Grain and livestock markets were mostly lower except wheat on Thursday.
Commodities Hit by Equity Melt Down
The commodity sector saw fund selling pressure with the melt down in the stock market.
“There was, what, close to $6 billion of outflow on the last Commitment of Traders report.”
The report as of last Friday shows data through Tuesday. It indicated liquidation of 90,000 contracts of corn by managed money traders and a combined liquidation across the 10 ag markets of nearly 200,000 contracts.
“So it’s been a big money outflow,” according to Doherty, “And that happens when the trend really turns. Sometimes you’re seeing an acceleration as you see further liquidation or potentially the fund money, maybe even going short the market.”
He says it has been tied to uncertainty in the market place and that has escalated around the election and USDA’s surprise increase in corn inventory in the last two reports.
It is almost a deflationary period in the commodity market explains Doherty.
WASDE, Soybean Yield Fears
The market is positioning ahead of the November WASDE with private estimates and trade guesses being released with Bloomberg and Reuters both up .4 bushels on soybean yields from last month.
StoneX raised soybean yield to a record 55 bushels per acre, up nearly 2 bushels and that would take ending stocks above 400 million bushels.
Soybeans Close Below Key Support
January soybeans closed below the key 200-day moving average. So what is the next area of chart support?
He says, “You’re looking at a retest potentially of the August, mid-August, when the WASDE report is supportive. So that’s $11.80, not very far away. I think you have to be real about this. If the yield is 54, 54 and a half, 55, it’s likely you’ll see the June low taking out. And that’s an $11.40 area currently around $11.90. So another 50 cents down, I think is real.”
China Confirms Upholding Deal
Following the elections and the Democrats taking back both chambers of Congress there has been concern about whether or not China would uphold their trade deal with the U.S. as President Trump might not have as much leverage.
Reports indicate that China believes elections are a domestic matter and they have confirmed they stand behind President Trump and wants to broaden their trade relations.
As far as the $17 billion non-sensitive ag good however, China will not buy until the 10% reciprocal tariffs are dropped.
Doherty says the news did provide some support for the ag and financial markets overnight but that was swept away during the day session. However, he thinks this is a good opportunity for China to buy.
“They’re buying value as the market drops. They need inventory. They need supply. They don’t want to rely necessarily on one supplier. You know, there’s still this, quote, super El Nino that’s brewing out there or continues to brew that could impact the Southern Hemisphere production cycle,” he states.
While El Nino hasn’t caused production problems yet in South America it could moving ahead.
Corn Falls With Soybeans, WASDE Concerns
Corn ended lower with some spillover from the soybean market, but obviously there’s some concerns that USDA, could they raise yield in the WASDE next week.
Doherty says anything can happen but he doubts the higher corn yields are there.
“We were looking at about 177 bushel yield a month ago at this time. And now there’s talk. And if you look at the Stone X numbers of 183 bushels, that’s a jump of one bushel. The USDA is at. 2.7 bushels higher than they were in the October at 181.2. So do they edge higher? I don’t know the answer to that.”
He says there has been a lot of mistrust regarding USDA’s numbers after admitting there was an error in the September report.
And he says talking to farmers throughout the country, this year’s yields are off of last year, and that is the rule not the exception.
“Two out of 10 farmers have as good a crop as they’ve ever had or mirrored last year. The other seven or eight or six, it’s pretty consistent that I hear we’re down about 10% from a year ago. So if the whole nation were down 10%, that’s 18 bushels in a year, that’s 167,” he says.
Even if you cut that in half to nine bushels per acre that is in the 176, 177 window.
Cattle Future Implode
The live and feeder cattle futures were sharply lower on fund selling with the melt down in the stock market, plus sharply lower cash.
“The stock market and cattle have on days really been joined at the hip. And you can’t hardly argue that it isn’t today. And it’s just right across the board again in the whole commodity complex. We had milk prices down cattle, feeder cattle down,” he adds.
He says that is why risk management is so important. “Continue to look at buying puts and defending the downside. These things come fast and furious. “‘
Milk Futures Falling
Class III milk futures were down on Thursday and have seen a big correction since the highs in mid-October.
How much more downside risk is there with the USDA Milk Production report showing an additional 2.6% more milk produced last month compared to a year ago.
He says, “If you just look at the milk production numbers, you can’t help but be less than optimistic. The production numbers continue to grow.”
Doherty says global dairy trade has shown some promise the last three months with demand picking up due to low summer prices. That drove a short rally the end of September into mid-October but it wasn’t sustainable.
“It was most likely processors coming in, trying to get as much inventory quickly aligned for the holiday season at good value. It pushed the market up. Now it’s trying to find its footing,” he adds.
He is also not friendly on the dairy markets especially until the stock market can stabilize.
