Corn and soybeans ended lower with wheat higher on Thursday, cattle collapsed.
Corn and Soybeans See More Profit Taking
Corn and soybeans were lower on Thursday seeing further consolidation after hitting chart resistance and failing.
Alan Brugler with A&N Economics says the markets had gotten overbought. “Yeah I think we we got up into the resistance. If you look at the December chart at $4.65, $4.73 there’s some resistance there. You had a nice run up so take a little money off the table and then see what comes in the USDA report.”
WASDE Expectations
Brugler says with a report on Friday there were also some nervous longs.
“USDA tends not to go as far with some of the moves as what you can guess they might from the grain stocks and the planted acres reports that we saw back at the end of June. So it makes some sense.”
Spain Tensions Rise
Some of the headline traders may have also caught hold of the rising tension between the U.S. and Spain and President Trump’s threat to ban exports to them.
However, Brugler doesn’t think it had much impact on the market. “I think it’s a talking point, but that’s about all it is. Spain is a fairly big corn buyer from us. And so, yes, if we’re in a fight with Spain, corn’s going to be a victim.”
Weather in Focus
Wednesday part of the selloff in corn was tied to a cooler noon GFS run. However, it turned back a little warmer and drier on Thursday.
However, Brugler thinks the market has enough weather premium for now.
“The thing that I’m really watching is, of course, that the temperature forecasts have been running much above normal for a sizable chunk of the country. Yes, the hot, hot part on the map right now is a little west of the Corn Belt. But what I’m looking at is those high overnight temperatures. And we’ve tended, when you have high overnight temperatures, you tend to have a little yield loss, even if you’ve got adequate moisture. So that’s something you have to watch. It’s sort of on a state-by-state basis, though.”
He says if crop rating on Mondays drop further, our yield models are going to tend to want to back off a little further from USDA’s 183 bu. per acre.
Soybeans Fade China Sales
USDA confirmed another 5 million bu. of soybeans sales to China and 4.4 million bu. to unknown on Thursday morning but the market faded it.
Brugler says its a buy the rumor, sell the fact trade reaction. “I think because we had a big chunk of business early in the week there that USDA subsequently confirmed under the data reporting system.”
Still he thinks its positive they’re buying part of the 25 million ton commitment for new crop beans.
“They normally don’t buy it until July and August. And there was some concern that they hadn’t bought any in June. They normally hold off on that new crop until our new crop is actually a little better established. So the fact that they’ve started buying is positive. It may be window dressing for some of the trade talks and the back and forth with President Xi in China. But the bottom line is it’s helpful,” he adds.
How Much Has China Bought?
So what is the running tally so far on China soybean purchases, will they buy more and when?
Brugler says, “I would expect if nobody’s trying to make a point, they’re going to want to buy 10 to 12 million tons before we actually get into harvest. They want to have that on the books for shipping a little later in the season. They won’t be shipping new crop, obviously, until October or later.”
However, the total is like over one million metric tons or closer to two million if you could unknown destination sales. “But again, pretty impressive totals for the week to date,” he adds.
Talk circulated again on Thursday of more cargoes being sold to China that could show up on flash sales on Friday.
“Yeah, there’s some sales that have been reported in the trade that haven’t shown up in the USDA numbers yet,” he concludes.
Can Soybeans Retest $12?
The market will need more business and more confirmation to get a close back above $12.
Brugler says, “Yeah, you’re overblown. You’re up against resistance. And what you don’t want to do is get too far over your skis here where the bean price is higher than what the Chinese want to pay. And then they just find a reason to pull in the reins for a while. We are still competing with South America. South America is a bigger supplier than we are.”
Wheat Pops Ahead of WASDE
The wheat market reversed a lower opening on Thursday on short covering.
Brugler says, “You had really nice basing action in wheat. We’ve confirmed the nine-year cycle low, but we really haven’t run too far. You’ve got some fairly stiff chart resistance in the $6.50 area on a couple of these contracts,” he says.
Plus, there was positioning ahead of a potentially friendly WASDE Report.
“The bottom line is trade average guess is looking for a production reduction tomorrow morning. It’s also looking for world ending stocks to drop. I think the average guess is about 2 million tons from last month. So a little tighter there.”
He also points out the biggest world exporter, Russia, has a tremendous crop, but they are also having serious fuel problems and have to ration fuel.
That will make it difficult to harvest the crop and get it moved to market.
Cotton Market Holding
The cotton market says a little profit taking ahead of the WASDE and after the big rally to start the week but that market is also watching weather and hoping for more China business.
Can December stay above 80-cents?
Brugler says that has been difficult because above that price level export business slows down.
Still the cotton cash index went up more than two full cents a pound a couple days ago that tends to show up in the futures as well.
“Some of the long-time cotton analysts have been advocating making some cash sales when you get above 80. but again I like the chart action We got some buy signals we haven’t had for a while of cotton.”
Cattle See Technical Selling
Cattle futures ended lower on Thursday and nearby feeder cattle closed below the key 100-day moving average.
Light cash was reported at $248 and $393 and choice boxes were lower as well again at noon, which dampened the market.
However, Brugler thinks it was more fund long liquidation.
“I think a lot of it is, in fact, technical. If you look at the August daily chart for cattle in particular, you have a head and shoulders set up. You haven’t broken the neckline yet, but that’s setting on top of basically a 12-month rally in cattle futures,” he says.
Plus there are some old longs with fairly substantial gains and the index funds will roll out of their positions at the end of July.
“Obviously you’ve got longer the deliveries in August before you have to get out but I think the funds are lightening up their position here. We’ll look at the commitment of traders report to confirm that.” he adds.
