Grains ended lower on Tuesday, livestock were higher.
Grains See Profit Taking
Grain futures ended lower across the complex with profit taking setting in after strong closes on Monday.
Chuck Shelby of Zaner Ag Hedge says the grain markets tried to extend gains in the overnight session and hit chart resistance causing consolidation.
Markets Remove Risk Premium
Shelby says it was triggered in part by weather with a cooler bias and more rain falling Tuesday in parts of the Corn Belt and more in the extended forecast.
This follows rains over a good swath of the Corn Belt late last week into the weekend, even dry areas of the West received much needed moisture. Still, some key areas were missed like Northwest Iowa or rain totals were disappointing.
In the Eastern Corn Belt there has been too much moisture according to Shelby. “I think one concern going forward, though, would have to be diseases. They’re starting to show up here in Indiana with the temperatures cooling off. That could be a catalyst for tar spots. So, you know, kind of a double-edged sword there.”
Crop Ratings Drop
Corn and soybeans were higher overnight trading the disappointing crop ratings with corn at 61% good to excellent nationally, down 2% from last week and down 12% from last year.
So is the yield going down and will it be reflected in the Aug. 12 WASDE?
Shelby these ratings put a record crop in question. “Is it 180 ,181, 179? To put it in perspective those would still be great yields so it’s not to say this crop is a failure,” he explains.
However, the market has built such big demand it will sensitive to price if the final crop ends at 179 bu. or 180 bu. per acre for yield he adds.
Last year the Western Corn Belt also helped lift the national yield and this year that is not going to happen.
“I think that’s the key, says Shelby, “I mean, the Eastern corn belt suffered from too much water early on. You know, one of the things that’s going on out there when they do go out and do look at the crops is they can’t see those holes that are in the middle of fields now because on the outer edges along the roadside that’s grown up. So I still think certain crop areas here in the East are going to end up being maybe below expectations once the combines roll.”
He says some of the crop lost some nitrogen and there are other root issues that can’t be repaired.
Yield in Aug. 12 Report
So what will USDA do with the yield in the Aug. 12 WASDE as the agency will use crop ratings and satellite imagery?
“I think if they go off the crop ratings, they would suggest that in corn anyway, they’re going to drop the yield down a little bit. There is some question out there also on acres could increase maybe for corn or beans. That’s after last year’s big acreage movement. The trade’s a little bit leery of what USDA will do on acres.”
That’s because USDA will use FSA certified acres, which are released the morning of the report.
“And I think the USDA after last year probably is a little more sensitive to trying to get the best information out there and not make these significant changes like they did last year that really impacted at the end of the year. ‘
Grains See Pressure From Money Flow, Lower Energy Prices
The grain markets were also caught in money flow and sharply lower energy prices.
“It just seemed like it was more about money movement. The stock market made some record highs today. Gold and silver were back up. So that money flow was attracted over back to the stock market. I guess they must have more confidence that we’re going to have a settlement here,” he says.
But those are headline driven markets that can really turn back the other way quickly.
Black Sea Exports Disruptions Continue
Wheat was even lower despite the headlines that show little if any Black Sea wheat moving to export market.
Shelby chalked it up to a healthy correction in a longer term, demand led bull market.
“Again, really the key going forward is demand and some opportunities that we haven’t had as far as export market going into 2027.”
End Users Buying on Breaks
Due to the strong demand prices can’t fall too far in the grain markets before uncovering some export buying.
China is a good example buying nearly 23 million bu. of soybeans over the last two days in response to a 70-cent break in prices.
“It certainly is encouraging. It means that they’re watching the price and they’re price sensitive. So as these markets fall back, I think they’re aware of declining carryouts for both corn and beans in the United States. You look over in Europe, they’ve had some weather problems there with too much heat.”
China is also closely watching South American weather because in the past China has gone there for large quantities, but in El Nino years, generally speaking South America does not have a record crop.
“So there’s probably some forward thinking going there especially as these upcoming reports on Aug. 12 could set direction if we do see the crop size lowered,” he adds.
Plus, USDA showed record soybean crush in June which provides good demand in addition to biofuels.
Shelby says, “Crude oil sets back here some, but it’s still high. And so these biofuels, whether it be biodiesel from the soybean products, soybean oil or ethanol, both those things are positive with higher fuel prices. And even if the war ends, I think we’re going to maintain a pricein crude oil. The demand is still there. We’ve got diesel supplies that are really on the short side going into harvest. So there’s a need for those biofuels. And I think that’s a positive for 27 also.”
Technicals
December corn had a strong performance on Monday bouncing off the 50% retracement level and put in a reversal. However, the chart action was bearish on Tuesday.
“What I was watching on last night’s session was we tried to break through that $4.75 area that’s a key resistance point to me. Dec tried to poke its head above that area on the crop rating decline but wasn’t able to. So, we’re setting back but again we’re kind of in a range here waiting for new news with new demand,” but it didn’t do any damage to the charts.
November soybeans also ran into chart resistance at around $12 and then fell back towards the 100-day moving average. So no real changes there.
Shelby says if there are more China purchases in the next few day probably you know look and see how much rain
Cattle See Chart Breakout
Cattle futures started the day mixed but closed near the highs of the day and got above some key resistance.
The market has absorbed a great deal of bearish news the last couple of weeks, but can it keep going?
Shelby says the market saw fund liquidation, the border reopen and now it needs some demand news to continue to move higher.
“I think the real key to me is the demand for the Labor Day holiday. That’s kind of our last big effort for the cookout season, grilling season. So I’m hopeful that next week we’ll see the cash market get even stronger as that demand gets in place for the upcoming holiday.”
Choice boxed beef was up $ 2.76 on the noon report and has been grinding higher with lighter slaughter. Still, is this enough to push the cash market?
“We’ve got to see that cash really surge here. If that happens, as I anticipate, then I think you’ll see the futures market recover.”
Hogs Also Higher
Lean hog futures were higher Tuesday with some spillover strength from cattle futures but pork cutout values were also up $1.64 at noon.
Is this enough to overcome the technical washout last week?
Shelby thinks so. “I mean, it’s kind of those two markets tend to run together on the cash side. And again, the hog market’s taken a pretty big beating over time here. So putting everything together, I think it’s a combination of the two things here that we can see a recovery in the coming weeks.”
But just like cattle he thinks the hog market will need good Labor Day demand and that is possible with its lower price point compared to beef.
“The question becomes what happens after that, but in the near term, I look for demand to pick up.”
