybe roll over a little bit here and this unfortunately pushed it to a new high.”
So that will continue to be a headwind over the commodity markets, which will struggle with competitiveness.
Harvest Pressure
Corn and soybeans also saw some hedge pressure with 46% of the soybean harvest done, 33% of the corn harvest in.
That was below expectations and the five year average. “But, you know, we’re talking to producers. They’re pedal to the metal getting beans off right now. That’s why corn harvest didn’t advance. I actually think that number is a little bit bearish, the corn market, because of the pure fact that the bulk of harvest is still in front of us,” he says.
Higher Yields
The higher yield from USDA last Friday will continue to be a wet blanket over any rallies.
He says, “The numbers are here. We didn’t like them. Nobody likes them. But the problem is they’re not going to disappear fast. And when you start talking to corn carryout at 1.85 billion or just under that, that’s a heavy supply of corn. And that’s going to really keep things fairly limited.”
He says the market is already looking ahead at what happens in November.
“Do we see that you’ll come down slightly or go up slightly? You know, are we in the big crop get bigger mindset? You know,
I know people don’t want to hear that. That’s kind of what’s in front of us right now,” he states.
So he thinks farmers need to adjust their market plans given the amount of bushels that’s on the balance sheet as USDA has added nearly nearly 300 million bushels to the pile in the last couple of weeks.
Market Fades China Buys
The soybean market also faded the 17.3 million bu. flash sale to China on Wednesday morning.
News reports indicated China had bought eight to 10 cargos. So was the market disappointed?
Heinberg says there were rumors a couple of days ago about China buying soybeans which he says pops the soybean market in the overnight trade but doesn’t hold.
There have also been reports of crushers in China having a surplus of soybeans as crush profits have turned negative.
“And, you know, they’re buying beans off the government from through the government auctions. And if those results aren’t there, too, that could just slow down some of that business.”
For the month of September China reported soybean imports were down 7.7% which is evidence of that.
Corn Not an Option for China
News reports also quoted Chinese government officials says that corn is not an option for them right now.
Heinberg says that story did not help the psychology of the market. “You know, the corn market’s looking for some corn business, and I’ve been talking about that for a few weeks. You just look at the spread between Chinese corn prices and U.S. corn prices, and right now for them to bring corn in, it’d be pretty much a political purchase versus a financial one.”
Corn Exports Slow
Corn exports are lackluster right now according to Heinberg, and are running 30% behind last year.
“Obviously, we can’t compare it to last year, that was an anomaly. But we’re kind of middle of the pack for where we’ve been for the other years and over the last decade. It would be really nice to see some corn sales start popping up here. I think it’s just been a
combination of price. And now that maybe prices have broke, maybe we’ll see some business.”
So he’ll be watching weekly corn export sales numbers. EU prices, are over, what, $8, $8.50, a four-year high. At some point will the U.S. see some of that business?
“I’d like to see it,” says Heinberg, “Unfortunately, it seems like Argentina with their record supply did pull a lot of that business in.”
Technicals
Soybeans closed near the report day low with corn barely holding the 200-day moving average on Wednesday.
Heinberg says those levels need to hold, “I typically look at that 200-day as a bit of a swing point in the markets. If you stay above them, you’re kind of supported. If you break below it and get a couple closes underneath or finish the week below, that sometimes can just signify that this market may have a little bit more downside. Obviously, the report day low, that $4.70 window in December will be a very key spot.”
He thinks it could be retested and if it breaks the market could fall to $4.57 on the December contract.
If the soybean market takes out the report day low it could fall to the July high. “That’s a one spike high of $12.56. Otherwise, you know, trend lines come down here around the $12.25, $12.30 window. That might be a little bit aggressive and may need to get some yield numbers to push that. But that’s at least maybe a target we can see.”
Wheat Holds
Wheat held up better than corn and soybeans despite the higher dollar. Heinberg chalks that up to the Black Sea war headlines.
“I still think wheat’s a bit undervalued here. Overall, especially with what’s going on in Russia, Ukraine, I know they’re getting some bushels out of northern ports, but it’s still not at the level it needs to be done. So maybe just hit a point today where that market was getting cheap enough, getting a little bit of money flow back into it would be good. That would help out the corn market as well,” he adds.
This is usually one of those times of years that wheat likes to find traction.
Cattle Fall With Outside Markets, Await Cash
Cattle futures also ended lower with some spillover pressure from inflation concerns, the lower stock market and higher dollar.
That triggered some additional profit taking despite higher boxed beef prices at noon.
“Especially with a market that’s had a nice run that we’ve seen here. Didn’t like the action yesterday. We kind of just rolled over a little bit, got a little follow through today. I think the next couple of days will be very key. First off, on the carcass side, beef rib carcasses, beef rib primal cuts are trading. I believe record levels, definitely at a profitable level as we’re getting the holiday buying here,” he states.
He says cash is also key. “It’s been so wishy-washy the last couple of weeks, especially in the north, that it would be nice to see a cash trend start turning a little bit higher here. And that would really give the funds maybe another shot to get back into the cattle market.”
The cash market is two-tiered market, as the North has lost leverage, with plant closures,
“That closing of that Joslin plant is really starting to have ripple effects from talking to guys that, you know, they lost, obviously, a strong competitive bidder in that region, you know, and there’s just not a sense of urgency, it seems like, from the buyers from talking to some producers in that area. So that was obviously a big piece of the puzzle that’s going to keep the cash market just a bit.”
Technical Breakout
While the futures didn’t negate the chart breakout from last Friday he says this week’s closes will be key.
“We’re flirting around with the 200-day moving average. We did get above it in the front-end contracts a little bit. Be nice to see us hold that. We got an August high that’s right in this shooting window as well. If we can kind of find a way to get through that area, I think that could fire up at least a little bit more short covering and some long buying into that cattle market as well, technically.”
More New Contract Lows in Hogs
Lean hogs scored more new contract lows as cash and cutout values can’t seen to find a bottom. Getting October off the board will help but it isn’t a given.
“Sometimes you just get that lead month out of the way and let the market reassess itself. But again, big drop in the index today, obviously trying to maybe match up with that October contract a little bit. Just doesn’t seem to help us here.”
The retail buying is not there and so the market’s undervalued right now. “The funds are sitting on such a massive short position that if we get some reason to turn this market around, I think you see the money move in very, very quickly and get those shorts covered.”
