Grain and livestock futures closed mostly lower on Thursday.
Grains See Profit Taking
The grain markets saw some profit taking and consolidation after the big rally on Wednesday.
Sam Hudson of Corn Belt Marketing says the grain rally was impressive but ran out of steam.
“It was one, if not the highest percentage move we’ve seen on the year, actually, in the corn market yesterday. Open interest didn’t change hardly at all. So not totally surprised to see a little bit of a backtrack here. We got major moving averages that were, you know, back in testing, 100-day moving average, 200 days just below the market as well. If we can hang on to those here for the week after this report, I think it’s going to be a good sign,” he says.
Report Hangover
The market was also suffering from report hangover as there are now questions about yield and acreage going forward according to Hudson.
“This definitely brings into question, you know, what we’ve got for yield out there, because even with these acreage additions, we have to keep that side of the balance sheet intact going into harvest because demand just continues to rise and we’re not going to likely see cuts in September either. So stocks report definitely going to be a big hot topic here as we move forward.”
Corn Yield Questions With Objective Yield Data
So will yield go down in the September report when USDA uses objective field data?
Hudson is skeptical, “I don’t know if it can by a real wide margin until you actually see the combine data. I would say there’s a lot of ear variability out there. We had a big crop here in central Illinois last year and I would say there’s maybe 10% of the production out here that’s going to rival those production numbers. Everything around it’s going to be considerably less.”
Storm, Derecho Damage
There are some questions as well regarding the storms that rolled through the Eastern Corn Belt starting last Friday and the derecho that crossed from Northeast Iowa into northern Illinois and parts of Indiana.
“We had 130 mile an hour winds clocked in Valparaiso. The governor just declared the entire state a state of emergency because of the flooding and storm damage there. So I can’t imagine we added bushels to the crop there. And oddly enough, on the same day, the USDA put the Indiana corn yield at a record by two bushels to the acre of the soybean yield in tying the record,” he adds.
Hudson says the derecho path does not compare to 2017 or 2020 but it Hudson says it crossed I-39 from Ottawa over to Valparaiso, Indiana, Kokomo, Indiana, and parts of Ohio.
“Those areas saw high winds and torrential rains too. So five to six inches of rain at this point in the year is not good, especially if you lay some of that corn over. It’s got a heavy ear on it, probably not going to stand back up, only going to try to get heavier, and you’re not going to get all those bushels back,” he explains.
South American Production Numbers
Corn may have been weighed on slightly by new South American production estimates.
Conab pegged Brazil corn production at 143 MMT, up 1.3 MMT from the last estimate. Meanwhile, the Rosario Grain Exchange put Argentina corn production at 70.5 MMT, which was a new record as well.
Hudson says the market is watching it but Conab did not increase Brazil’s corn exports because of the increased domestic use for ethanol, so it had less impact.
“If they’ve got the capabilities to do that and they put up a lot of ethanol plants in Brazil over the last several years, so they’re well equipped to chase that at this point.”
Corn Technicals
While the pullback in corn retraced about half of Wednesday rally Hudson says the market did not do chart damage.
Hudson is watching December corn and it needs to close around that $4.65 mark to keep the rally going.
“Ideally, you’d really like to see it hold in this $4.69, $4.70 mark or just under the 100 day moving average. And we were testing that here today into the close. If you can hang on there and start to get some follow through, I think from a technical standpoint, that looks good,” he says.
He says that may depend on what the Pro Farmer Crop Tour and other private tours find in the field.
“We’ll watch to see what they have to offer to match up and find the gaps between what we’re seeing in condition ratings, between
what we’re seeing in this most recent USDA data and what they have for boots on the ground to see if we can infer anything.”
Soybean Yields Moving Forward
While USDA cut soybean yield nationally 0.3 bushel per acre, rains fell in key areas of the Corn Belt in August after the survey window. So could that mean higher yields in September?
Hudson says he is less concerned about the national soybean yield taking a large hit especially considering storm damage from the derecho has less impact on soybeans than corn but there are other concerns.
“I think the biggest risk there is going to be wherever you saw heavy rains. I’ve heard a lot of complaints about customers about beans being kind of laid down and matted down. And the weather we get here moving forward could impact that. They’re still going to continue to fill out. They’re going to have the water to do it. But you’re also going to start fighting disease and quality concerns along the way,” he adds.
State Yields Matter
Last year the Western Corn Belt helped pull up the national yield averages for corn and soybeans and this year that won’t be the case from the state-by-state breakouts. Plus, there are also some problem areas in the East.
