Grain and livestock futures all closed in the green on Friday.
Grains Soar Led by Corn
Chip Nellinger, Blue Reef Agri-Marketing, says grains rallied with corn leading the charge on end of month short covering and ahead of a long holiday weekend.
“I think maybe 90 -95% of it was just end of the month fund business. It was very quiet volume going into the weekend with the long holiday weekend. And so a little bit of fund business. They were short going into Friday in the corn market, 120 ,000 contracts or so. And as always happens at the end of a month or beginning of a new month, the funds become active then,” he explains.
Is China Buying Corn?
There was also unconfirmed talk of China buying U.S. corn that may have spurred some buying but Nellinger says there was no evidence of it in the cash market.
“I don’t put much stock in that. Sure, there’s my new possibility, but given the fact that there’s no current trade talks going on, no negotiations, I’d be very shocked if it was China, I think it can be explained away simply by fund short covering,” he says.
Corn and Soybeans Supported by Lower Yield Ideas
Disease and flash drought in part of the Eastern Corn Belt may have hurt corn during the filling period and is also supporting ideas of lower corn yields in the September WASDE.
Nellinger says the same can be said of the soybean crop.
The big question is how much yield has been lost?
“I do think the market believes that we’ve seen the highest yield number at, you know, at 188 on corn. How much is it 186? Is it 182? I don’t know. It’s going to fall on what USDA says on September 12,” he adds.
Soybeans Wrestle With Lower Yield, Lower Demand
Soybeans were higher on Friday following corn but closed lower for the week.
Nellinger says the market is wrestling with how much lower the yields are and if that will offset the cut in demand the soybean market is facing with China being out of the soybean export market.
Just a two bushel cut could lower production by 160 million bushels based on harvest acres of around 80 million.
“So, I think the market is trying to figure out, you know, where does the carry out shake out?” he explains.
Are the Lows in the Grain Markets?
Nellinger says December corn closed 8 cents higher for the week and above 50-day moving average, which will likely spur more short covering by the funds.
He thinks this action confirmed a low in the market and that the corn market can build on it in the new month.
“So a new month, even though it’s a holiday shortened week next week, it could get interesting, irrespective of the fundamental picture, the funds may just be in buy mode here.”
History would also say the corn market has put in a low.
“If you look at the last five years, we bottomed right on time. I mean, it is almost to the day when on average the last five
years that we put the harvest low in. I’m not saying that’s the case this year, but you know, sometimes again, in hindsight, that will turn out to be, you know, a good low. I’m not saying that we’re going to rally 50 cents. I’m not saying that you can’t retest those lows,” he says.
He thinks that could be the case for soybeans and wheat as well.
Cattle Market Roars Back
Live and feeder cattle futures were lower Thursday on end of month profit taking and deliveries against the August contract.
Friday the cattle market saw follow through selling but then quickly found buyers and roared back to close higher.
Nellinger says the funds continue to buy on the breaks and support the market and there are no fundamental changes that would dictate otherwise.
Fed to Lower Interest Rates?
The PCE data on Friday was favorable at .2% for the month and 2.6% year over year.
This put the odds at nearly 90% that the Fed will lower interest rates at least a .25 point in September.
Nellinger says not sure if that will bring any money back into the grain markets are not.
