Grain markets were mixed early Thursday with cattle and hogs fully lower.
Corn Sees Profit Taking Post Report
After 20 cent gains in the corn futures on Wednesday following a positive August WASDE Report the markets was seeing some profit taking.
Kyle Bumsted of Allendale says the market could be taking a breather especially getting closer to the weekend and with crude oil lower and uncertainty tied to the Iran war developments.
To see if the corn market can sustain the rally he wants to see December corn close above $4.72 to keep the uptrend intact. Thursday morning that contract was still trading above that level.
“But the action today here on a Thursday is not surprising after we chewed through a lot of buy orders here yesterday after they released those numbers. And as I read one person put it, we had a 16 billion bushel crop on Tuesday and we still got a 16 billion bushel crop here on Wednesday and Thursday. That cut in yield and the increase in acres, they kind of offset each other to an extent. So it’s going to be very interesting how we close out the day and the week,” he explains.
However, Bumsted remarked there was not a lot of commercial sell pressure in corn as indicated by the spreads.
Will Corn Yield Fall Further?
One of the keys to keeping the corn market rally going is for yield to continue to shrink after a pretty aggressive cut by USDA in the report by 2.3 bu. per acre.
Plus, can ending stocks continue to grind below 1.653 billion bu. as the market is setting on a 10.1% stocks to use ratio, which is the dividing line for $5 corn.
“That’s a good question,” he remarks, “If yield goes down from here and maybe they cut it now and they’re not going to cut it for a little while yet. And we might have to wait until January to see if they adjust it again. Maybe they just did a cut now and massage their way into it
later on. That’s a very good question. I wish I had a good, straight, clear, forward answer for you, but I don’t because the USDA can go back and adjust things. They might go back and adjust yield higher on the next report. We’ve seen them do things like that in the past as well too.”
He says he’s seeing a decent looking crop in his travels from Nebraska over to eastern Iowa recently although he acknowledges there are some issues in spots like Northeast Neb. where they’ve missed some of the rains to fill the corn crop out. Still, many other areas did receive rain, which should help stabilize the crop.
Soybeans Caught Between Weather and China
The soybean market saw good new crop weekly exports on Thursday at nearly 65 million bu. and new crop flash sales to China of 4.6 million bu.
However, the market seems to be caught between demand and favorable weather.
He’s watching the $11.70 area on the November contract for the closing price this week. And looking out further out at the March, May and May, July bean spreads, beans look a little friendlier long term. He thinks there’s still some potential issues down in South America brewing.
“Those far out spreads is kind of saying if you’ve got to if you were to move some beans today, maybe a person would look out there long-term as far as that July contract, as far as some re-ownership. A lot of people move their beans, keep the room for corn here, obviously on farm, and obviously soybeans early cash and early cash flow. So I’d be looking for something longer term out there, maybe for some potential re -ownership if those spreads stay as bullish as they kind of are right now,” he says.
Soybean Yields Cut
While the soybean balance sheets did get slightly looser in the report with a 10 million bu. increase in ending stocks, USDA did lower yield .3 bu. per acre to 52.7 bu. The trick is the surveys were taken prior to widespread rains moving through the Corn Belt and this week has continued to see some favorable rains and temperatures.
So will yield go up or down from here?
Bumsted says he’s talked to many farmers in the North that says they’ve got a lot of pods on their beans. “But they’re flat, especially in North Dakota. So that might take a little bit of time here for those to fill out.”
Still he agrees production areas have had some good rain.
“So we could see the bean yield maybe stabilize in here instead of drop some more here on this next report.”
Acreage Debate
The other thing that got debated heavily yesterday, the acreage increases up, what, 1.2 million acres harvested acres on corn, up 1.4 on soybeans. Are the acreage numbers done going up?
He says, “I would like to think so because we used FSA data on this. But a lot of folks kept telling me last spring, well, they’re not going to plant near as much corn because of fertilizer prices. But when I look at the old crop insurance policy, we dust that off out of the old file cabinet there. The crop insurance policy still says plant corn and plant soybeans or plant row crops in general. So more or less plant corn. So I do think that there’s a possibility we could raise the corn acres just a freckle.”
He doesn’t think corn acres could go up much more though because of the higher fertilizer prices this spring but yet he realizes the crop
insurance dictated more corn because corn is what generates the most revenue from an insurance standpoint.
Wheat Extends Gains
The wheat market was extending gains Thursday after winter wheat rallied 22 to 23 cents the previous session.
The Black Sea export situation was still driving the buying interest according to Bumsted.
Still, he cautions that there is still plenty of wheat in the world. “We’re still kind of sitting on the edge of our seats waiting for the next headline to come out of that Russia, Ukraine situation, the drone attacks and the port attacks and things like that. So do be vigilant here on this wheat complex because it suckers a lot of people in from a technical standpoint and then spits them out. It doesn’t take long to spit them back out at the bottom. So I’d be careful with wheat. If you do have something to sell or you think you’re going to have something to sell, that might be an opportunity here to get something, a floor underneath some of next year’s bushels potentially.”
The U.S. has still not seen any export business shift from the Black Sea with weekly export sales at only 9.4 million bu. on Thursday.
Wheat Attracting Acres?
Wheat is entering the time period where farmers are looking at planting winter wheat again and he thinks the market may be in the process of buying acres.
“But the spreads have been starting to get a little friendly or getting a little friendlier in the wheat. I’m not saying that they’re bullish, but they’re a little bit more neutral to bullish than they have been in the past,” he says.
Cattle Market Down Hard for a Second Day
Cattle futures were down hard early Thursday seeing follow-through selling pressure.
Bumsted says there is technical selling after the market failed at chart resistance and early cash has been lower with some Nebraska trade at $368, down $2 on Wednesday. The volume was light and USDA also showed in the mandatory report some $365 to $370 trade and $232 live prices.
The feeders are also seeing pressure with August needing to align with the cash index before expiration. The index has dropped recently with numbers dropping at the auction barns and on Thursday it was expected to be down another $3.
“We could settle this August feeder cattle contract in that $350 to $355 range here given what we’re seeing at the end of the month and some of the video sales we have coming here at the end of the month as well we are in a seasonal time frame where we do put the highs in short term,” he states. Then the index grinds lower into the fall months as the October fall run starts.
The Goldman roll is also starting. “We also have the roll going on here out of these September feeders and out into the deferred contracts. That’s why September and the August and September have taken the biggest hit in the open interest environment,” he explains.
Rumors Galore
There have also been plenty of rumors circulating in the market to break confidence such as plant closures and disruptions.
“There was rumors about JBS buying the large Mexican Sukarn meat packer. Also some stories posted about JBS selling off part of their Australia and New Zealand business to Indonesia. I don’t know if that’s because they’re money losers or Indonesia really sees something going on there in Southeast Asia as far as economic growth and things,” he adds.
Retest the Lows?
Bumsted says there is a chance the October live and feeder cattle futures retest the recent lows.
“From a technical standpoint, yes, the way they’re acting, we could. It just doesn’t seem like there’s a lot of buyers out here.”
He thinks the boxed beef market is trying to put in a base which will help but the funds still seem to be in liquidation mode. “I don’t know how much more there is to liquidate as far as the non-commercials go. They liquidated quite a bit out here on this last Commitment of Traders Report it’s going to be interesting to see where that’s at Friday.”
Death Loss Due to Heat Over 100,000?
Cattle death losses due to heat are not providing market support but Bumsted says numbers have continued to climb to over 100,000 head estimated.
He says the final tally may be difficult to determine because many producers are saying they may not apply for the Livestock Indemnity Program through FSA.
“Some are looking at that paperwork and saying, you know what, it’s not worth the hassle to do all the paperwork. So as far as looking at government numbers and seeing what this actual death loss is going to be, I think that’s a moot point when some of that really starts to get out there. Or if that starts to become a talking point, I don’t think that we’re really ever going to know. But it is big. I know it’s probably well over 100,000 head.”
Hogs Fall Again
Hogs were down for a second day with the hard break in cattle and pressure from lower cash and cutouts.
Plus, Bumsted says the funds are leaving the livestock complex and going to other markets.
“The cash and cutouts being lower isn’t helping this thing either. And we’ve also seen the last few expirations where we’ve had this big inversion where the front month is higher. Then that inversion seems to leave here once we get towards the next expiration month. So from a technical standpoint, they needed to hold on to $82.”
If that can’t hold on the October contract he looks for more pressure.