Hudson says, “You’ve got a big area that’s just struggled with excessive rainfalls back in June. Those ghosts in the closet could start to come back out. You could see a lot more white mold and sudden death. Probably a little early to identify a lot of that right now, but if you start seeing that in two or three weeks, it may shape some opinions on what we’ve got out there for a bean crop just the same.”
More Acres?
The other question mark is with the additional 1.2 million harvested acres of corn and 1.4 million of soybeans that showed up in the August report do those acres continue to build into September and the final report like they did last year?
Hudson says he was shocked to see the total acreage and build. “I kind of thought that 183 million was going to be kind of a maximum ceiling. So to see it at 183.5 you know, I think you’ve got to keep a side eye on the potential, you know, maybe for even more coming. But alongside that, I think you’re also going to see a taking back in harvested acres eventually. But it’s going to take a long time to figure all that out.”
Soybeans Well Supported by Demand
Soybeans held up better than corn and wheat on Thursday in part due to strong demand with weekly new crop exports at nearly 65 million bu. plus another 4.6 million bu. of new crop soybeans to China.
“And, you know, we talk about this acreage. I think this dovetails nicely into that because, you know, we can talk about acreage for production this year. But moving forward, I think we have to consider what it means, too, because if we’re already planting what we’re planting now, again, how many times can we go back to the well to find more corn and soybean acres if the market really needs them?”
He says if the U.S. supply gets tight there will me more reliance on South America.
Soybean Technicals
The soybean market technically has been well supported by the 100-day moving average or at least the $11.70 area on the November contract. Hudson says that has to hold.
Soybeans had an inside day on Thursday as the market was also held back by resistance in the $11.85 to $11.87 area.
“We did flush that yesterday, but couldn’t get through it today. If you can get back through that, I think the $12.08 to $12.10 area is still going to be very critical on a closing basis long term. If you find ourselves trading above that into harvest, I think that’s kind of an indicator that there’s some concern about what’s out there. And I would continue to note how wide some of these spreads are and how much carry is in the market, how much demand we’re seeing,” he explains.
Wheat Chasing Black Sea Headlines
The wheat market did the heavy lifting on Wednesday but ended lower on profit taking and chasing Black Sea headlines.
The market was higher early until rumors started to circulate that Russia and Ukraine were in negotiations and the countries were looking at alternative export routes for grain.
“You know we’re going to continue to see wheat be a follower of global grain and feed values in general but there was some you know talk this morning that Ukraine was offering, you know, ceasefire against civilian targets with Russia. I think this is Russia just posturing to figure out what they’re going to do next, because I don’t think they’re happy. And I think I would continue to expect this on again, off again, worrying to continue until midterms are over, at least.”
U.S. Not Getting Wheat Business
Despite Black Sea export disruptions the U.S. is not getting any additional export business with weekly exports at only 9.4 million bu. on Thursday.
“And we’ve been on this train for a long time, both from an acreage and demand standpoint, just discouraging more and more wheat acres. But it feels like we’ve gotten to the point here or very close to the point that, you know, even if you take another wheat acre out of production, you have to question whether it’s fit for corn and soybeans. So I think you’re going to continue to see more, you know, production shifted over to Milo here in the coming year. We’ve continued to see good exports there and, you know, better metrics for raising it all the way around.”
Cattle Crash With Cash and Rumors
Cattle futures were down hard for a second day on technical selling and lower cash trade.
Hudson says, “It seems like we’ve just run some stops and chased some people out of the markets in general here this week. I don’t really want to see any continuation here in that October live cattle contract, you know, kind of going down and testing that armpit low is about as much as I’d want to see. So if you see follow through there, I think you got to be a little bit worried about what we’ve got going on or if there’s something else in the mix that we don’t know about.”
That something else was rumors that Tyson was closing their Joslin, Ill. slaughter plant and putting their Pasceo facility up for sale. Those rumors were both confirmed after the close but clearly pressured the market.
He says the lows that were forged after the announcement of the opening of the Mexican border need to hold.
“Down into that $218, $218.50 area is about as far as you’d want to see it.”
Open interest, though, keeps declining which means the funds are still liquidating. “I don’t know if they’re just losing interest with this market, if they’ve got to consider their interest in the equity markets, because we continue to see a lot of strength, a lot of buying and fodder in there, while these commodities just kind of tire people out, it seems like, both from energies, commodities, meats, you name it,” he describes.
Hogs Also Fall
Lean hog futures fell for a second day in sympathy with cattle but also chasing lower cash and softer cutouts.
He is hopeful demand will surface on weakness and there will be convergence with cash and the other proteins into the 4th quarter.
