Grain markets ended higher on Monday, with cattle higher except October live cattle and hogs were mixed.
Grains Bounce Off Support
Dave Chatterton with Strategic Farm Marketing says corn and soybeans saw a technical bounce and short covering after holding chart support.
“December corn held the $4.15 area and tested last week’s lows in the November soybeans. When both of those held, we did uncover a little bit of short covering here,” he explains.
Report Positioning
However, both corn and soybeans saw positioning ahead of the September WASDE on Friday with expectations of lower yields for corn and soybeans.
Chatterton says farmers are reporting that production has been compromised for both crops with disease pressure, dryness in August and now even some frost over the weekend in the Northern Plains.
However, many of the private estimates are confusing the market.
“If you look at the pre-report surveys, they are looking for numbers that are lower than the USDA from last month in August, but not significantly so,” he says.
Is the Market Setting up for Report Disappointment?
While Chatterton thinks the yield on corn and soybeans is coming down he also thinks USDA could slow play any cuts in the September WASDE.
“I mean, keep in mind, this is the first report from USDA where they are gonna use their own objective field plot data as well as the farmer surveys to project the yield. And so it’s gonna be interesting to see how they handle that.
In the past the agency has been known to wait for more harvest results before trimming yields as was the case last year when USDA didn’t account for the dry finish to the corn crop until the January report.
This could leave the bulls in the market disappointed and create a selloff.
“Do I think we’re going to go set new contract lows? I don’t see that as being the case or going back to those old lows, but certainly I think there’s some room between here and there for the market to test the, test the levels on the downside,” he explains.
Will USDA Also Lower Soybean Demand?
The other issue in the September WASDE is soybean demand could be lowered due to the poor start to new crop exports and the lack of China business.
In fact, Chatterton doesn’t thinks USDA has a choice and will have to cut export projections based on current new crop sales.
“China has zero new crop U.S. soybeans on the books, and and just looking at the logistical schedule of booking a sale, even if it comes this week or next, you’re talking four to six weeks before you can load that ship. So the September and October, and maybe even early November sales to China from the U.S. have already been taken off the books here. We’ve got November, December, and part of January left if we can salvage that,” he says.
China Buying Higher Priced Brazil Soybeans
Chatterton says the market took note of the August data from China showing record soybean exports for the month at 12.279 MMT, mainly coming from Brazil.
“Michelle, you’re talking about Brazilian origin being $1 plus or minus higher than what the U.S. values are out of the Gulf currently. And in doing so, China is, I think the government has sent the signal to the crushers of, “Hey, we’re not buying U .S. beans. Don’t do it. We’ll be here to punish you if you do.” And until that narrative changes, they’re willing to pay that additional premium.”
Bloomberg speculates those imports have left Chinese crushers better prepared for a winter possibly without U.S. soybeans. China’s stockpiles of imported soybeans totaled about 6.8 million tons as of last Friday, near the highest since March.
Can China Go Without U.S. Soybeans?
China has also started to pull soybeans from their own reserves signaling to Chatterton that they are trying to bridge the gap to get to the next Brazilian crop.
But he doesn’t think China can go without buying some U.S. soybeans.
“Typically they’re going to buy 20 to 22 million metric tons, almost 800 million bushels. I think it’s less than half of that, certainly. And it may be, it may be closer to a quarter of that.” he adds.
Critical Week for Cattle
Live and feeder cattle futures ended higher except for October live cattle.
The market did not see a large amount of follow through selling pressure after the weekly reversal lower in both sectors last week.
Chatterton says it has been several weeks since those markets posted weekly reversals and so this will be a critical week.
“I think it is a key inflection point, Michelle. I think the caution sign is flashing here a little bit. Last week, the first week in 10 weeks that we hadn’t seen that nearby cattle contract close higher,” he says.
Cash trade ended steady last week with steers at $242.58 but the North was lower, while the South was slightly higher.
Boxed beef was higher at noon Monday, but fell over $4.50 on the Choice cutouts last week and that softness could continue post Labor Day.
Lean Hog Futures Consolidate
Lean hog futures ended mixed with nearby contracts lower and consolidating after new contract highs on Friday.
The funds have been buying in the hog futures and have pushed to nearly 124,000 contracts long and so they may be due to take some profits.
