Grain markets ended lower on Thursday with livestock higher.
Soybeans Plunge on Harvest
Nov soybeans ended 14 1/4 cents lower at $12.63 as funds liquidated long positions.
Chip Nellinger, Blue Reef Agri-Marketing says some of the selling was tied to harvest pressure. “We’ve had a lot of harvest activity this week. You know, there’s been some rain around in some areas, but farmers really pushing hard to get some of these beans out of the field and finished up, especially in some of the southern portions of the Corn Belt.”
NOPA and Conab
The other triggers for the fund long liquidation included Conab estimates and the NOPA report.
The NOPA crush for September was a disappointing 196.3 million bushels of soybeans crushed in September, well below estimates.
However, Nellinger says the market over reacted because it was a function of slow harvest in the western Corn Belt and plants simply running out of supplies.
“Also coming out of some, you know, some maintenance issues, you know, August, September ahead of harvest, you oftentimes have some maintenance and some downtime on some of these plants. And so combination of that probably says, yes, it was a lack of supplies because of a slow start to harvest. We’ll see if we bounce back next month.”
Bean oil stocks were bullish at 1.05 billion pounds, which is the lowest for any month since September of 2004.
However, Nellinger says that was overlooked by the algorithm traders. “They trade headlines, they latch on to it and they don’t really know what’s behind that.”
The market also reacted negatively to Conab’s Brazilian production estimate at a record 181.6 MMT with a 1.4% increase in planted area.
Soybeans Fade Export Sales
Soybeans did not get any help from the confirmed flash sales totaling 22.5 million bushels. China bought 12.1 million bushels of the business and unknown destinations accounted for 10.4 million bushels.
It was a classic “buy the rumor, sell the fact” reaction according to Nellinger.
“It’s good to see the last couple of days China back, in a big way. They were gone for a week on holiday and so people were saying, hey, it’s been 10 days, two weeks since we’ve seen a lot out of China. We got that. But I think the problem with that is it’s baked into
the carryout already. And so we need to see China continue to hit that 25 million metric ton number. But it’s not like it’s brand new business. It’s hoped for business that’s coming true.”
Soybeans Take Out Support
That caused November soybeans to close below the low from the WASDE report day on Oct. 9.
The market also took out the 50-day moving average for the first time in two months says Nellinger, which was a bearish finish.
“That was kind of an ugly chart happening here that the technicals don’t look very good in the short run here for beans,” he says.
Corn Falls With Soybeans
Corn was also lower on spillover from soybeans and seeing some harvest pressure.
Nellinger says the market is still digesting the large yield increase in the WASDE. “I think there is a little bit of disbelief from the USDA number being so big on corn yields,” he says.
Corn Closes Below 200 Day Moving Average
Corn futures closed below the 200-day moving average which also triggered fund selling pressure.
Nellinger says the next few sessions will tell the tale as to whether the funds are content holding what they have on the long side in corn.
“They’ve got out of probably close to half of their net long position already. I’m not as convinced or concerned with the close under the 200 day. I will be however if if corn closes below the report day low from last Friday. That probably opens the door up for a door up for another 15 20 cent flush,” he adds.
Wheat Follows Corn
Wheat started the day higher with help from a softening dollar index and record high European prices.
However, the market could not hold gains with the selloff in corn and soybeans.
“I think it was just simply a case of seeing beans double digits lower, corn kind of fail and drag along lower with the bean trade, and wheat just kind of gave up the ghost there at the end too.”
He says the funds are building back up a pretty healthy net short position in Chicago wheat. However, Nellinger says the fundamentals globally are bullish with European wheat prices higher and a lack of supplies out of the Black Sea, especially from Russia.
“But unfortunately, our wheat prices here just have not done much to respond to that,” he adds.
Money Flow
The other observation Nellinger made is the broader markets have been shook up by this week’s inflation data with both CPI and PPI running hot. That could lead to the Fed raising rates and the bond market has been reflecting that.
“We’ve had a lot of volatility in the financial markets this week and some some pretty key economic reports. So the last two, the inflation reports, the CPI and the PPI today, especially were way hotter than expected. And that leads people to believe that,
hey, maybe the Federal Reserve is going to continue to raise rates again at the next meeting.”
He adds that the bond market, the 10 year, the 30 year. are already way ahead of that. “They’ve gone way higher. We’re at 24 plus year highs, but we’ve seen a big reversal there off of those highs. And so there’s a lot of movement coming on here between different asset classes on equities, some money coming out of equities into bonds because we’re well north of 5%. That’s attractive to investors. So there’s a lot of movement here,” he states.
The backdrop is crude oil which has climbed above $90 and shows no sign of slowing down.
“And so there’s some concern longer term with the economy. Long story short, I think that is helping to curtail a little bit of
the ideas about this wild demand on the grain side. You know, we slow the economy down. We continue with high interest rates, high energy prices. it’s going to do nothing but kind of crimp the consumer more.”
Cattle Recover on Cash Hopes
Cattle futures rebounded in response to the lower grain prices and ideas of higher cash trade this week.
Nellinger says, “The market has tried to probe the downside a couple times. Again, the volume has not been great in cattle either.
So we’re kind of slopping here, waiting on some better news. And so far, for three weeks, we’ve seen pretty steady cash trade. I think there’s some hope that it’s steady at worst and maybe the potential for a touch better. And it didn’t take much. And we saw some buying interest here on the cattle side.”
That market, is also watching what’s going on in the stock markets, the inflation numbers and gas prices he adds.
“So there is going to be that continuing correlation to the stock market in general, the health of the economy also.”
Funds Returning?
December live cattle closed back over the 100-day moving average which is encouraging but is the market technically flashing signals to get funds to return to buy in a bigger way?
“Yeah, that’s the question. They have seemed very reluctant to come back in. And that’s a fear of mine on the grain side too,
right? The funds made a lot of money being long cattle for the better part of three years. And then we’ve had this massive break off the highs and they seem very reluctant to come back in on the long side. So I think it’s going to take some stability on the financial side, some better news there on the economy. And hopefully we can get the funds back involved.:
