Grains ended lower on Friday with livestock mostly higher.
Soybeans Make Fresh Lows
Soybeans made new lows for the move, with Nov closing 1 3/4 cents lower at $12.61 1/4. Soybeans were also down nearly 31 cents for the week.
Matt Bennett with AgMarket says funds were liquidating after futures took out key support on Thursday violating both the report day low as well as the 50-day moving average.
However, he also thinks there was some harvest pressure as many farmers were selling soybeans right off the combine.
“I do think if you were going to pick one of the two, beans are probably getting sold out of the field to a greater degree than what corn would be getting sold out of the field. I think a lot of that has to do with it.”
He says many people feel the record soybean crop is growing on soybeans and USDA may raise yields again in November, unlike corn where harvest results have been more disappointing.
NOPA Crushes Soybeans
Bennett says soybeans were weighed on Thursday with the lower than expected NOPA crush figure of 196.3 million bushels for September.
“Of course, crush comes in well below what everyone thought. But you’ve got to remember, you know, these crushers couldn’t even get a hold of beans, especially farther west that you went. So that definitely played a role. I still think demand is alive and well, but just wasn’t a whole lot going for the bean market.”
He thinks the crush will rebound substantially in October as plants have now been able to ramp up processing with new supplies.
South American Weather and Production
The second blow came with non-threatening weather in South America as farmers are ahead of progress in planting this year’s soybean crop in Brazil, according to Bennett.
“I think that people feel pretty decent about South American weather considering the El Nino.”
Conab forecast another record 181.6 MMT soybean crop in Brazil on Thursday and the market was still digesting that figure as well.
However, Bennett points out that even though Brazil keeps expanding acreage and setting new records, global stocks have not been growing.
“The last couple years they’ve had record crops this year clearly if the USDA is correct this is going to be a record crop for the U.S. but what are we doing on world stocks they’re not building. So what we have to know is that Brazil has to have a big crop that’s all there is to it or you’re going to cut into world stocks,” he explains.
That’s also why he thinks soybeans have not had a bigger sell off, as there are concerns about what El Nino could mean later in the season for their production.
Soybeans Fade Export Demand
The other disappointment for the week was soybean prices fell despite fresh export demand.
China and unknown destinations bought another 29.2 million bushels of soybeans on a flash sale on Friday with a total of 69 million bushels for the week. These were the first soybeans China had bought since the U.S. China Summit.
Bennett says Reuters had reported earlier in the week that China had bought eight to 10 cargoes of soybeans and so the market was expecting it.
Plus, with harvest pressure and the selling from the negative NOPA crush it just overwhelmed the market.
How Much Lower Will Soybeans Fall?
Now that soybeans have made new lows for the move, how much lower will prices fall?
Bennett says the next are on the charts is the 100-day moving average. “Do we find some support there? I mean, you know, the 30, 40 cents lower doesn’t sound good to anybody, but clearly some technical traders will be watching that.”
He thinks its important to get the market stabilized but it may take fresh news like a weather problem in South America and that seems unlikely in the short run.
Corn Falls With Soybeans
Corn ended 3 3/4 lower on Dec at $4.74 1/4 and was down 5 1/2 cents for the week. Corn is also lost 54 cents the last three weeks.
Corn was lower with soybeans and has also seen some light harvest pressure. However, Bennett says the market is still trying to digest the additional 400 million bushels of supply USDA added to the balance sheets in the last two reports, despite lingering questions about yield and disappointing harvest results.
“You know, we’re getting anecdotal yield reports. People are running surveys. There’s a lot of people asking questions here. You know, we talked to a lot of growers throughout the Corn Belt, you know, and anybody in the areas that were saturated in the month of June. I’ve talked to you about this before, but the nitrogen loss was just pretty significant. And actual yields are coming in lower than what people were expecting. And so I think that there’s still a lot to be learned about this crop.”
Basis Telling the Truth
The firm basis levels at harvest are a good indication that the corn crop is smaller than USDA’s projection, says Bennett.
“We heard about some $5 bids in the state of Iowa this week, 20 cents over the board. That’s in the thick of harvest. I mean, that’s not necessarily something that you would expect, especially if it’s a 219 state yield.”
