Corn and cotton closed higher Monday, soybeans lower, wheat mixed. Cattle and hogs were mostly lower.
Corn Hits Contract Highs
December corn futures hit new contract highs overnight climbing as high as $5.22 1/4 but ended at $5.15 1/2 and up 7 cents.
Corn was trying to price in the lower corn yields from the Pro Farmer crop tour at 173.2 bu. per acre, which is 10 bu. off trend line.
Alan Brugler of A&N Economics says, however, if the market was trading that number prices would have closed much higher.
“I think we’re probably trading 176 to 178 at this price level, probably more like 178. Tighter ending stocks, but not dramatically tighter. You really need to get your ending stocks down about 1.4 billion or 1.3 billion to get that stock usage ratio pushing this past $5.50 to the upside.
That said, we’ve seen $5.18 today. We’ve seen the nearby contracts, September, the old crop cash essentially coming up. The market is definitely putting in some lower yield numbers than what USDA had in August,” he says.
Market Needs USDA, Other Confirmation
The market now needs confirmation of lower yield in the September WASDE to go higher in corn.
Brugler says the momentum favors a continuation of the rally. “As the funds are long 250,000 contracts, give or take a few. Remember, that’s a weekly lag, almost seven days on the reporting. But they’re long. They would like to see the market go up here. There’s still money on the sidelines that could come in. It’s not a record position yet. But, again, we’re flirting with previous highs.”
He says market has broke long term resistance with the ideas of a short crop and a long tail.
“So I think there’s still some room here. But, again, big up on Monday, a partial reversal here late in the day on Monday. I think at some point here we’ve got to sit there and ask for more information. Obviously. crop conditions play into that,” he adds.
How High Could Prices Rally?
The market is fixated on the December contract but if the nearby September contract can close above $5 in the continuation chart, he thinks the futures project much higher.
“Well, I can easily get into the $5.20 to $5.26 area short term. You know, if you were to get the yields down, get that cash average price for the year comfortably into the $5 level versus USDA at $4.50, you can start talking highs for the next year $5.80 but maybe even $6 if South America gets screwed up by El Nino.” he states.
But Brugler emphasizes he doesn’t think corn prices can rally that high in the short term.
“The faster we go up now the more it’s going to tend to hurt exports and If that number comes down, you just can’t get to those high $5s and $6s.”
What Level Are Corn Ending Stocks, STU?
So what level does Brugler think the ending stocks or stocks to use ratio sets using the 173.2 bu. per acre yield from Pro Farmer?
“Well, I’ve got the stocks to use. If you throw in their number, you have to remember there’s always slippage. If you have less supply, you have somewhat less consumption. That’s a very consistent relationship. But after dinging the exports and a little bit on the feed use, I can get the ending stocks down to 1.3 to 1.4, probably 1.3 billion bu. on Pro Farmer’s number. That gets your stocks usage down into the 8% to 9% range,” he says.
And Brugler explains then the cash average price for next year is in the $5.50 to $5.80 area.
Soybeans Fall with Record Yield
Soybeans ended 15 1/4 cents lower on the November contract at $12.24 1/4.
The futures fell pricing in the record yield from Pro Farmer at 53.3 bu. per acre, which is up .6 bu. per acre from USDA’s figure in August. However, is that achievable?
Brugler says, “Well, the history has been that Pro Farmer is often below USDA’s final number. So, 2% to 4% is the typical miss there. So that’s going back to 2005 or so. So I think you have to say that if 53.3 suggests USDA eventually goes over 54, that’s adding some carryover. We were sort of getting tight we had the USDA down to 325 million. Stocks use was tightening up. All we needed was a little more export fuel. With the higher production potential there, that took a little steam out of the beans,” he explains.
Plus, the market had a nice rally and was up 47 cents last week in the November contract. “We’ve already been in the top third of the estimated price range for the year. Not at the very top end, but, you know, getting up there away from the midline. Yeah, that $12.56 1/2 high is still up there.
