Corn and soybeans ended higher Friday with wheat and livestock lower.
Corn, Soybeans Finally Bounce
Corn and soybeans saw slightly higher closes on Friday with short covering after both markets made new lows for the move. The markets are oversold and also some positioning ahead of the November WASDE.
Dave Chatterton with Strategic Farm Marketing says he fielded many calls on Friday wondering if those two markets were finally bottoming but he thinks it is just a pause awaiting the USDA data and the tri-lateral meeting scheduled for next Tuesday and Wednesday between Russia, the U.S. and Ukraine to talk about a cease fire or a grain corridor.
“But it felt a little bit more like some book scoring. Technically, the damage has been done this week
and the bounce that we had on Friday not really going to erase much of that.”
Report Anticipation
The market is anticipating higher soybean yields especially after StoneX raised its yield to 55 bushels per acre and with an average trade guess of 53.5 bushels.
Chatterton thinks that also contributed to the pressure in the soybeans this week.
“That starts to weigh on the balance sheet here and so it’s been a very cautious trade coming into this,” he explains.
Funds Leaning Long Soybeans
The soybean market turned bearish this week after taking out the 200-day moving average especially with funds holding a sizable long in the complex.
“If you look at the relative price action or the liquidation by the funds and the feed grains, it had gotten ahead of where the action in soybeans were. And so it’s just a little bit of a catch up here, whether it’s meal, whether it’s soybeans directly. They had more length on that side of the complex than they did in the feed grains. And as they level out positions, that was the natural kind of flow of money out of the portfolios here.”
That length resulted in funds needing to shed some risk as they were long 185,000 contracts of soybeans and 170,000 meal in last Friday’s CFTC report.
“That 200-day moving average is typically a very long-term indicator from an investor or spec standpoint as to whether a market is generally bullish and friendly or generally bearish and trending lower and breaking below that is not a great sign,” he explains.
Chatterton wants to see a recovery in the market next week but says there is no guarantee.
Outside Market Spillover
The grain markets also got spillover from outside markets including the sell off in the stock market and bean oil followed crude oil lower which had one of the worst weeks since 2020.
Chatterton says, “A lot of money would go into the sidelines. You can see that in the bond rates and kind of what’s happened with the fixed income numbers. And people are pulling money out of a number of different sides of the market and kind of going to the sideline here, going to the safe haven investments for a little bit.”
The election results were a surprise to the market with more of a blue wave than anticipated. The financial markets initially reacted rallied and then saw a nasty downturn into the end of the week.
“So a lot of movement and a lot of adjustment here that’s going on and a lot of kind of gnashing of teeth and scratching of heads in terms of what future policy is going to look like, whether that’s ag policy
specifically or whether that’s some of these broader policies around. interest rates, tariffs, foreign policy, et cetera, that are all on the table now,” he adds.
China Uncertainty
The other area of uncertainty remains what happens with China. Beijing did affirm publicly that the $17 billion is a real number and part of the deal but the market failed to respond.
Chatterton says China also made it clear buying on the $17 billion would not take place unless the U.S. tariffs were dropped. “And they call it the 30 by 30 initiative of dropping U.S. tariffs here on a number of different items across the board in order for them to do so to buy additional us ag goods so it’s a tit-for-tat situation,” he says.
The Board of Trade that will facilitate and track the purchases is not done yet either and dropping the tariffs will need to go through the federal register. He says they’re in the public comment period right now and there will be hearings but no firm timeline has been given.
Corn Market Cautious About Report
The corn market also continues to make new lows for the move with concerns about where USDA will land with yield in the November WASDE.
StoneX came in at 183.1 bushels per acre, which is up 1 bushels from last month, while the average trade guess is 180.3 bushels per acre which is down nearly a bushel.
Chatterton says, “I think there’s a lot of trepidation about, what happened in September, what happened in October. It started in September with the stocks report. And then we got the WASDE number where they upped the yield, the big increase coming in yield in October. All of a sudden, we have a balance sheet that looks very different than I think that a lot of folks expected.”
