Corn and soybeans were lower to start Thursday with wheat higher. Cattle were also higher and hogs mixed.
Corn Sees Harvest Pressure
Corn futures were lower again Thursday on fund long liquidation and harvest pressure.
Mike Minor with Professional Ag Marketing says, “Harvest really kicked in the last week, I would say. Last weekend, it seemed like a lot of folks had been switching from soybeans to corn, wrapping up most of the soybean harvest for a lot of areas. Even folks in Iowa who had a pretty late start on things got a lot done at the end of last week. So seeing a little harvest pressure here, but we’re still in the aftermath, I would argue, of the WASDE reports and the quarterly stocks reports.”
Inflation Good or Bad for Grains?
Corn and soybeans were lower on Wednesday with hot inflation numbers creating fears of higher interest rates and pushing the U.S. dollar index higher. CPI was above expectations at 3.7% and PPI was also well above estimates at 6.3%.
At what point does that bring funds in to buy grains as a hedge against inflation?
Minor says, “The PPI and CPI news the last two days overall have controlled most of the financial markets, currency, energy. Pretty much all markets you look at day to day. If you want to buy commodities in case of inflation running up, there are a few different
avenues that the breadbaskets look at in the Bloomberg Commodity Index.”
The biggest sector for the managed money funds is energy, followed by grains.
“And that’s basically the sole reason why inflation continued to go up here this last month is just energy focused. When you look at inflation, half of that complex is basically made up of energy prices and gasoline and diesel. So that’s the place they want to start. The next thing quickly after that is grains,” he explains.
He says there is a strong correlation of inflation and the corn market. However, he points out that normally also goes with a tighter balance sheet and with USDA finding another 400 million bushels of corn that may negate some of the interest.
Still, Europe’s drought and emerging El Nino concerns will keep a floor under the markets due to tighter global balance sheets.
Corn Tests Support
Meanwhile Dec corn was trading below the key 200-day moving average, and Minor is also watching the $4.75 area.
“We’ve been holding just below $4.80 now on December corn. I would like that old low from the other report day to still hold. But even the last few days, I don’t really want to take out much below this $4.77, $4.78 area on Dec corn. And if it does get taken out, I still do think there’s a lot of volume on this corn contract between this $4.80 to $4.60 area,” he says.
So Minor thinks those areas will serve as good support.
Soybeans Fade More China Buys
The soybean markets was also lower fading confirmation of China export sales in a “buy the rumor, sell the fact” type action.
A flash sale included 12.1 million bu. of soybeans for this marketing year to China and 10.4 million bu. to unknown. So covering all of the rumored business and the sales the last two days have been the first since the U.S. China Summit.
Minor says continued China sales will be important for the market.
“We had a break where they hadn’t bought anything from the United States. Now we’re starting to see a lot of purchases over the last couple of days here from China again. So if that continues, I don’t know how that soybean balance sheet does not tighten,” he adds.
Soybeans See Hedge Pressure
Soybeans were seeing harvest pressure and Minor says were also still absorbing the record 53.1 bu. per acre yield from USDA.
“Most of the reports out there I’ve been getting from farmers, soybeans ended up better than expected. Even in one of the worst production areas in the United States this year, I’d argue with weather right where you and I are sitting, the soybean yields have surprised us. We had the late August, September rains, and that really saved us,” he says.
Minor thinks soybean yields could go up as a result.
CONAB Numbers
Conab also came out with the first official Brazilian soybean production numbers at a record 181.64 million metric tons.
While this is below USDA’s 186 MMT estimate, Minor says this is just a reminder of the global competition that is right around the corner.
“Brazil increases their acres 2% to 3% almost every year. They continue with production with a nice linear incline. So no major changes there, but they’re the big wildcard this winter. Going forward, December with El Nino, the strongest ever here. They’re very vulnerable to a problem this winter, and I think that’s going to get watched pretty close.”
Planting pace has been ahead of average and so no problems have surfaced yet.
Harvest Marketing
Minor says with the additional bushels of soybeans farmers are harvesting he’s getting questions about marketing.
Corn is over 70 cents off the highs, while soybeans are 50 to 60 cents.
“So it’s not that bad of a price yet. A lot of folks here just wondering what to do about post-harvest here. Well, it’s really easy to get rid of soybeans. I mean, if you look at it, we’re only 50 cents off contract highs. Your yields were better than expected. It’s expensive with interest here. Storing $12 soybeans basis is actually really good still.”
So he recommends letting the soybeans go and focusing on storing the corn. “And from that point on, I guess the corn is more of the difficult decision. If you have to sell it at harvest, what does a guy do after these last two breaks if it isn’t sold? The good news is a lot of folks have a lot of corn sold already and especially in the western corn belt seems like guys have plenty of space this year with the size of crop they’re going to have on corn so i think a lot of folks will store and ignore for the time being.”
There is also carry in the market so producers can store and wait for a better basis opportunity this winter.
Wheat Bounces
Wheat futures were higher with a softer dollar index and lingering concerns about the Black Sea war and Europe’s higher prices.
“Well, Russia, Ukraine is still at it. That’s a pretty good support floor under things. The European regions as well, very short crop. They’re showing that the last couple of days with their prices tremendously higher. So just very good underlying support on these grains, I think. And the wheat is one really vulnerable to some upside here,” he adds.
Cattle Market Eyes Inflation
The cattle market was slightly higher on Thursday morning getting a boost from higher boxed beef values on Wednesday but still awaiting cash direction.
The previous two sessions have seen fund liquidation and selling in the cattle futures tied to inflation concerns.
However, he says with the dollar easing back it was supporting cattle Thursday morning.
Technically Holding
Minor says the cattle market is holding technically and has seen a nice steady incline but there is a lack of confidence it will hold.
“We’ve had a pretty good recovery, so retracement wise are we running out of time? I don’t quite know yet there but we haven’t
broke anything technically to make me too worried,” he adds.
He says there is a lot of capital that has been stuck into the cattle market.
Hogs Close to a Low?
Lean hogs were trying to bounce off new contract lows in the nearby contracts on Thursday which are trading at a discount to the Lean Hog Index.
Are futures getting close to forming a low? Minor says it’s difficult to call the bottom as supplies are building verses a year ago and weights are at record levels.
The other problem is demand.
“When you start to look at just the demand categories we’re still weak in the cutout we can’t turn on demand yet domestically or export. They’re both hurting. It’s the wrong time of the year to try to store in cold storage because it’s going to get cheaper
in a little bit, right, seasonally. So we’re stuck in between a rock and an impossible hard place.”
He says featuring is going up at retail stores as it is a real value, especially cuts like loins.
“We’re starting to see that in a greater capacity that you can actually track on a chart on our data library for example and that goes for other products too in the retail space loins etc it’s getting cheap enough now that they’re trying to feature it and hopefully low
prices can cure low prices here very soon,” he says.
