Grain and livestock futures ended mostly lower on Tuesday.
EPA SRE Proposal Weigh on Market
Grain markets saw some early strength ahead of EPA announcement about how the agency would reallocate the 2025 Small Refinery Exemptions.
While it was good news for the biofuels and agricultural industries the market seemed disappointed and faded into the close according to Jim McCormick with AgMarket.
“The rumors were that we would get 100% reallocation and that is what we got but like you said the market was a
little bit disappointed because they gave us a 60-day comment period. So we really got another 60 days to wait and see. But more importantly, they did not make a decision of when these reallocations would take place timeframe-wise,” he says.
EPA Administrator Lee Zeldin announced the proposed rule which would reallocate 100% of the 2025 renewable fuel volume obligations it waived from 29 small refineries in late August. Those totaled 1.76 billion RINs. EPA is seeking public comment on two different approaches.
Option 1: EPA would divide the additional 2025 SRE volume equally between the 2026 and 2027 compliance years.
Option 2: EPA would reallocate all the additional 2025 SRE volume to the 2027 compliance year.
Corn Consolidates
The corn market is still consolidating after the supply shock from the WASDE. While Dec corn held the 200-day moving average it can’t get above the 100-day moving average and that served as resistance on Tuesday.
“We’re right now trading between those two. Technically, you’d like to get over the 100 day because the funds are carrying a pretty long position still. If you get over that 100 day that might convince them to hold on to it a little bit longer this position. I fear if you start taking out that 200-day and you start taking out that report day low, that $4.70 area, you could generate another round of liquidation,” he says.
The funds have liquidated about half of their record long position in just the last few weeks and especially after the last two bearish USDA reports.
McCormick says, " I would guess they’re somewhere around 200, maybe 225,000 where it’s at. I think worst case scenario, they could par that down to 100 to 150,000. I don’t believe they’ll go completely flat.”
That’s because there is still fear of El Nino, high energy prices and inflation, plus the EU drought which has driven corn prices above $8.
“If you look at the price of corn in Europe it is at the highest price since 2023 so that should be price supportive,” he adds.
Report Hangover
The corn market yield debate has continued since the USDA report with the bulls were disappointed in the 2.7 bushel increase.
Will USDA decrease in yield in the November report or not?
“Right now, the argument from the trade seems to think that they will come back down, but the trade was obviously disappointed thinking they were going to lower it in this past report. So we’ll see.”
He points to two other years where harvest delays impacted the results.
“One is in 2015 the other one was in 2024 in 2015 they raised the crop a little over a bushel in the November report in 2024. I believe they lowered it a little over a bushel so when you have a delayed harvest there’s not a big you know data set.”
USDA does tend to make adjustments in November but he thinks it could be a long, frustrating wait for the bulls as the market has to trade the present number.
Match With Yield Reports?
The numbers have been suspect as well with the yield reports from farmers.
“I was in the camp of maybe a little bit smaller downward revision. Most of our clients, I deal with clients all across the country, have been relatively, I want to say they’re disappointed. It’s just down dramatically from the record highs, maybe near trend, a little bit below trend,” he says.
The big shock was in Nebraska with the 11 bu. per acre yield increase and not farmers are talking about disease pressure cutting yield. “So yes, it was asurprise to see where that Nebraska crop came out. They maybe missed it in their methodology and they hopefully they will catch that and make that adjustment to the bullish side for the farmers,” he adds.
Soybean Yields and Harvest Pressure
In addition to soybeans being drug down with the reversal in soybean oil tied to EPA’s SRE rule, the market has also been digesting strong yields and a big ramp up in harvest.
“Most of our clients are very pleased with the yields. We are hearing a lot of record yields. So the yield adjustment from the government does seem accurate in my eyes. I wouldn’t be shocked if they creep it up a little bit.”
Farmers are ramping up harvest after the delays and with the quality issues in the western Corn Belt many farmers are selling off the combine and are storing corn. Plus, prices are well above last year.
“I think you’ve got to take advantage of it when it’s profitable.” He says even though China has bought about 15 million metric tons of the 25 million that the White House has said they’re going to purchase the Chinese haven’t confirmed that. So producers may be taking moving beans after being disappointed last year when China wasn’t buying and didn’t buy until late in the marketing year.
However, China sales have been non-existent even after their holiday.
Wheat Falls
Wheat was also lower with corn and soybeans and gave up early gains. The market was supported early on the lower dollar and Black Sea headlines.
“Are they going to get grain out of the Black Sea? That’s definitely having an impact on it. I think the other thing you’re looking at right now, Michelle, is there is quite a bit of moisture moving into part of the Plains and there’s a lot of talk of more wheat acres getting planted.”
Plus, he says the U.S. just isn’t competitively priced on the world wheat. So it kind of rallies up and then it just backs off as we
just don’t have that export demand. Exports are currently at three-year lows.
The recent 70-cent correction in corn has also weighed on the wheat market.
Diesel Dilemma
Despite efforts to get diesel prices down farmers are still facing record prices at harvest and there’s no quick fix.
“I mean, the volumes that President Trump was talking about was only a few days worth of consumption for the U.S. We have lost a lot of diesel production capability in Russia. We’ve also lost a lot of capability in the Middle East. There’s a lot of talk about the
amount of oil that is flowing through this trade-off move, and there’s been reports. It’s back to pre-war levels. The problem is the refined products, your diesel. stuff like that, it’s running at 20% to 25% of pre-war capacity. And that’s just going to take a long time to rebuild.”