He says the spreads are also telling the story of a smaller crop. “If you look, these March spreads, I mean, I’ll tell you what, it tells you that some originators, in my opinion, aren’t necessarily buying as much corn as what they thought that they might.”
Corn Exports Lag
Corn exports were 44.2 million bushels in the weekly export report, which is an improvement over the last few week but the year to date total is still running 33% behind.
Bennett says this is a concern for the market. “I mean, we’re still not super competitive. I think that our days of being the cheaper corn in the world are probably coming. Clearly, Argentina has had some advantages over us over the last several weeks. But I think moving forward, you’re going to see U.S. corn a little bit more attractive.”
China Doesn’t Need U.S. Corn?
He is still hopeful exports can pick up but China said this week they don’t need U.S. corn right now.
“There’s still a lot of questions this week as to the $17 billion, if that’s a real number coming from China. And if it is, you know, it almost has to include some corn. But then China comes out and says, hey, we don’t need your corn right now. And I don’t think that helped the corn market at all this week either.”
Will Support Hold in Corn?
Dec corn closed below the 200-day moving average on Thursday but is still holding the report day low of $4.70 1/4. However, does it hold moving forward?
really a wet blanket on the market here this week, midweek. 470 and a quarter. The report day low
is held. Does it hold going forward?
“I don’t see a lot of downside from there. We can all be very skeptical. But the tough thing is, is that these numbers are traded. As soon as they’re printed, they’re traded. You know, and most people are using balance sheets right now that include everything the USDA threw at us. And so whether we agree with the number or not, that’s the number and that’s what we’re going to have to live with,” he says.
So whether or not support holds he thinks all boils down to whether or not the the funds still feel like there’s a story. He thinks they have exited a good chunk of their long position but if they want to exit the entire balance there is more downside risk.
“If they exit the whole thing then $4.70 won’t hold,” he concludes.
Wheat Makes New Lows for the Move
Wheat futures also made new lows for the move with spillover from lower corn and soybeans. However, the weekly exports were also poor at only 11.8 million bushels.
“One of the things the wheat market is really frustrated with is that over the course of the last several weeks and months, is you would assume that some of that business that’s not getting done out of the Black Sea region would spill over to the U.S. And it looks like world grain buyers are saying, hey, you know, we’re going to get by with what we’ve got for now.”
Importers believe the wheat will come to the market eventually and so they aren’t going to pay up to ship it from the U.S. So, the U.S. hasn’t benefited from the Black Sea export disruptions.
Cattle Rally With Cash
Cattle futures benefited this week from the pull back in corn but the real story was higher cash. That pushed live cattle futures to new highs for the move on Friday and posted a higher weekly close.
Cash developed at $228 in Texas, which was up $2 from last week. The North has some trade at $225 in Nebraska. Bennett says, “I do think that the cash market’s been pretty strong.”
Plus he says high protein diets has kept consumer demand resilient throughout the entire move up in prices. So far the administration’s attempt to lower food inflation and curb beef prices has not been able to break the market.
“And so what is the consumer telling us? Well, they’d still want to eat a lot of beef, and I just don’t think that we’ve got the supplies to satisfy it,” he says.
Margins Squeezed
He is concerned about the price producers are paying for feeders and how that is squeezing margins for cattle feeders.
“Because you cannot find a deal on feeders anywhere in the deferreds. You’re going to have to hope that this little trend that we’ve seen here the last several days continues because it’s pretty tough to find black ink unless you’re walking your corn off the farm with those cattle because if you own the corn, I think you’ve got a shot,” he adds.
Charts Look Good
Bennett also feels good about the way the charts look right now. However, its that enough to get the funds back buying cattle in a larger fashion?
He says, “That’s a tough call because if you’re a fund, you’ve got to ask yourself, you know, with all the things that’s been thrown at the cattle market to try to keep it down, is there something around the corner? You know, is there something else that might be done? Clearly, we’re coming up on election, but you’re running out of time to do anything huge. But this is not a great time of year to make any, you know, assumptions, if you will, especially whenever it comes to what we’ve already seen out of the administration with food inflation.”
