Grain markets were under pressure early Thursday with cattle up for a fourth day.
Grains See Selling Pressure
After the relief rally in the grain markets following a friendly WASDE report there has been little follow through and the futures were under pressure early Thursday.
Brady Huck with Empower Ag Trading says the report took the market a little by surprise as corn yield was cut more than expected and soybeans yield was up less than expected creating a bullish reaction.
“It’s been so much selling on the grain side of things that you can only go down for so long and eventually you’ve got to go up and bounce. And I think that’s what we saw.”
However he says going forward though, it’s all about how the market closes out the week and month. Options expire next Friday and Huck says the market is lacking some major follow through to confirm a low.
“We’ve been looking for a bottom here in the grains for quite some time, you know, with the slide in corn from $5.50 down to $5.20, $5.00. And here we are is $4.40, the new floor for us. We certainly hope so going forward here, but time will tell.”
What Gets The Funds to Stop Selling?
So the key is are the funds done selling as they have already pushed to a short position in corn and wheat and are holding a sizable long in the soybean complex.
What is the catalyst that gets them back on buying? Huck says South American weather is the most likely story or lower yields for corn in future reports.
“But that’s going to take some time to see those additional reports. I think you’re going to have to wait until January to potentially see that. And those are both big hope items for the bulls,” he adds.
South American Weather
South American weather is very much in focus right now and Huck says there are two stories unfolding there.
“You’ve got too wet in the southern portion. You’ve got too dry in the central. The rains there have been a little disappointing, but they might be getting some relief here this week. Will they continue? That’s a
story I think we’ve got to keep monitoring down there if it gets drier. in the central portion that could really feed the fire for the bulls to want to get long this market,” he explains.
If the rains do come the funds may have a reason though to push to the short side of the market and push prices lower.
Dollar Slams Grains
The U.S. dollar index also made new 19 month highs on Thursday which was also a headwind for the grains.
He says, “You look at the FedWatch tool out there, and there’s about 100% chance we’re going to see a rate hike. That’s at least what the FedWatch tool is pricing in for December. The Fed’s stance with where these rates need to be, if they continue to hike or hike strongly, that adds strength to our dollar.”
China Tension Rise
China bought another 5.0 million bushels of U.S. soybeans Thursday morning but it also failed to get any traction with China tensions rising on the NVIDIA spy scandal. There are concerns the APEC meeting between Trump and Xi will be foiled.
The political picture is something that’s always going to be evolving and very unpredictable according to Huck, but it does give traders pause regarding soybean trade.
Black Sea Peace Talks
The Black Sea peace talks were extended another day as U.S. officials say progress was being made.
That continue to pressure the wheat market despite a definitive deal to open the door to allow more exports of Russia and Ukraine grain.
The problem is the conflict has not lead to any additional U.S. exports.
“We’re starting to get a little bit more competitive on the wheat front with exports. But commitments are down about 28 to 30 percent versus a year ago. That goes back to some of the U.S. dollar, it goes back to more production in Australia and Argentina. Those countries are benefiting from this deal more so than the U.S. is and the U.S. is very much just following global wheat values.”
More Wheat Planted
The market is also trying to price in additional winter wheat acres that are being planted, especially of hard red winter. Plus the moisture situation has greatly improved this fall.
“The pre-plant insurance price being above $8 certainly entices guys to try to get wheat in. We had wet weather during that ideal planting window here out in the plains. Typically, you like to kind of get the crop in before the end of October. And we had a nice moisture out here, which is a good thing. And I think some of that moisture elevated the air temps too, so allowed us to sneak the crop in a little later and still get away with it going forward.”
Closes Important
Huck stresses the closes in the grain on Thursday will be important in confirming a low. However, the markets had run into some stiff chart resistance and failed already on Thursday morning.
So, Huck was watching key support areas like the 10-day moving average on corn and 200-day moving average on soybeans.
“For the week, we’ve got options expiration for Dec corn options next Friday. That’s something to pay attention to.”
Farmer Selling
There’s also more natural farmer selling over the next few weeks as the market deals with the overflow bushels and harvest logistics.
“The question is, how much did the farmer sell in August, September? I think they did a pretty good job rewarding that rally personally.”
So he think prices will need to move higher to get farmers to unlock the bin doors.
Cattle Up a 4th Day
Cattle futures were starting on their fourth day of higher prices with more short covering and technical buying. Can the market keep going though?
Huck says, “The end of October into the first week of November was a really tough stretch on the cattle markets. Nasty sell off there. So nice, a little retracement we’ve seen this week. December live cattle are hunting the 50% retracement and the 50 day moving average. You’ve got some nice price action on the charts.”
Cash the Key
The key will be can the futures rally help lift the cash market this week?
Huck thinks packers need inventory ahead of the holidays. So, he is hopeful for higher cash this week.
He says near term there are plenty of market ready cattle but the rally in the futures should put some pressure on packers to bid up the market.
Heavier Cattle in the North
The flip side of that, is the northern cattle have still been heavy and may not be current enough to have any leverage.
He says, “Carcass weights are up there and you’ve got plenty of market ready cattle. So you can’t be, like you said, you can’t be too greedy about what you’re going to be asking for there. You got to move them cattle and you can’t fall too behind because you can only kick the can so many times those cattle have to move eventually.”
Optimistic for Q1
Huck is more optimistic about Q1 just because of the light placements the last three or four months.
“Next week, we get a cattle on feed report and likely a fifth straight month of lower placements. We’ve seen decent marketing pace here. So I think that Q1, Q2, and you look out at the futures board and we see that in the curve out there. I’d love to see us push to $230, $240 on some of them charts, get back up to those ranges, the actionable areas.”
He also thinks there are signs of heifer retention that will tighten numbers near term. Still down the road the cattle herd is slowly rebuilding.
