Grain and livestock futures closed mostly higher Tuesday except corn.
Wheat Rallies Adding War Premium
Wheat futures were back higher on Tuesday with gains of 9 to 16 cents following losses of 25 to 50 cents in the three classes last week.
Peace talks with President Putin in Russia over the weekend were a bust and so wheat was adding back geopolitical premium according to Mark Schultz with Northstar Commodity.
“Yeah, the peace talks lasted as long as Kirshner and Witkoff were in both Russia and Ukraine. As soon as they left, the missiles started to fly once again. So I don’t really see any resolution taking place anytime soon in that region. So we have definitely slowed down the movement of wheat coming out of that region into the world markets,” he says.
As a result Schultz thinks there are end users buying because they don’t have enough coverage in place.
Black Sea Exports Down
How much are Black Sea exports down?
Schultz says,"What I’ve seen is some figures here that they’re down some 50% from where they were a year ago at this time. That’s a pretty sizable number. Now, you can still get caught up, but something’s going to have to change here within the next week or month to two months. If it doesn’t, you’re going to see it’s just going to be difficult to get wheat and you would start seeing wheat prices move higher here,” he says.
Will Wheat Retest the Highs?
If that end user buying starts to accelerate will the wheat markets retest the highs?
“Yeah, on the technical side, we really didn’t do any damage to the market. Obviously, we got a lot of length in all of the grain complex at this point,” he says.
It won’t be long before the market will also need to add weather premium.
“That may come into play later on when you get to the last half of September, because there’ll be winter wheat seeding starting probably around the 1st of October, goes to about the 10th of November. And right now, a lot of those areas are extremely dry. Looks like you’re going to see a change in the weather and get some moisture, but it’s going to need it in order to get things back going there,” he explains.
So the market is about 30 days from having a full blow weather market.
Soybeans Rally on Supply and Demand
Soybean futures were higher with the surge in bean oil prices but also getting support from tight supplies and strong demand.
Schultz says, “We’ve got strong business being done. You still got the Chinese, which probably have 50, maybe 60% of the beans covered of the 25 million metric tons they are supposed to buy. The business has still been very, very good.”
He says harvest is ramping up and while there are some good bean yield in many areas he is hearing of some trouble spots.
“The corn yields in the south are running pretty good, but the bean yields are going to be in trouble here, and it may get to a point that it’s just too late to even have rains help them out unless the rains are significant. I think the damage has already been done.”
So he thinks there is a risk of the national soybean yield dropping down to 51, or even 50 bu. per acre.
Will the WASDE Confirm Lower Yields?
However, will USDA confirm the lower soybean yields in the WASDE on Friday?
Schultz says it’s too early for that kind of cut. “I don’t think they’ll drop that much at this point because I think they’re going to have to see the yields coming in off the combine.
However, eventually the key states of Ohio, Indiana, Illinois, and Iowa that need to have the big yields are likely to fall below last year and that will push prices higher.
China Keeps Buying
Meanwhile China has been buying U.S. soybeans as the price been lower than Brazilian prices.
He thinks China has bought over half of their soybean commitments and it may be higher if unknown sales are converted over.
But Schultz says China is likely to keep the buying spree going into the Sept. 24 meeting with President Xi.
“I wouldn’t be surprised if there is some more soybean purchases ahead of this, it could also be wheat. It may also be corn. Could be some other ag products on top of it. So, well, the jury’s still out on that part, but it is still demand driven,” he says.
He also believes Brazil is out of soybeans and so only Argentina and the U.S. have any supplies.
Double Crop Soybeans Look Profitable
At the current prices soybeans look profitable and could be in a battle for more acres with some of the best profit ratios in history.
“Yeah. If you take your new crop wheat price and add it on to your new crop bean price, people in the South can put the wheat in, double crop it with soybeans. You add the two together, subtract the new crop corn for 2027. And you got one of the best ratios you’ve seen in over a decade,” he says.
The only other year that was better than this was 2023 and in that year farmers planted 3 to 3.5 million more acres of wheat.
“So, I expect to see more wheat acres to the tune of two to three three to four million more acres next year on U.S. wheat,” he adds.
