Grains continue to rally on Wednesday with livestock leaning lower.
Rich Nelson with Allendale, Inc. says some of the strength in grains is technical buying and short covering.
However, there is also a fundamental push coming from moderating yield expectations in the South America and the U.S.
That was partially reflected in the Allendale 35th annual Nationwide Producer Yield Survey.
The firm estimated national corn yield at 182.53 bushels per acre, with soybeans at 53.33 bushels.
Nelson says, “The corn yield is actually slightly under USDA’s August WASDE view with the soybean number just minimally over USDA’s number. Those aren’t really bullish stories, but they’re bullish considering the fact that the market had been pricing in a much larger yield discussion in prior weeks here.”
As a result, they projected the U.S. corn crop at 15.097 billion bushels and a soybean crop of 4.601 billion bushels.
Nelson says since they were so close to USDA’s estimates he thinks its possible there could be only minimal changes in the September report.
“I give it a 50-50 chance on whether USDA holds yields are raises them on next week’s report. The message from the survey is if we do have a yield increase maybe it won’t be a sizable jump,” he explains.
South America is also seeing some early crop issues due to dryness but acreage expansion may be curbed by the declining margins for producers in Brazil, plus pest problems in Argentina.
That combined with a pick up in export demand for grains, especially soybeans, could keep the rally in the grains markets going for awhile in his opinion.
“Really this is not a big story for the corn side, but its a big story for soybeans especially with this 560 million bushels stocks number USDA gave us. Then the market was two or three weeks ago was pricing in the belief of maybe 620, maybe even up to 650,” he says.
To keep the funds buying the markets need to get past the highs from a month ago because prices are starting to run into chart resistance, according to Nelson.
However, he sees another 30 to 40 cent rally in corn, with soybeans more limited, up only 20 to 30 cents higher from current levels.
Cattle futures consolidate with some early lower cash at $180 in Kansas verses $182 to $183 last week and despite strong beef values post-Labor Day.
“We haven’t seen a push back by consumers on wholesale beef,” he adds.
Hog futures also set back after a strong chart breakout and push from stronger demand. So is the rally over?
