Ag markets were lower except for hogs on Tuesday.
Grains See Profit Taking, Remove War Premium
The grain markets set back on profit taking and consolidation after a strong rally on Monday.
Darren Frye with Water Street Solutions says the market also removed some geopolitical or war premium with talk of possible progress on the wars in the Middle East and Black Sea region.
President Trump was scheduled to talk with Ukraine President Zelenskyy on the sidelines of the U.N. General Assembly.
“There’s talk about Zelensky and Trump and Putin getting together and getting these things resolved,” he says.
Overnight Iran also said they want to open the Strait of Hormuz as long as the U.S. lifts the blockade blocking their ports.
“They’re probably short on money. They need to sell crude so they can build some more missiles and drones and shoot them in Israel or us. But who knows? I mean, I don’t see them wanting to settle anything, but maybe for a short amount of time so they can rebuild, they want to have somewhat of a truce and so that happened all in the middle of the night and that put pressure on crude oil,” he adds.
That spilled over into the grain markets.
Putin Politically Charged to Continue War
Russian president Putin saw his political party win their elections over the weekend and that will also embolden him to keep the war going.
Frye says, “This gives him some confidence and kind of the support to go forward. So, I think he’s going to be really hard to negotiate with. Obviously, his relationship with President Xi and China is good. He passed on the G20 meeting to go to the APEC meeting. And obviously, he’s building alliances there. And we see them both helping Iran fight us. And just like we’ve used Ukraine as a proxy against them, I think they’re using Iran against us. So the battle goes on, as they say.”
Importer Panic?
Black Sea grain export infrastructure has been severely damaged and very little grain is moving out of either Russia or Ukraine.
Still Frye says importers and millers have not panicked yet and are hardly buying at these price levels.
“They’re using inventories they have on hand. I do think we could see some type of a panic here and it’s only going to take one or two countries to flinch and you could see the floodgates open up,” he explains.
Large supplies of wheat are setting behind the Black Sea ports that can’t get to market.
“They’re exporting about a million metric tons of wheat out of Ukraine about two million out of Russia that’s way under what’s normal. This their glut slot of export and so when we miss that window these importers around the world are going to have to get it from somewhere else and obviously we don’t have enough here and prices are too high,” he says.
So, the U.S. has not picked up any export business from the Black Sea disruptions and sales are under a year ago.
Market Awaits China Summit
The markets have also been holding hope for some type of purchase announcement from the U.S. China Summit.
China has pledged to buy an additional $17 billion of U.S. ag products but so far those sales have been illusive and this meeting may leave more questions than answers.
Frye says, “It seems like details from these type of meetings are always a little bit on the scarce side and details come later. I think the market wants to see those details. I do think this summit is going well from everything I can read and understand and the people I talk to. But I just don’t know how much detail we’ll get when this all concludes later in the week.”
Technology, AI, farm products, LNG are all being talked about to fulfill the $17 billion commitment.
“But I think the biggest thing is, is do they have to buy some corn or wheat? We know Brazil is way behind on exports, meaning they’re using so much domestically. And I think that bodes well for the American farmer. We might have some more export business and it might be to China, but we haven’t gotten those announcements yet,” he says.
Currently U.S. corn prices are below both Brazil and Argentina so economically it would make sense for China to buy.
Proof of Sales
Beyond details the market will also need to see proof of sale to China before it rallies according to Frye.
“I think we’re in a market that’s always, hey, it’s great to hear things are going well, supply shrinking, demand’s growing, but show us the proof of that. So I do think they’re going to wait on that,” he adds.
The soybean market also needs to see China drop its 10% reciprocal tariff on soybean and grain imports which would help lay the groundwork for private sales to get to 25 MMT. Frye says it make take sale over 25 MMT to get soybean prices above $14.
“That’d be a big deal too. I mean, I want to see corn and wheat, but if they drop that and let the private crushers have a stab at these beans,
that’s what really could elevate bean prices up towards $14. But to get them over $14, I think we’re going to have to have a weather problem in South America through super El Nino,” he states.
Super El Nino
Currently Northern Brazil’s forecast is for hot and dry while the south is too wet which is typical for a strong El Nino pattern.
“Obviously, if they get enough moisture to get the seeds out of the ground, they get them sprouted, germinated, and then they have that dry weather, that will not bode well for those soybeans, those early seedlings. And so also, it will push back the safrina crops. So, boy, the next three months are critical in Brazil, and flooding down south isn’t good, and no rain up north isn’t either. And maybe that’s what they’re going to have with the super El Nino,” he adds.
What Moves the Meter on Corn and Wheat?
How much corn and wheat would China need to buy to get the market excited and stage a rally above the contract high resistance areas?
Frye says, “If they just took a couple million metric tons it could help but they need to take five million metric tons of corn and they probably only need to take a smidge of wheat we don’t have a lot of wheat with the low acreage and crop this last year. So it is more about corn than wheat but they will support each other,” he states.
Harvest Progress Ahead of Average
The corn harvest was at 13% on USDA’s crop progress report and 12% on soybeans, both ahead of the five year average and some what of a surprise to the market.
That weighed on corn and bean slightly but Frye says it was overshadowed by the geopolitical headlines.
Basis Push Due to Wet Weather
Meanwhile, there have been basis pushes in the Western Corn Belt where harvest has been slowed by rain and wet field conditions.
That has soybeans processors bidding up for old crop inventory due to their strong crush margins and that has resulted in a rally in soybean meal.
“We know that the bean inventories are pretty low. It makes you wonder if last year’s crop was really 53 or not. Maybe it was, maybe it wasn’t. I don’t know. It’s hard to debate the USDA on that. But I will tell you that if we don’t get new crop beans into those crushers, we will see that crush tail off and we’ll see soybean meal come front and center. And that’s what I think you saw today with soybean meal at four or five bucks while everything else was struggling,” he concludes.
The trade will be watching to see if the tight inventory is reflected in the USDA Quarterly Stocks Report at the end of the month.
Cotton Close to a Bottom?
The cotton market has lost over $1 the last three weeks and was down again on Tuesday after rallying to start the week.
So is cotton done going down?
Frye says, “I think we need more time. I think that cotton has more down-up sequences left to go. So I’m kind of bearish down in this $77 area of December cotton, then probably a rally back up to $85, and then one more push down after that. Once this correction is over, whenever it’s over, and I would say two to three weeks, then I think that we can go higher.”
In fact he thinks the market will push above a $1, to !1.20, $1.30, in the winter and spring months.
“And so I’m really bullish, but this correction has got to get done first,” he adds.
Does China Buy Cotton?
Will China buy any cotton from the U.S. as part of the agreement?
“They might, but I think the cotton crops been overstated,” says Frye, “I think the drought in West Texas was terrible. I think we’re way too high on our bale count, so I think we have less supply to sell. But, oh boy, if they came in and bought, that would be a big deal.”
Cattle Market Corrects
After a big rally on Monday on the record low placements number for August the market took a break.
Frye says the futures rain into chart resistance but are also waiting for higher cash trade before moving much higher.
“I think we just did a good job at rallying after the USDA Cattle and Feed report from Friday. And we just need to back off a little bit. I am friendly for a new push up here. Maybe another $6, $8 on fat cattle, maybe $10, $15 on feeders. But we will have to have cash follow along,” he says.
The feeder index is on fire and fed cash was only slightly lower last week at $221.87, down $.95.
Technical Confirmation
Where do cattle futures need to close to confirm a change in trend?
Frye says, “I think we got to close above that $225, $225.50 area and if you take a look at November feeders we need to close above $333.50.”