Corn Fails
Corn futures were unable to follow wheat or soybeans higher on Tuesday.
Some of that was apprehension going into the WASDE on Friday but also because funds are already record long in the corn and did not want to extend that long without proof of a smaller crop.
“I don’t know if they bring this yield down on corn as much as we may want to see. I think there’s areas that are really bad, but also it’s up and down. And I think the big difference is going to be is that throughout the fields, you’re going to see a big change in yields going through the harvest,” he explains.
There is inconsistency in fields and the poor soil is going to produce poor yields and the good soils will see good corn yields.
He says the amount of harvest pressure will depend on the size of the crop. “And I don’t think we’re really going to know the yield quite as well as we think we do until we start seeing more of the combines roll,” he says.
StoneX Estimates
The corn market was also concerned about StoneX releasing its yield and production estimates after the close. The market may have been anticipating a higher yield compared to other private firms just based on last months figures.
“Yeah, I mean, they’re usually are running on the higher end in here. It’s just another educated guess on what the yield is going to be.” he adds.
He thinks harvest acreage on corn may also drop due to the silage cut early due to drought.
Corn Struggles at $5.50
December corn also struggled last week at resistance around $5.50.
Schultz says, “Oh, absolutely. I mean, we got into the $4.95, then it went to $5,25 and then $5.50. Once you clear that, then you’re going to start talking about $5.80 to $6.00. And then you’re going to start talking about, instead of $0.25 increments before you run resistance, if you clear
$5.50, you’re going to start talking about $0.40 to $0.50 moves to the upside before you find the next resistance level.”
Cattle Rally With Improving Cash
Cattle futures saw nice gains on Tuesday on the heels of improving cash trade late in the week at steady to firmer money and boxed beef prices have been holding together according to Schultz.
“When you look at this, you’ve got $218, $222 for cash cattle. You have the futures trading down, what, to October cattle at $213. I mean, you’re trading at a discount. Yeah. So to me, the market was set more for being careful. I don’t want to sell too many down at $213 when I can already get $222. So I’m hoping we start seeing a little bit more movement,” he says.
Schultz thinks weights need to start moving lower for the market to sustain a rally.
“That will likely happen eventually if feed costs continue to go on up in here. I think you’ll see the weights eventually start to come down and people get a little bit more current on the cattle on here,” he says.
Technicals
Technically, closing $217 on October cattle will help the charts look healthier accord to Schultz.
“I think we were just overdone. I think you’re going to see a little bit more of a bounce to the upside on the cattle market,” he adds.
The funds also need to add to their long position in the cattle as they exited on fear of the President’s plan to lower beef prices.
Executive Orders Won’t Change the Market
The President’s executive orders signed on Friday will not materially change the cattle market reiterates Schultz.
“I don’t think you do much on changing the dynamics of the market. I would suffice to tell you, I think there’s more guys thinking about leaving the cattle industry, culling the herd down just because it’s got so dry in the western half of the U.S. and the feed costs have gone up. So it’s going to get more and more expensive to keep the cows around here for the time being. So I’d be a little bit careful about whether we’re going to see any type of expansion anytime soon,” he states.
Hogs Follow Cattle, Higher Cutouts
Hog futures were higher on Tuesday due to short covering and higher cattle futures but continue to struggle to close above key moving averages like the 40 and 50-day. Cutouts were up $7.30 at noon which provided some support as well.
Schultz is hoping the market can continue to rally as the futures discount is getting wide.
“A couple weeks back, I thought the market would bottom somewhere within the next one to three weeks. I think the low has been put in. I don’t think you want to be short the hog market at $72 December hogs. For goodness sakes, you got $88 cash hogs. Why would I want to give up the ghost and go to $72? So I have no intentions of being short. I’d rather be long the hog market than I would be short the hog market in here,” he says.
Plus he points out the U.S. has a tighter supply across the board of poultry, beef, and pork.
The key is to see demand for pork improve as beef is still expensive to pork especially with rising gas prices.
“I think eventually when you stay with high price fuel for this extended period of time, I think eventually it starts to wear on the person and you’re going to start seeing a little bit better demand shift back out of beef and over into the pork complex,” he concludes.
