Markets were lower except for hogs on Friday.
Corn Closes Below $5
Dec corn futures ended 4 1/2 cents lower on Friday at $4.97 3/4 and was down 30 1/2 cents for the week.
Dave Chatterton of Strategic Farm Marketing says Dec corn closing below $5 was bearish and a function of the market’s disappointment regarding the lack of details on China’s $17 billion of other ag purchases and USDA’s larger than expected quarterly stocks.
USDA found an additional 173 million bushels of corn in the quarterly stocks and analysts are trying to pull that into their balance sheet.
Funds were also long over 400,000 contracts and so those two items created a mass exodus of positions.
“We had gotten funds to a pretty optimistic and essentially a record level of length across the entire complex on a combined basis coming into the report. Certainly we saw some of that bleed back out here after the report.”
How Low Will Prices Fall?
How low will prices need to fall to digest the bearish news?
He says there is still a large part of the market that is still talking about lower yields and thinks USDA needs to come down on their national yield average.
However, the market will be watching to see how USDA handles the feed and residual in the new crop balance sheet.
The added 173 million bu. of stocks provides more of a cushion as well on yield loss.
“We’ve also seen kind of a significant slowdown in export demand for U.S. corn sales here over the last really four to five weeks. Not necessarily a bad number historically or bad numbers historically, I should say, but definitely a slowdown from the pace that we were on a little bit earlier,” he adds.
Wide Range of Yields
Looking at the private corn yield estimates released on Friday ahead of the October WASDE there is a wide range and that will play a big role in the ending stocks.
” If we put yield, let’s say at 174. 175, you’re talking about a 1.25 to maybe 1.35 billion bushel carryout. If you put it up at 177, 178, you’re talking about something closer and closing in on 2 billion, probably 1.75 to 1.9. The two price outcomes at those different levels are very different creatures, if you will.”
So currently the market is trying to figure out where USDA will land with their estimate.
Stocks to Use Important
If ending stocks climb back above the current 1.567 billion bu. on corn the stocks to use ratio could climb back above the key 10% level.
Chatterton says, “And that 10% is often seen as kind of the key of whether we have a bullish and an optimistic market or whether we’re playing a lot of defense. Once we get below that 10% level that’s the warning signal that hey we need to ration demand,” he says.
It will also signal whether or not the market needs more corn acres in the coming year.
“We’ve flipped a little bit on that and that balance sheet is now getting a little bit softer here,” he adds.
Next Support in Corn?
With Dec corn closing below the $5 mark where is the next technical support?
Chatterton says, “The $4.80, $4.85 is a number that a lot of folks are talking about here of late and $4.75 is a good
psychological number.”
He says there was higher open interest on the down days in the markets which indicates the fund liquidation is being met by end user pricing and buying.
“And that’s a very good sign here. I think, you know, the closer that we get to that $4.80, $4.75 plus minus number, the more interest we’re going to see in the longer term here. So for right now, I don’t see it getting worse than that. But of course, markets have been known to prove us wrong,” he says.
Soybeans See Fund Liquidation
Nov soybeans were down 5 3/4 on Friday to close at $12.78 1/4 and finished the week 40 3/4 cents lower.
The funds continue to liquidate their record long position in the soybeans.
On Friday the market was watching private estimates ahead of the October WASDE next Friday that showed yields inching higher. StoneX raised their national soybean yield to 54.1 bu. per acre.
“We haven’t seen the wire service average trade guesses yet, but we have seen a number of privates come out, StoneX with their 54.1 yield on U.S. soybeans is the highest number that they’ve ever printed in October. Now, Stone is above the crowd, if you will, a little bit. You also have to give them credit. They’ve got a pretty good history here of what’s happened,” he says.
Chatterton says in Illinois the soybean harvest results would confirm that yields are maybe slightly below or slightly above last year’s
level.
“So hanging right in there versus problems that we’ve seen in corn.”
China Disappointment
However, the week started off with disappointment by the bulls when U.S. soybeans did not get the 10% reciprocal tariff drop from China.
