Grain and livestock futures ended mostly lower for a second day.
Grains See Risk Off Day
Grain markets ended lower again on Thursday with a risk off tone with harvest in full swing.
Randy Martinson of Martinson Ag, says the grain markets rallied on Tuesday with the slow harvest progress but the weather has allowed farmers to get back in the fields and hedge pressure and farmer selling are starting to build.
“We’re seeing the combine start to roll finally. You know, up here in the Northern Plains, we’ve been going a little longer than some of you guys down in the western Corn Belt and central Corn Belt. But, you know, the fields are starting to firm up. Guys are getting
going. And, you know, there’s a lot of crop coming to town, especially, down in the southern regions where basis levels are extremely tight,” he adds.
WASDE in Focus
The market is also gearing up for the October crop production and WASDE reports with traders on edge regarding yield and how USDA incorporates the additional 173 million bu. of old crop corn from the quarterly stocks into their balance sheet.
Average trade estimate for corn yield is 177.8 bu. per acre, which is down just 0.7 bushels per acre from September, with soybeans up .1 bushel per acre at 52.8. The muted estimates imply that USDA will punt on the October report and wait for more yield results.
Martinson says, “I wouldn’t be surprised with that. You look at it, we haven’t really seen very good harvest progress. So I do think that they are going to wait to see a little bit more movement for harvest.”
Still, he thinks corn yield will be lowered while he would not be surprised if USDA left the soybean yield unchanged.
However, a less than a one bushel per acre yield cut on corn will not offset the additional old crop stocks in the quarterly stocks report according to Martinson. He thinks that inventory will show up as a cut to feed and residual by 230 million bu.
“We need to see at least a bushel and a half to offset that report completely. And, you know, we’ve got to remember, we’re also likely going to see USDA come in and lower ethanol demand for last year by a few million bushels just because we fell a little bit short.”
For soybean demand, he also anticipates crush will be lowered by around 9 million bu.
What Would Surprise the Market?
To get a bullish surprise in the report for corn Martinson says yield will need to drop at least two bushels per acre.
For soybeans even a half bushel cut in yield would be friendly with the tight balance sheet but the wild card is how much the quality issues in the western Corn Belt offset some of the strong yields in the central and east.
Martinson is betting those issues won’t show up until futures reports, if at all.
“If anything we might come in and see some test weight adjustments but that won’t happen until likely the December report,” he explains.
Exports Disappoint
Weekly exports were also disappointing on both corn and beans. Corn exports were at 30.3 million bu. and the total for the marketing year is down 34% from a year ago.
Weekly soybean exports were at 20.2 million bu. which Martinson says is justified with China on its Golden Week holiday.
“But for corn, you know, it’s kind of disappointing to see that we aren’t seeing that demand continue like we did last year.” That is likely a function of the higher dollar and the corn export program was at a record pace last fall with soybean exports crippled by China absent from the export market.
Plus, Mexico, which has been the biggest buyer of U.S. corn, is waiting to see how many cattle they’re going to actually be bringing in to the U.S. and what their corn needs are going to be moving forward according to Martinson.
“They have been still one of our better buyers. Japan continues to be a pretty strong buyer as far as our corn is concerned. But I think some of the other outside world markets are starting to slow down. They’re purchasing to wait to see if maybe they’re not going to get it from Argentina because of the big crop that they had,” he adds.
Strong Dollar a Headwind
The dollar has also been strengthening which is a headwind for corn exports.
He says, “We’re looking at the dollar at 18-month highs, and that certainly is putting some strain on, especially our wheat exports, and it is also impacting our corn exports.”
Wheat Exports Improve
Weekly wheat exports were stronger Thursday morning at 16.6 million bu. but for the marketing year total sales are down 32% from a year ago.
That has limited rallies according to Martinson, “Especially when you look at, Canada having harvest problems because of quality up there, because of the wet conditions. You’ve got drought in the European Union. You know, you’re seeing the Black Sea not be able to ship as much because of the infrastructure issues and the shipping problems they’re having. And yet the U.S. still can’t really get in and be competitive on the wheat export market. And that certainly is holding that market back.”
Geopolitical Roller Coaster
The energy, outside and ag markets were also on a geopolitical roller coaster with the developments on the Iran and Black Sea wars.
He says, “There for a while we were looking at, you know, having some major military action take place. We’ve even moved troops into place in the Middle East, you know, to kind of facilitate another escalation as far as with Iran is concerned. But now today, Trump kind of backing off away from that.”
Black Sea Alternative Export Routes
Plus, Ukraine and Russia just continue to bomb very important infrastructure facilities which limit their ability to export. Still there has been political pressure put on both countries to find ways to get wheat out of both countries.
“Russia has been working on trying to get another method of getting some grain shipped. They’re looking at moving some through the Baltic through some of their fertilizer export facilities. And that has helped alleviate some and help move some of the grain. Ukraine has not been as successful,” he points out.
Turkey has been working to get some humanitarian grain movement for Ukraine across Germany, which has not happened yet.
Hurricane Adds Uncertainty
While crude oil came off its highs when President Trump changed his mind about invading Iran, the futures help premium due to impending hurricane which already has 25% of refineries in the storm path shut.
The storm could hit cotton areas of the Delta and move up to slow harvest and cause lodging in corn in the southern Midwest.
“We are expecting to see rains come back up through the central part of the Corn Belt, dropping rain on some of the areas that have just been inundated all summer.”
Cattle See More Red
Cattle were down for a second day with continued consolidation within a sideways trading range as Martinson says the feeder cattle have recovered close to 50% of the recent correction in the market.
Cattle rallied on Tuesday as the stock market made record highs but was down on Wednesday and Thursday as the financial sector saw losses in response to the sharp rally in diesel and crude oil futures. Boxed beef values also fell.
“That’s kind of tied with gas prices and diesel fuel prices which are crimping the average consumer’s disposable income a little bit, to make them pay more for gas. Something’s got to give. And it usually leads over to buying a little cheaper protein source at the grocery store,” he adds.
Cash Trade Quiet
Very little cash trade has taken place this week but bulls think cash could be higher because the packers have better margins.
