Grain markets were extending gains early Wednesday, with cattle mixed and hogs higher.
Corn Hits Contract, Three Year Highs
Corn futures were higher early Wednesday extending the rally and making three year and new contract highs in the December contract. The old crop September is above $5, the first time for a spot month since October 2023.
DuWayne Bosse of Bolt Marketing says funds are buying on these technical signals plus concerns about lower yield and a tightening U.S. and global balance sheet for corn.
What Corn Yield is the Market Trading?
The boost from the Pro Farmer yield estimate of 173.2 bu. per acre on corn followed by a 3% drop in U.S. crop ratings to 57% good to excellent have fueled the fire.
Plus, states like North Dakota saw a 7% cut to their rating to only 26% good to excellent due to drought and hot night time temperatures in July. South Dakota was down 2% to 46%, with Nebraska down 4% and Minnesota down 2%. That was the big drag on the condition rating.
However, what yield is the market trading? Bosse says the market is trying to price in a yield under 180 bu., which is bullish enough for the corn market to ration demand.
Funds Adding to Corn Length
That, plus the technicals have triggered fund buying and funds are trend followers.
“It’s working for them. So they just keep buying more.” he explains.
The last CFTC Commitment of Traders Report showed funds were long (futures and options) over 250,000 contracts but no where near record long.
Bosse says, “The record is around 450,000 and I’m guessing they’re around 325,000 contracts long right now. I fully think they go to that
record long position. And we’re talking about the managed funds here, index funds, will tack on as well.”
He points out this is an odd time of year for corn to rally. However, the spec traders or the funds have been wrong on the last couple of moves they’ve made.
“But they just love the trend. They pile on. They all get too far extended on one side. And then, you know, that’s why they’ve been wrong because then they have to correct it here.”
Inflationary Buying?
The market is also seeing some inflationary buying by the index funds who see grains as a hedge against inflation and persistently higher energy prices, plus some El Nino buying.
“The funds just don’t sit on cash. They’re going to look for an investment. And so, yeah, I think inflation’s in there. They have money available, everything. You know, there is even a lot of talk about El Nino already that could affect the South America crop,” he says.
Plus there are other bullish stories driving the buying. “The index funds are probably more the inflation hedge there. And boy, I think that’s a big trade, too, with the bonds doing what they’re doing. I think the U.S. dollar will trend sharply lower and that’ll keep our export demand strong. So it’s it’s kind of this nice, perfect bullish cycle storm I see ahead of us here.”
How High Will Corn Futures Rally?
With December corn making contract and three year highs how high will prices run?
“I guess I don’t have an exact number. What I would say is just be long until the funds reach those levels. Now, as a producer myself and
helping other guys market their grain, once we get to $5.50 Dec corn, and I think we can get there fairly easily, then I start to make some sales again, not because I think the market’s topped, but because I call it a spreadsheet sale. That’s just enough profit per acre. Let’s be smart.
He adds last year farmers were looking for profitable sales and there were no opportunities. So he recommends scale-up sales from there and is not trying to pick the top.
“I don’t care if it’s going to go to $7 or $8. We’ll let the market decide how high is too high.”
To get to that level though will take USDA confirmation of a lower yield in September and there could be some profit taking along the way as the market is overbought.
Soybeans Rally on China Sales
Soybeans rallied on Tuesday and were seeing follow through buying as China bought another 12.2 million bushels of U.S. soybeans Wednesday morning to fuel more buying.
The China sales are supporting ideas they will buy the full 25 MMT soybean commitment. Bosse says just a month ago they had no sales on the books.
“This has changed a lot. China wasn’t buying enough. I was worried, if they’re going to get to 25 million metric ton, they really needed to pick up the pace. They started buying and I said if they can meet 1 million metric ton each week that was the appropriate pace to meet their goal. They’ve exceeded that pace the last three, four to five weeks, I’d say. So now they’re ahead of the normal pace of buying,” he adds.
So the market is starting to think it will need to ration demand in soybeans as well because if China reaches 25 million metric the ending stocks could get extremely tight.
The downside of that is if China buys from the U.S., other countries don’t.
China Excluded from Iran Sanctions
The other bullish sign was the White House said China would be excluded from the economic sanctions placed on entities that supported or bought from Iran. That also fueled the market and is an interesting development according to Bosse.
“And that’s good because obviously President Xi is coming here in a couple of weeks. He’ll be here in September. That’s why I think China keeps right on buying up to that date. And maybe there’s a big announcement that day of some more sales.”
Bean Oil Watching SRE Announcement
The one caveat is the bean oil market has been struggling under the fear of additional smaller refinery exemptions being announced by EPA before September 1.
Other news accounts put the SREs at 1.8 billion gallons for 2025, which could slash biomass-based diesel demand by 500 million gallons.
“Isn’t that frustrating? It seems like every time we think we’ve got something going, we end up pulling back on that,” says Bosse.
Wheat Rallies, HRW Make New Contract Highs
The wheat market was rallying with corn and soybeans on Wednesday and hitting new contract highs in HRW wheat.
Bosse says the market is adding weather premium. The weather has been hot and dry in the Central and Southern Plains and he thinks the market is trying to buy some acres.
“I think Kansas City wheat’s trying to buy some acres for next year to make sure that crop gets planted. And if corn and soybeans look bullish, well, if they’re going to buy acres, they need to stay ahead of it, right? We’ve been losing acres all the time for wheat. So I think there’s that story.”
Plus, he says the story with the Russia-Ukraine remains in the background with the massive infrastructure damage in both Russia and Ukraine which will limit exports. Plus, few believe a possible cease fire will hold.
“Even if the war would end today, it would take them months to repair and get them up to full speed.”
Can Cattle Bottom?
Cattle futures have had a tough week making new lows for the move on Tuesday pricing in additional beef imports and the reopening of the border to Mexican cattle.
The market was mixed early Wednesday, but is it getting close to a bottom?
Bosse says, “The market’s oversold. But I think the problem in the cattle market right now is twofold. The funds want nothing to do with their long positions anymore. And just look at one of those continuation charts. The funds were a big part of the reason we got as high as we did. They continued to buy and buy. I’ve just talked about how they like a trend. And if a trade is working, they throw more money at it. They’ve still got probably two weeks of selling in this market to get completely flat.”
He says the funds don’t like to go short in the cattle market but when they get flat he thinks that is when the low will finally be struck.
Cash Trade Lower
Despite tight supplies there has also been some lower cash trade this week.
Early sales in the North at $218 to $219, down $6 to $7 and $345 dressed, down $11.
“It sure seems like packers have the control there now. The power is switched from the feedlot to the packer, and they are trying to make all their money back in one big swoop here,” he concludes.
