Grains ended higher except for corn with livestock mostly lower.
Grains Position Around Fed Decision
The grain markets closed with soybeans and wheat higher, corn well off its lows after the FOMC decision.
The Fed raised interest rates the expected .25%, the first rate increase in over three years.
Garrett Toay of AgTraderTalk grain markets traded cautiously before the announcement with some selling pressure.
“Yeah, it’s kind of been the case the last years that the grain markets take a backseat when we’ve got a macro day like today,” he says.
He says the Fed decision was a push pull. “I mean, we obviously know where the White House stands as far as interest rates are concerned. But we also can see the inflation data and see what the treasury yields are doing and that sort of thing. So, I mean, markets are saying one thing, rhetoric is doing the other,” he says.
This was a unanimous decision, which Toay found interesting but moving ahead the FOMC was split on one or two rate hikes before the end of the year.
Inflationary Buying
Will the confirmation of inflation and record high energy prices bring more fund buying into the grain markets?
Toay speculates the buying will stay persistent because until the Strait of Hormuz is open it remains inflationary.
One of the headwinds is the dollar could climb higher with rising interest rates making U.S. exports less competitive.
However, he says, “With inflation and fear of the equity markets selling off, you’re going to see this inflation buying from the index funds be relatively stable,” he adds.
Soybeans Test Contract Highs on China Hopes
Soybeans had retested the Sept. 11 contract highs overnight and soybean meal made a new contract high before the Fed positioning took hold.
Some of the buying on breaks is tied to optimism going into the U.S. China Summit on Sept. 24 in Washington D.C.
Toay says when the White House made the original announcement of the 25 million metric tons (MMTs) of U.S. soybean purchases they also included $17 billion of other ag goods.
China has been consistent with soybean purchases and have at least 50% of the total bought and a bit more with unknown destinations.
The key to the rest of the purchases is do they buy the rest and when and that may be dependent on the 10% reciprocal tariffs being dropped.
“It would absolutely be beneficial. I will caution because only state-owned industries, Sinograin and COFCO have been buying and Chinese crush margins aren’t great. The removal of the 10% tariff would help. But China is trying to get their hog herd under control. They may be overdoing it a little bit. Obviously, that means less meal demand,” But U.S. beans are somewhat competitive and if we get the 10% restriction removed I think everyone would kind of breathe a sigh of relief,” he says.
Toay says there was talk originally of China buying corn, “Which I don’t think they will do. Maybe some wheat, definitely sorghum but to this point really it has been just soybean focused only,” he says.
Slow Harvest
Toay says the other supportive feature to the market is the wet forecast which is not necessarily conducive to soybean harvest.
“So you’re not having that order flow from the farmers selling across the scale, which I think if we’re anywhere north of $13, they’re going to move beans,” he adds.
Inflationary Buying
The other supportive factor is inflationary buying.
“They always say soybeans, silver, those are the inflation indicators. And here we are. So the combination of those three things, I think, are which lending support,” he says.
Corn Rally Capped
The corn market tried to follow the recovery in soybeans and wheat but the rally was capped due to weak seasonals.
“Seasonally, it’s the middle of September. We tend to put in lows in the next two weeks. I just think there’s a level of cautiousness,” he explains.
Plus he says the funds have exited only a short amount of their net record long.
“Nobody really wants to press this thing in the middle of harvest because they know that the farmer is going to sell. And the front end of this curve, this corn curve, is relatively weak. Part of that’s influenced by low water issues and high barge freight. We’ve got, you know, record barge freight right now, aided by high diesel prices. And that’s putting basis under pressure and building cash carries in these markets. So, you know, the market’s trying to discourage movement away from the river right now.,” he says.
Still Toay is encouraged the corn market has held as well as it has.
Corn Trying to Determine Yield
The corn market is finding support as it tries to establish yield. Toay says he’s seen only a small sample of harvest results but yield reports are confirming the strong yields USDA showed in Kentucky and Tennessee.
“As far as the I-States are concerned we’re getting some Missouri yields, southern third of Illinois yields and bottom line it is what the USDA is showing,” he says.
To get an accurate picture will take more yield results from Iowa, central Illinois and farther North.
Harvest Delays
Heavy rains in some areas of the Corn Belt are interrupting early harvest efforts and there is more rain in the 7-day forecast for south of I-80 in Iowa.
However, he isn’t real concerned about harvest delays. “I don’t think the market’s going to get too excited. It’s more of an inconvenience for the producer and obviously, if we were coming off a tighter year where we needed grain, coming off a drought year or something like that may influence it, but not, not this year,” he says.
Wheat Bounces
The wheat market also recovered and has closed higher two days in a row.
Toay says most of this looks technical after Dec soft red winter wheat tested $7.25 support but also some end user buying as Algeria came into the market and bought a tender of 500,000 metric tons of wheat at higher prices.
“We got down to these lows. We sold off, 58 cents here off the highs. I think we get down at these levels and what do we find? We had Tunisia come in. We have Algeria come in. A round of export tenders. And, you know, this has kind of given a shell-shocked end user a bit of a chance to extend some forward pricing in here,” he says.
Wheat has been on a roller coaster ride on war headlines similar to crude oil with one day trading peace talks and the next day the war escalates.
“Within 24 hours, we’re back to attacking Black Sea shipping. We just don’t know which direction we’re going,” he says.
Cattle Down a Second Day
Cattle futures were lower for a second day on Tuesday. The market is seeing some profit taking ahead of the USDA Cattle on Feed Report on Friday.
Plus the futures ran into chart resistance in October live cattle and others at the 50% retracement level at just over $221.
The market has absorbed a mountain of bad news the last 30 days and found value fundamentally, according to Toay, plus the market realized that the amount of cattle moving across the border has been minuscule.
Still USDA Secretary Brooke Rollins is having a news conference on Thursday to announce the reopening of the Santa Theresa, New Mexico port to Mexican imports, which may have spooked the market.
Trim prices are coming down says Toay, which is a reflection of the imports of lean trim coming in and that will eventually impact ground beef prices.
Cash is King
The factor that trumps all though is the cash market was strong last week with sales $225 to $226 in the South and $222 to $224 in the North.
Toay thinks cash could be higher again this week which will hold the futures intact.
“I do think that we find support around this $219, $220 level. You know, the fact of the matter is, though, is that it does feel like we’re on this downward back half of the curve where, you know, we’re getting into fall. You know, calves and cows are coming off of grass,” he adds.