There’s no direct correlation between yield going up in October and again in November but there is still fear that will be the trend.
“The average trade guess is looking for the USDA to lower their number in corn by almost a bushel. It might be tough to do that. I think some of these private estimates that have been a little bit more accurately show the USDA continuing to go up,” he adds.
Funds Out of Corn Bullets?
Even if USDA raises yield the funds have already exited a big chunk of their long position.
Chatterton estimated the funds were still long 100,000 corn futures contracts and he doesn’t think they want to go short this time year.
“And, you know, based on the fundamentals having rotated a dollar lower since the late summer highs in corn, $1.60 in soybeans, I think the answer to that is probably no. But, you know, I’ve been wrong
before. Funds do what funds do. And money flow right now has certainly been piling in from the
short side. The sellers have been, you know, have been the winners in this particular market.”
Wheat Makes New Lows
Wheat futures made new lows for the move in all three exchanges on the possibility the tri-lateral Black Sea talks will lead to peace or an export corridor. However, the odds don’t seem highly likely.
“I don’t know that they’re real good, Michelle. And if we do get a deal, I don’t think the odds are any better that it’s upheld. I don’t think it lasts probably very long,” he states.
Plus, he thinks buyers will be apprehensive to buy and the even then the U.S. is unlikely to get any additional export business.
“I don’t think you know it’s a big deal but even this week we saw Egypt bidding for wheat and ended up going to France. That just kind of a kick in the gut to the other exporters here, including the U.S. exporters around the world,” he says.
What Bottoms The Markets?
The grain markets are all oversold and do for a corrective bounce.
“We’ve been able to hold on to this $4.40 level near these corn. We’ve gotten below the $12 mark in the bean complex here, even in January. We need to stabilize. We need to do it rather quickly here, that 200-day moving average that we already talked about.”
However, what will it take to bottom the grains?
Chatterton says the market needs a catalyst like South American weather or demand.
“That could be these exporters that now see value that have stepped forward. We had some big sales to Mexico last week on corn. We’re hopeful that we’re going to continue to see more buyers come to the forefront.”
Or USDA could provide a bullish report surprise. Plus, there could be something unknown that changes the market.
“Farmers have pulled back they have very little interest in marketing right now they’re friendly towards the market they feel like it’s overdone. I hope their right but we need to get some performance from the technical side to make that call,” he adds.
Cattle Crumble
The cattle futures were also lower on Friday making new lows for the move on top of lower weekly closes.
Sharply lower cash weighed on the futures this week and with the technical damage on the charts the funds have also been selling.
Live cattle filled the chart gap from September and closed below that level so the next area of support is the August lows. Will the market take those areas out?
Chatterton says, “Well, it feels like we’re going that way. I mean, I think the only thing that had a worse week
maybe than the GOP here was the calf market. And, you know, nine days in a row lower for that December contract or nine lower closes in a row here. Again, oversold from a technical standpoint, but still trending lower. We still have a little bit of fund hanging around in that marketplace.”
He says cash was a bigger factor weighing on cattle futures than the stock market melt down.
“It’s been the cash market that’s been coming down and even into the end of the week here, values were leaking lower. There were extra cattle on the market that we’re looking for at home. You know, buyers had their hands in their pockets and impact margins are back in the red here. So, I think those August lows are in jeopardy, at least of testing them.”
Lean Hogs Hit Contact Lows....Again
It was another day of contract lows for lean hogs and he says the futures have been down eight of the last 10 days.
“And you know we’re down in this $54, $55 area for hogs that you know we haven’t really seen you go back and look at 20 years where the price is we just do not spend a lot of time below that level so certainly we’re scraping the bottom of what is historically the low end of the price scale and you would think we would get some reaction to that,” he explains.
So, he think there may not be much downside risk left in the market.
