Grain, energy and cattle futures were mostly lower early Tuesday with hogs higher.
Grains, Energies Consolidate on Peace Hopes
The grain and energy markets were mostly lower Tuesday with some consolidation and profit taking as the market turns its attention towards the U.N. General Assembly in New York.
President Trump was scheduled to speak and there were hopes for some movement to bring peace to the wars in Iran and the Black Sea according to Lane Akre, economist with Pro Farmer.
“I think you can look at the wheat market to kind of lay that out wheat wasn’t a leader on Monday it was more of a follower and we’ve given up most of the gains that we saw on Monday already here on Tuesday we are a little bit off the lows. I just think the prospects for peace in the Black Sea and peace between the U.S. and Iran are really weighing on wheat and you can also look at crude oil which is trading lower,” he explains.
Corn and Soybeans Still Trading China Hopes
Akre says the corn and soybean markets were lower but holding better than wheat on hopes for more ag purchases from China as part of this week’s Summit.
Funds are still long in corn and soybean markets with strong underlying fundamentals but the bulls want more details from the China Summit regarding the lowering of tariffs and the specifics on the $17 billion of ag goods outside of soybeans.
Beyond that Akre thinks the market needs proof of sales.
“This market is in a show me state and I’m kind of in the same place. We had the headline from Bloomberg Sunday night talking about 260,000 metric tons of soybeans getting booked to China. And, you know, we didn’t expect that daily sale yesterday. We expected the next business day this morning, no daily export sale. So we’ve had a few of those where it’s like we’re not living up to the expectations where these news wires are publishing and I think the market kind of reacted to that headline yesterday,” he says.
China had been on a steady soybean buying spree but those sale have slowed the last couple of weeks.
Market Awaits Details of $17 Billion in Ag Sales
Akre says the market wants to see details and purchases around the $17 billion or $14 billion of prorated ag purchases for this year.
“They’ve purchased a little bit of sorghum but outside of that they haven’t bought a lot outside of soybeans so some more clarity on
that or just affirming that there’s going to be some of these additional purchases because you know we just haven’t seen much of it yet,” he explains.
China Buying Corn Futures?
There was talk on Monday that China was buying corn futures ahead of U.S. purchases similar to how they bought soybean futures last October but that is hard to track or confirm.
“You never know who’s on the other side of that trade. You can kind of look at the options market. You can see these huge block trades and be like, oh, that could be China buying but really, you have no idea. And now funds play such a big role in these markets that they could
be entering some of these block trades. You never know who’s on the other side. And even if you’re looking at the CFTC reports on Fridays, you’re never going to figure out who individually has those trades. So it’s all speculation,” he adds.
What Will it Take to Make New Highs?
Corn had a strong technical close on Monday but is trading under the $5.49 3/4 contract high, while November soybeans also traded just under the contract high from Sept. 11.
What will it take to get above these areas?
Akre thinks if the China meeting is constructive those areas will easily be taken out.
“We’ve gotten pretty close twice in the last two weeks. I think the market’s really looking for a reason to push higher. And every time we kind of press up against it, that resistance gets a little bit weaker. So I think soybeans are set up really well here right now. You know, right now we’re less than a dime off that contract high,” he says.
Corn is a little tougher lift with the unknowns on yield and harvest reports all over the place.
Harvest Progress/Delays
Harvest progress was ahead of expectations at the five year averages on Monday at 13% on corn and 12% nationally on soybeans.
However, Akre says there are major harvest delays in areas with too much rain like parts of eastern Iowa which have firmed up basis levels in those areas.
“Here in Iowa we’ve got soybean spot bids that are a $1 over the market but guys can’t even get out in the fields to harvest them,” he adds.
Akre notes that the faster than normal harvest progress is deceiving because the southern areas are well ahead of normal due to the heat and that’s making up for the areas in the north and west that are behind.
“It’s been 60 degrees and rainy in iowa and in parts of Kentucky and southern Indiana even southern Illinois they’ve been under heat advisory for more of September than not so they’re they’re looking at corn that’s already 14% moisture. So they’re pushing as fast as they can we’re just not seeing that up here right now,” he states.
Akre thinks that the report itself is flawed with USDA cutting staff the last couple of years and no one to go out and do crop progress checks.
“They just use the long-term averages. So it’s hard to give a ton of credence to those reports. It’s good to look at the year-over-year comparisons, but oftentimes if it’s running within the average, you have to wonder if they’re just plugging in some of those old numbers and it’s just an unfortunate reality of some of those staff cuts,” according to Akre.
China Deal or No Deal?
So is it more likely the China talks will end up disappointing the market and creating a sell off or will there be meaningful purchases that will push the market to the next leg higher?
Akre speculates that the market needs to see some bigger China soybean sales and shipments to keep the bulls satisfied, “If we see that tariff get reduced to zero in China for U.S. beans, I think that would be a big boost but if not I think there is some room for the downside.”
So $13 will be key support in the November soybean contract and he thinks if there are concrete deliverables, that level will hold the funds will defend their near to record long position.
“Typically when they’re near record long or record long, they tend to cover more longs and they usually buy more, but records tend to get broken. So we could see that push higher,” he says.
Cattle Correct Awaiting Cash
The cattle market had a strong rally on Monday pushed by the record low placements figure in August.
However, the market was consolidating as it ran into a little chart resistance and was awiting cash.
“Last week, you saw that just modest week over week decline in the cash market. And I think the feedlots have really shown their hand
and they’re willing to hold on to these cattle. Despite the diminishing returns and keeping them on feed, just waiting for better prices. The cattle that are on feed now, you also have to consider they paid up for them as feeder cattle. So they really kind of want the fats market to work higher so they can get a decent return on their investment,” he says.
Cash last week averaged $221.48, down $.95 but that isn’t an accurate reflection of the cash market considering Texas and Kansas trades at $225 to $226 were not included due to confidentiality.
Akre says the futures have stalled right where the cash market developed last week.
Hogs See Short Covering
Lean hog futures wre higher early Tuesday extending gains seen on Monday off contract lows.
However, Akre thinks it is just some short covering as the market was oversold.
“I would chalk it almost all up to technicals. We’re in the lower end of that recent trading range. We’re still trending low on the daily bar chart, but we’re in the very bottom of that range. So just a little bit of technical buying. But the way that the cash market is acting, you know, we continue to chip lower. It’s barely above 80 bucks. And I continue to chip lower seasonally. I think futures are probably going to get sold sooner probably rather than later,” he concludes.
