Ag markets were mostly lower early Thursday except soybeans.
Corn Trying to Bottom?
Corn futures were lower early Thursday, failing to extend gains after Wednesday’s reversal higher. Dec corn closed back above the August low in what was called possible bottoming action.
But is a low in the corn market close?
Mark Schultz of North Star Commodity says, “I’d like to think that we are putting at least some type of bottom in. I mean, if you look at it on a seasonal basis, you put in either short-term highs or short-term lows on the corn market in the month of October is not uncharacteristic. In fact, it’s more of the normal.”
He also points out that corn is technically oversold.
“You’ve seen a market in the last 22 days lose 91 cents a bushel from top to bottom on the corn. So we’re definitely in oversold territory and I would think maybe you get some type of a bounce. The problem still short term is is that the weather still looks to be for the most part nearly ideal to get some more corn harvest going and wrap it up,” he says.
So, he thinks the market will see more hedge pressure for the next five to 10 days until the harvest gets closer to 70%, which he expected by the weekend.
Funds Done Liquidating Corn?
The big key is, are the funds done liquidating in corn?
Schultz replies, “Well, I’m still thinking they’ve got a sizable long position, even though they probably have cut it in half. I think if it comes out tomorrow and the funds are net long under 200,000 contracts, I would probably be a little more optimistic. And the further it goes down, the better it would be. If it stays up at 205,000 still long, I would still say we’ve got some work to do on the market.”
So the close on Thursday and Friday will be important in confirming the lows he adds.
“Either today or tomorrow, you just want to start seeing something bouncing back and probably taking out the highs that were posted yesterday. If it can do that, then I think maybe you get at least a little more optimism going in here,” he says.
He says elevators are starting to fill up and only taking contracted corn and so that may also limit farmer selling. And more farmers are storing corn and selling soybeans.
Soybeans Bounce on Exports
Soybeans ended off their lows on Wednesday after testing the uptrend line on the charts and are seeing a good bounce Thursday with help from strong weekly exports.
With China in buying the last several days the weekly export total was a whopping104.4 million bushels. China accounted for 80 million bushels. China was also in for another 7.4 million bushels of soybeans Thursday morning on a flash sale and there were rumors of them buying another 4 to 6 cargoes.
“And of course, I think you’re going to see another big number again next week as well. So the Chinese appetite after being missing for about four weeks of buying virtually nothing, is back in now on a steady diet almost every day with some type of soybean purchase. So that is good,” he says.
Plus, harvest is wrapping up so hedge pressure is starting to ease.
Big Bean Yields
He says the flip side of that is soybean yields are better than expected for most farmers.
“You might actually see the national soybean yield go up a little bit more, not down.”
Fund Liquidation Done?
Soybeans saw pressure for the last eight days as funds were also liquidating. They had a sizable long going into harvest. There was also some liquidation ahead of option expiration in the November contract, which may be completed.
“I think percentage-wise the funds were longer percentage-wise in soybeans than they were, believe it or not, in corn,” he says.
However, he thinks the liquidation may be done and the market can start focusing on demand from China and crushers, which is improving basis levels.
“You’re starting to see it in some places. And I would also say your crush margins on for soybean processors are extremely good for this time of the year. So I still think the diet or the appetite to want to have beans and crush as many as you can and with the export business being good should give you support for the bean market.”
Wheat at Fresh Lows
Winter wheat futures made new lows for the move on Wednesday, closing below the 200-day moving averages, with headlines of peace talks between Russia and Ukraine.
Wheat started mixed Thursday and then quickly drifted into new low territory again.
Weekly exports were also poor at 8.8 million bushels, which did not help. Total sales for the marketing year are at 392 million bushels, down 32% from last year.
Schultz says, “In the last 15, 16 weeks, like I say, there’s only been two weeks that there’s been some respectable export sales on wheat. And that’s, quite frankly, I still believe is what’s keeping the corn market somewhat in check. And that’s the fact that the wheat market can’t seem to find a bottom at all.”
He says the market has removed nearly all of the war and weather premium with losses of over $1.50 from the highs.
Improved Weather
Schultz says rains in the central and southern Plains have weighed on the wheat market with ideas of higher acreage.
“We’ve recharged the moisture levels across the U.S. We’re starting to see Europe getting back, recharging there. So the winter wheat seeding has started to advance nicely. We think that acreage for next year, planted acreage is going to be up three to four million acres, maybe a little bit more. So the weather, quite frankly, has turned at least short term more bearish in the longer. term picture for the wheat market.”
He says farmers in the south have either got the wheat planted or if they don’t, they’re getting it planted and will wrap up by November 1. “But they’re all saying it’s off to a very good start.”
Cattle Retreat
Cattle futures made new highs for the move on Wednesday and hit levels not seen in three months
Markets were overbought and had run into chart resistance, so futures were seeing some profit taking according to Schultz.
The futures are also awaiting cash, the Cattle on Feed Report and with disappointing boxed beef values.
Choice beef was down $.71, with select plunging $6.20. “We saw a decline slightly on the choice, but a big drop off of six bucks on the select cuts. That hurt. We did have a pretty good weekly beef export sales announced again.”
Cash news was quiet with feed yards in the south asking $230 or better, which will be needed to keep the futures somewhat in check.
Bullish Cattle on Feed Expectations
Trade estimates for the USDA Cattle on Feed Report were bullish with placements down 8.3% from a year ago.
He says with everyone anticipating a potential bullish outlook with the placements if that report is a miss it will be met with heavy selling.
“You’ve also got a cold storage report and we want to see if the inventory of beef is in decline yet or of it started to increase with supplies higher than a year ago last month,” he adds.
More Contract Lows in Hogs
Lean hog futures were lower again on Thursday scoring more new contract lows in the December contract. Cutouts were down over $4 yesterday and at $74.50 are at multi-year lows.
Schultz says, “The really big shocker to me is the volatility of the cash market moving $2 to $4 a day. And the cutouts also, I mean, we’re just in free fall. And you look at these primal cuts and we’re, well, a lot of these
primal cuts are down at five-year average lows right now, pretty much across the board and bellies
down, what, under 80 cents.
Why is Pork Demand So Bad?
He thinks domestic demand has been sluggish as fast food chains have seen the appetite for bacon dwindle.
“What you’re really seeing more is that there’s all kinds of different sauces that they’re using now on your pork beef products and cutting back a little bit, one strip less bacon and a little bit more sauce and seem to be getting away with it.”
How Low Will Prices Fall?
So how much lower will prices fall below the contract lows?
Schultz says, “I think we need a little bit more contraction to take place. The domestic demand is poor, and domestic demand is poor everywhere in the port. I’m hoping we’ve got a bottom close at hand here, but it has still been a struggle until we start seeing some improvement in the port cutout, and that domestic demand has to improve.”
