Grains started mixed then gained strength, while livestock were mostly higher except deferred feeder cattle.
Corn Bounces on Crop Ratings
After 13 cent losses on Monday the corn market bounced Tuesday morning with the help of lower than expected crop ratings.
Nationally, USDA rated corn at 63% good to excellent, down 4% from last week and the biggest drop for this time of year in 20 years.
DuWayne Bosse with Bolt Marketing also farms near Britton, South Dakota and says the heat and drought in the Northwest Corn Belt is taking its toll on the crop.
“I’m in South Dakota, one of the states that dropped a lot more than 4%. South Dakota and North Dakota are both down to 50% good to excellent. And our main client base, of course, is calling in saying, you know, this crop is really going backwards. We’re losing yield. How come the markets were down hard on Monday?”
He chalks it up to the strong ratings in the I-States including Iowa at 80% good to excellent.
However, he thinks the Western Corn Belt could keep yield from going over 180 bu.
Extreme Nighttime Temps
Bosse says the heat and drought are trimming yield and for the corn the big deal is the extreme nighttime heat.
“I am concerned about it, maybe for the first time for the Dakotas, but I will say that the humidity and dew point should have allowed us to pollinate okay,” he says.
However, with 100 degree temps in the Dakotas and heat advisories if the area was going to have pollination issues it would be warranted.
National Corn Yield Falling?
With the U.S. corn crop rating 10% below last year does the yield need to drop from the current 183 bu. per acre?
Bosse thinks so. “The last couple of years, we had some monster crops in Illinois and Iowa and still until last year we couldn’t get above 180 because the corn belt’s expanding and it takes a good yield in the Dakotas and Missouri and South Carolina, North Carolina, you know, to really pull it all together.”
He thinks yield could eventually fall to 175 to 176.
“Which would get interesting, the S&D tables were, not bearish even at a 183 yield. So you mix that in, I’m going to get kind of bullish longer term.”
Close Important for Corn and Soybeans
Technically the close in the corn market will be important to see if Monday was just a correction or the end of the rally.
Bosse says the market has gap areas to fill below current levels on the charts but still the funds have been buying grains the last couple of weeks and pushing it down in June.
He thinks if the weather forecast continues to moderate the funds may sell those positions on any pop in the market.
“They pushed the market too far down. Now they’ve rallied it up on this heat and the hot weather. And I think they’ll probably look to get out of those longs. They’re long maybe like 100,000 contracts of corn and a little bit more in soybeans. That’s the seasonal tendency for them to get out of those longs this time of year.”
Grains Remove Risk Premium, See Profit Taking Monday
Grain markets corrected on Monday on profit taking as it is nearing the end of the month and markets were overbought and needed a correction.
The grains were also removing risk premium on the de-escalation of the war in Iran and the sharp drop in energy markets.
Soybeans were also trading the change in the weather to cooler and wetter for August.
He says, “We’re closely getting to closing the book on the weather season for corn, but soybeans are still wide open. I mean, man, especially up here, you can catch rain in August and really make those beans.”
Soybean Ratings Drop
The national soybean ratings also dropped 3% to 63% good to excellent are are down 7% from last year.
Bosse says the heat and dryness in the Dakotas has set the crop back and both North and South Dakota saw a 6% drop in the good to excellent ratings.
“A lot of them are kind of going backwards up there, and they plant a lot of soybeans. And that’s what makes it tough in this office. Like yesterday, I’m getting plenty of phone calls of people going like, why is the market down? The crop’s lost.”
However, he says the market is looking ahead at the forecast for better rain chances for other areas of the Corn Belt.
China Buying Spree Continue?
The soybean market got spooked Monday as China media reports indicated Beijing was upset about the Section 301 tariffs invoked by the U.S. on Friday at 12.5% and their forced labor allegations.
However, Bosse says China has been buying soybeans and he doesn’t think that will change. In fact if prices dip 50 cents, they will likely buy even more.
And President Trump has reiterated that President Xi is coming to Washington in September and so far they upholding their commitments on soybeans.
“Their recent buying is actually putting them on pace to buy 25 million metric ton. I don’t think they buy all of that. But if they can keep this pace up, it makes the market concerned that maybe they do. And will we really have that many soybeans? So that was part of the rally here the recent weeks,” he adds.
So, if the market sees China return for sales it could easily recover according to Bosse.
Can Wheat Recover?
The wheat market set back late last week on rumors of a deal to allow grain to move in the Black Sea but Ukraine was quick to deny the rumor and fighting continues to escalate.
So if the export disruptions continue will wheat be able to recover?
Bosse says, “Yeah, I think it can. I would assume by tomorrow they’re fighting again, right? And I mean, obviously here we’ve got a
smaller crop. Yeah, globally exports are a major concern out of key areas. So I don’t, I’m still kind of bullish the wheat market. And I haven’t said that for a lot of years, Michelle, but this market just seems like something that has some more upside potential.”
Spring Wheat Crop Deteriorating
Plus, the spring wheat crop has been deteriorating in the Dakotas with the heat and dryness. South Dakota’s good to excellent rating dropped 15% last week.
Bosse says the crop had great potential early on because it was cool and damp but the heat is hurting the crop.
“It’s turning too fast, pushing it to harvest instead of that slow, nice fill. So we had a great crop coming. I’m not sure what’s going to be out there now. I mean, it’s not a disaster. We were far enough along, but we definitely trimmed some yield up here.”
Is the Grain Rally Over?
So was the correction in the grains just a health correction or is the rally over?
Bosse thinks it was just a correction. “I do feel like we’re in a bigger bullish cycle. I guess for me, I’m kind of mostly a fundamental trader and I go back to world stocks and seeing them tighter, seeing the U.S. situation tighter. We’re not building stocks in the U.S. or in the world so i think it’s a it’s a short-term pullback and another longer -term bullish cycle,” he says.
He says that doesn’t mean producers shouldn’t hedge.
Cattle Market Bounces But Will it Hold
The cattle futures were down hard on Monday with limit down closes in the deferred feeder futures on a negative reaction to USDA reopening the border to Mexican cattle starting Aug. 24 at the port in Douglas, Ariz.
However, the market was seeing a nice recovery Tuesday morning.
The question is will it hold?
Bosse says the market has already had a sizable correction and may have over reacted to the news.
“Now, we don’t bring in that many cattle, but just the idea that we will have more coming in. And when you looked at the cattle on
feed reports, some of the reports I have seen, like the numbers up here in the north have actually increased. I think we have been building the herd, but like in the south and Texas, numbers are still very low on feed. Well, I think that’s part of the border just being closed,” he explains.
Still the funds may not be done liquidating and so $311 to $320 is still a good price for feeders and worth protecting.
Lower Cash
The market had already corrected nearly $25 to $30 from the highs getting drug down by lower cash.
Monday some light trade developed at $228 in Kansas and $360 dressed in Nebraska, which is lower than last week on light volume.
The five area weighted average steer price was down $7.80 last week to $230.48 and has corrected nearly $30 over the last three weeks.
Bosse says, “That has to stabilize before the futures market will stabilize. We used to have this huge premium in cash to futures. That’s
kind of wiped away now. So you can’t even say futures are oversold and should bounce back.”
Plus, packers have the leverage through heat and captive supply.