Chatterton says, “The folks in that camp were probably fooling themselves just a little bit. I think it would have been very uncharacteristic of China to give up that kind of leverage and that kind of process in terms of controlling where this negotiation goes going forward.”
The U.S. and China will meet again in December and he views the negotiations as a work in process and fluid.
“That doesn’t mean that China doesn’t honor the 25 million metric ton commitment. We think they need the beans, we think they will honor that. I just think that the government wants to keep control of that and so even taking the tariff off is not necessarily a layup
for commercials to buy U.S. beans just based on the pricing,” he says.
Harvest and Quality Issues
The soybean market was also seeing some pressure from the drier weather forecast for the western Corn Belt but is also trying to determine the extent of quality losses due to the wet weather.
“The Chicago market notoriously is slow to deal with quality issues in terms of what they adjust the yield and the balance sheets.”
Currently crop insurance agents are busy assessing yield and quality loss.
“We had a lot of calls from producers in a number of parts of the belt, including, you know, Illinois, Iowa, Minnesota, Nebraska. dealing with sprouting corn, dealing with beans shattering in the pod and quality loss issues. And with those quality loss issues, oftentimes in corn, some of the toxins are associated with that, which can be problematic,” he says.
Chatterton recommends farmers contact their crop insurance agency before they combine to determine how they want to proceed. It takes a big problem to trigger quality loss on crop insurance policies.
“But definitely they’re going to be, reflected in the cash markets. We tend to see that two-tiered market where we’ve got a quality bid and we’ve got a discounted bid for off quality,” he adds.
More Fund Liquidation?
Funds exited a big chunk of their long positions this week but are still very long in the corn and soybean complex.
So, how much more liquidation could the market see and how low could that push prices?
“You can never rule it out. I mean, money flow has been the key element here going forward. And part of that has been, you know, two wars going on and the inflation play that we’ve had. And part of that’s been the underlying fundamentals of the grain market.”
He points out that fundamentally the market has not changed that much even after the China meeting and USDA report.
“I don’t think we totally back away here. I think that there’s still an element of we have to get through a South American crop cycle that’s going to be facing this Super El Nino and certainly there’s some risk on the table because of that. We still do have two wars going on that are limiting logistics and crops moving to market,” he explains.
So, there are number of fundamentals that he thinks continue to support the grain complex.
End User Buying
He says is just a question of how much end user buying and pricing the lower prices stimulate as there has been some pent up demand waiting to move into the market.
“Certainly we could go lower from here in terms of price, but I don’t think we stick lower for very long,” he says.
Mexico buying 6.8 million bu. of U.S. corn Friday morning was proof of that and they didn’t just buy the current marketing year, but also bought two years out.
G7, EU Release Diesel Stocks
The G7 and EU also announced they would be releasing 100 million gallons of diesel out of reserve stocks which sent diesel and crude oil prices lower.
Chatterton says it also influence on the grain markets. “We’ve got the whole argument of grain is energy, if you will. But diesel fuel price is off about 15 cents here. You know, today on Friday, we had, crude price off over 3 percent at one particular point in coming back a little bit off of that as we closed. But, you know, at the end of the day, it’s good news.”
He says it was a political move. “That means the U.S. is going to continue to export distillate. So 100 million barrels of distillate over a four-month time period is, I don’t want to call it a drop in the bucket, when you look at global demand for distillate for more than that 37 million barrel per day range. It’s always going to help on the front end, but it’s not going to solve the supply or the deficit
that we’ve got going currently. And, you know, I think that’s going to take some time.”
Cattle Consolidate
Cattle futures also ended lower on Friday and posted lower weekly closes on profit taking after running into chart resistance.
The boxed beef market was also lower with losses of $6.00 on Choice cutouts on Thursday and $2.43 at noon on Friday as slaughter ramped up after the packing disruptions last week.
“But still going to be a little bit subpar compared to what we’ll call normal historical or where we would like to see it. So kind of a concerning there,” he says.
The cash trade was mixed with $226 in the South, which was steady to firmer. The north was a bit weaker at $218 to $221. “And that north south spread continues to widen here historically this time of year.”
So, he says the market is consolidating, looking for its next move.