Bean Oil Implodes
Soybean oil implied for a second straight session with concerns about EPA’s announcement the agency will be extending the compliance deadline for blenders from September 1 to another date. They are also expected to announce Smaller Refinery Exemptions (SRE’s) by the end of August.
Brugler says, “The RFS program issue has been a lot of the small refiners and some of the big ones are have not been using as much bean oil as as maybe we would like them to. They’ve been using the the RFS, the certificates instead, the certificates have gotten very expensive and the result has been they’ve been dragging their feet on doing either of the above, hoping for an exemption from from EPA or at least a delay.”
So this has impacts for their 2025 obligations and the bean oil market was reacting today.
Lower Prices Stimulate Demand
However, with the strong demand for soybeans the November contract should be well supported below $12.00.
Export inspections were 53.3 million bu. on Monday morning. They are still 82% of a year ago he points out.
“I mean we’re still taking a hit from the slow Chinese buying and big Brazilian competition. What you’d like to see is China really step up and get more of those new crop purchases on the books. They’ve been doing pretty regular purchases, but they’re not at the 10 million tons they
typically would be by this time of year.”
Wheat Ends Mixed
The wheat market started higher but ran into chart resistance and also had the headwind of the higher dollar to fight through.
However, Brugler says wheat is still headline driven on Black Sea news.
“We’re well into the northern hemisphere harvest all around the world, U.S. Canada, Russia, Europe, etc. This is typically one of the peak supplies globally, and that’s why a lot of times we have lows in June, July, August, sometimes delayed into September. But given the constraints on Ukrainian and Russian exports due to their attacking each other’s port facilities, that does create an opening for other origins like U.S., Canada, maybe a little bit out of EU,” he says.
U.S. exports are projected for next year at only 775 million bushels versus over 900 a year ago but he wants to see those exports pick up.
“We still have a considerable lag there so we want the issues in the rest of the Ukraine area translate into more sales for the U.S.” he adds, “
We’ve got the bullish input from the smaller U.S. production, but now we need to see the consumption side go up.”
Cotton Ends Higher
Cotton futures were higher on Monday with December up 48 points to $88.83.
Brugler says the market is getting close to the May highs and has been seeing technical buying but the December is getting close to chart resistance at $88.88.
“The funds have been buying. They added a little under 6 000 contracts in the most recent CFTC report that’s including options the net of options but the the long position is not anywhere near record large for them. So they can put more money into cotton to the degree that you think there’s an inflation argument here cotton would typically be a big beneficiary there,” he explains.
However, he thinks the market needs to see more export sales to China first.
Cattle Crash Below Long Term Uptrend Line
Cattle futures reversed a higher opening and made new lows for the move, closing below the six-year uptrend lines.
Despite a bullish Cattle on Feed Report the market was pressured by Trump’s plan to lower beef prices by 25% and the reopening of the border to Mexican feeder cattle. The Douglas, Ariz. port opened on Monday with over 700 head waiting to be inspected for entry.
“We were down on the assumption, which may be faulty, that we’re going to really jack up the supply of cattle but you have to remember most of the Mexican imports are going to be feeder cattle not finished cattle. So the the impact on the market and on the supply in the short run is pretty minimal,” he says.
Brugler says the U.S. doesn’t bring in that many Mexican cattle compared to U.S. production but it is still a negative because you’re supplementing a supply that’s been tight.
“I am a little concerned. We’ve got some formations on some of the charts that look like a double top. And we have to remember that back in the previous cycle, high back 2014-15, that area, the market turned well before the feeder supply actually increased substantially. It’s a futures market,” he adds.
How Much Lower Will Prices Fall?
So how much lower could prices drop now that the long term support areas have been breached?
He says, “It depends on which charts you’re looking at. You know, this is still not a very significant drop if you look at the rally we’ve had over the last couple of years. But obviously, it is a big hit for the feedlot operators, depending on what they paid for their feeder cattle. And obviously, it hurts your cow-calf producer, too. I think there’s some risk down to $206, even on the, I think it’s the Dec chart.”
In the near term, he’s watching the boxed beef price. And as long as it’s holding up, he thinks the board may get too discounted relative to the cash which should be supportive.
