Grain markets closed lower Thursday with Dec corn down 5 1/2 cents at $4.42 1/2, Jan soybeans lost 11 3/4 at $12.19, Dec hard red winter wheat lost 17 1/2 at $6.22 1/4, Dec soft red winter wheat fell 15 1/4 to $5.84 1/4 and Dec hard red spring wheat was 12 3/4 lower at $6.22 3/4.
Grains See Pressure From Dollar
The grains ended lower on Thursday with across the board selling pressure tied to new 19-month highs in the U.S. dollar index.
Rich Nelson of Allendale, Inc. says the corn market has also seen a slow down in export sales after big buying last week by Mexico.
“So I do think this market is looking for some type of new export business, which is sorely needed. So, not quite seeing it this week here,” he says.
Corn Exports Slow
That is a problem with the export numbers in the WASDE report. USDA cut 25 million bushels off their estimate Tuesday but Nelson says the U.S. could miss by more than that. Current exports are running 34% behind last year and below USDA’s target.
“USDA currently sees corn export sales about 29% over the prior five-year average. Current sales are much below that. So whether you look at the five-year average comparison or versus last year comparison, by both measures, we’re looking at some large deficits,” he explains.
The hope is that will change with the lower prices stimulating demand but so far those export sales have not picked up.
How Low Do Corn Prices Fall to Stimulate Demand?
Nelson says if corn exports are cut by about 200 million bushels, prices need to fall to around $4.60.
“And if you cut it by about 400 million bushels, you’re looking at about a $4.30 price. So overall, we would
suggest this market itself. So separate from USDA. We would say this market itself has priced in a
good discount.”
Soybeans Lack Follow Through Buying
After the 40 cent rally on the WASDE report day, soybeans have not seen a lot of follow through.
Nelson says not only is the higher dollar a factor but the Brazilian real has gone lower at the same time making the U.S. non-competitive with South America.
USDA raised soybean exports 25 million bushels in the report on Tuesday to 1.72 billion bushels which Nelson says is find at the current export pace.
“But the big question is with the non-China buyer. And like you mentioned with the real, keep in mind, Brazil has us beat right now for short-term delivery as well as extended delivery. So the question, and maybe not something the market has to be concerned about yet, but the question as we get into December and beyond is, will the non-China buyer still go after U.S. soybeans too aggressively, given the fact that Brazil is cheap right now?
China Tensions Rise
The soybean market may have been somewhat nervous about the NVIDIA spy scandal and the possibility it could derail the upcoming APEC meeting between President’s Trump and Xi.
Nelson dismissed the incident as having an impact on the market. “So that’s something we’ll have to watch and maybe it will be an issue but keep mind China has been a light but consistent buyer here in recent days so we’ll see if that continues.”
Corn and Soybeans Hit Resistance
Both Dec corn and Jan soybeans also hit chart resistance at the 20-day moving average so some of the set back was technical selling.
“And, you know, the issue on the chart side as well, corn is right now within just a handful of cents of retesting that low posted just a few days ago. So we’re going to watch that very carefully right now. We’re going to see if we’re going to have a volume, especially on soybeans, at these higher prices.”
Nelson adds that the markets saw light volume the last two sessions to hold the higher prices from Tuesday’s rally.
Wheat Sees Double Digit Losses
Wheat futures were down sharply with the higher dollar but the Black Sea peace talks were extended again which was triggered additional selling.
Wheat prices continue to fall to try to find a price that will stimulate export demand. Nelson says export sales have been better the last couple of weeks but the market needs to see that continue to stop wheat futures from falling further.
“We’re still not quite competitive with some of the other exporters. So, we’ll see if that does change or not in the next few days here,” he says.
With the strong dollar he suggest prices may have to fall even further though to pick up business. “From a balance sheet basis, Chicago wheat should be priced around $5.85 with this current lightly larger balance sheet.”
Still prices may need to drop another 20 cents, maybe 25 cents before exports ramp up.
Have the Grains Really Bottomed?
After the friendly WASDE, a lot of hope was pinned on the idea the grains had put in a seasonal low and the funds would quit selling. With the price pull back on Thursday that seems less likely and the market doesn’t have a catalyst to change the trend.
Nelson suggests with funds now moving short in the corn market the selling has slowed down.
“That doesn’t mean it’s a rally point, but it means at least for the momentum on the downside, we’re slowing down.”
However, as far as a fundamental story to change the trend, he thinks the market will have to wait for a South American weather issue.
For now there is not an El Nino based reason for a rally but it is still early in the season.
Cattle Up a Fourth Session
Feb live cattle closed $.25 higher at $222.95, Jan feeder cattle gained $3.87 to $331.67.
Cattle futures were higher for a fourth day on technical buying but is the market also trying to price in higher cash trade this week?
Nelson says he’s watching consumer demand for clues because price push back by the consumer the last two months has offset the tighter supplies in the feedlots. The upcoming Cattle on Feed Report may also confirm record low placements for October.
With wholesale beef prices continuing to sink this week he thinks that trend is still in play, which may continue to limit cash prices.
Will the Futures Rally Push Cash Higher?
Certainly the argument is that after the big rally in the futures will that help pull up the cash market?
However, the northern feedlot areas are still dealing with heavy weight cattle which may limit their leverage.
“We know the past couple of weeks we dropped nine bucks for cash cattle. It dropped quite quickly and we noticed that packers were back in control. I think for us right now in the very short term for this week’s trade, it’s going to be a question. I’m not quite sure we’re going to see producers accept anything less than steady. And even though the futures do suggest and they’re pricing in higher trade in coming weeks. We’ll have to wait and see if that does happen,” he adds.
Nelson is hopeful producers can regain leverage from the packers into December. “I think that’s when we’ll see a little tighter supplies and maybe pricing power go back in the cattle feeder’s hands.”
Futures Into Resistance
The futures market has seen a big recovery and is getting near the 50% retracement levels in the feeder cattle. So can the market go much higher?
Nelson doesn’t think the rally is quite over yet but the market may need higher cash to get over the resistance areas on the charts.
Lean Hogs Struggle
Dec lean hogs lost $.87 1/2 at $55.15, still struggling to find a bottom.
So what will finally bottom the market?
Nelson says supplies are not burdensome as slaughter is running equal to or 1% less than last year.
“Supply is running equal to or about 1% less than last year. So this is not a supply-based downtrend. This is a consumer demand argument here. The frustrating part with these type of breaks is we’re not going to go, we’re not going to stop until we finally reach a point where consumers say it’s cheap enough. The fact that this wholesale pork market is 33% under last year at this time, I’m absolutely surprised at this weakness in this market here.”
