Grain and livestock futures were mostly lower early Wednesday.
Grains See Pre-WASDE Profit Taking
Grain markets were mostly lower to start Wednesday, despite sharply higher crude oil, the Black Sea war escalating and flash export sales.
Mike Castle with StoneX, says the risk off selling was tied to profit taking in the grain markets ahead of the September WASDE on Friday.
“We’re coming into this with these massive, in some cases, record fund longs throughout the entire grain and oilseed complex at this point.”
The market was fading every bullish headline as a result, most notably Ukraine damaging Russia’s Black Sea port of Novo, their biggest commodity exporting port out of the Black Sea.
“That flow is still pretty much shut off. Russia is trying to cut off Ukraine’s alternative with the overland routes, struck another border target with Moldova here in the last 24 hours. So most of the kind of signs are still pointing to that escalation,” he explains.
WASDE Average Trade Guesses Out
The average trade guesses have been released with corn at 178.2 bu. per acre, down 2.5 bu. from the August WASDE.
Castle says the market is trading a 177 to 178 bu. yield already and historically USDA cuts their yields moving from August into September.
So, he thinks USDA is likely to lower yield from the August WASDE.
He points out that the survey based estimates are on the low end of the spectrum with satellite-based estimates closer to 184 to 186 bu. The condition index model is close to USDA in the low 181 area on corn.
“So truthfully, I don’t know that they have a huge need to move a significant amount either direction. But again, the seasonal pattern is usually to see USDA move a little bit lower from that August number into final, with September being kind of one of the stepping stones along the way.”
Soybean yield estimates are at 52.5 bu. per acre, down just .2 bu. from August. So no big changes are expected as it is too early.
“Yeah, I don’t think you’ll see a huge move. Again, just timing is really a big factor there,” he adds.
Although he points out that looking at precipitation by weighted area of where soybeans are produced in the U.S. it indicates USDA needs to move soybean yield up by about .5 bpa. He says that isn’t likely to happen until October or later.
“Despite some of the flooding in August, moisture is favorable for soybean yield at the national level. Again, how do you offset that against all this heat during pod fill? It really is going to come down to how mature the crop was,” he adds.
StoneX Estimates Above Average Trade Guesses
StoneX released their September customer survey estimates Tuesday afternoon, which came in with yields at 182.9 bu. on corn and 53.0 on soybeans.
Castle says, “That’s a drop of 1.9 bushels per acre on the corn side from last month, unchanged on the soybean side of things.”
He says the drop is based on the extreme weather since the August WASDE.
“Obviously, last half of August, you saw an extremely wet pattern, especially throughout the eastern Midwest. And obviously, you know, not to discount the areas that are flooded out that had complete production losses from this. The broader pattern is more rain across the area, so it’s going to be interesting to see how USDA offsets that versus this kind of heat wave that we’ve seen that’s kind of sped up maturity over the last couple of weeks,” he explains.
StoneX’s 53 bu. yield on soybeans is unchanged from August because it is too early to make wholesale changes according to Castle.
“It is worth pointing out this September StoneX number has been within 0.3 bushels of USDA’s September number all of the last three years.”
StoneX State Yield Estimates
Looking at some of the state by state yield estimates from StoneX there are some interesting results. For example Minnesota corn yield is pegged at 202 bu., Nebraska at 186 and Illinois at 212. Those are high relative to what the trade is thinking but Castle says are based on customer surveys.
“This is not just someone at StoneX putting a number together. This is a very large undertaking it’s actually done by our Des Moines office. We did see kind of all of the western states, specifically the Dakotas, Nebraska, Kansas, even Minnesota, and Iowa all down from August. Missouri, Michigan, and Ohio were the only states to see increases.”
He says again its a reflection of the finish in August which was wet in the Eastern Midwest and dry in the West, especially Northwest.
“Last year, we saw a similar situation. The StoneX customer survey estimate was higher than everyone else and ended up being the closest to USDA than everyone else.”
Heat Speeds Maturity, Impacts Yield and Harvest
While maturity is ahead of average on soybeans nationally, the later filling soybeans in the North could have been hurt from the heat and some areas were also dry.
With the heat pushing early harvest on both corn and soybeans, he says the combine reports should provide a better feel for production.
“So far, early stuff has largely been either in line with expectations or better to this point. But it is worth noting some of those areas had very low expectations, right? Like the Southern Plains, for example, where they’re already in full swing. They obviously had a pretty ugly finish to the season and not a great growing season to begin with not a shock to hear.”
Demand Staying Strong
On the demand side of the balance sheet additional flash sales are showing up which is an indication prices are not getting too high to ration demand.
Mexico bought 7.2 million bu. of corn. China bought another 12.5 million bu. of soybeans, unknown was in for 3.6 million bu. This follows talk on Tuesday of China purchases.
Castle says this is encouraging. “The fact that we’ve seen China now get probably roughly about halfway to that 25 million tons that they allegedly agreed to it’s good to see them continuing to show up in those daily flash sales. Yesterday we didn’t get any that broke a streak of six consecutive business days with them so seeing that return again reports of even bigger volumes than this points to how strong the demand side is.”
He says with record crush and new crop export sales at a four year high it means the U.S. soybean inventory is already running tight.
“We were crushing over half a billion bushels less of soybeans four years ago. So it is a significant tightening. Right. And I would expect China to continue to make purchases up until Trump and Xi’s meeting later this month. So it’ll be interesting to see how far they want to get before that.
Again, they’re probably roughly halfway. Maybe they try to get closer to a 15 million tons or so,” he adds.
Canada Trade Spat
At the same time the U.S. trade spat with China is escalating as Canada put 15% to 50% tariffs on $20 billion of U.S. goods on Tuesday and the U.S. reciprocated by banning imports of products like whey, alcohol and motorcycles from Canada.
Is this being traded by the market?
Castle says, “I think you could say that negative headline maybe is some of it. At this point, we’ve seen this rhetoric between the U.S. and Canada for a year and a half at this point. The vast majority of ag products specific to the grains, fertilizers has been exempt. So we assume that’s going to continue to be the case. Hopefully we don’t see it escalate to the ag side. Truthfully, I think this is overall a negative for both sides. We’ve built very, very efficient systems from Canada, the U.S. into Mexico that operate as one very, very efficient supply chain.”
So, he says, adding these tariffs is just a detriment to both sides and he hopes they can reach some kind of agreement.
Cattle Market Consolidates
The cattle market has a strong showing on Tuesday but was seeing some consolidation on Wednesday.
Castle says profit taking, the lower equity markets and higher crude oil were all playing a role.
“Yeah, obviously, we’re seeing this kind of broader selling pressure throughout the entire commodity complex. It was nice to see that reaction on the future side in response to the strong cash trade we saw Friday and then over the weekend. It is worth noting, you know, that’s technically it’s not in the five area average for confidentiality regions, the trade that took place in Kansas and Texas.”
He thinks the market is trying to bottom.
“I think, the worst of this psychological impact. of these big, you know, tariff-free beef imports and then obviously as well, the reopening of the border, maybe both kind of, you know, seeing the worst of that negative sentiment priced in at this point and trying to find that bottom.” he adds.
