Ag markets ended mostly lower on Tuesday except for feeder cattle futures.
Soybeans Make Fresh Lows
Soybeans made new lows for the move after erasing an early bounce.
Ted Seifried of Zaner Ag Hedge says funds continue to sell for a host of reasons including harvest pressure and better than expected soybean yields.
“You know, there are some guys that especially in areas that got way too much rain, Indiana and parts of Iowa, for sure, that maybe there might be disappointment. But that’s like one to every 10,” he says.
Funds were long going into the harvest and have been liquidating as technical damage has been done to the charts over the last month.
Brazil Real Slide
Another reason for the funds to liquidate has been the fall of the Brazilian real
“That’s a big problem for the funds. They want to be long the soybean market in particular is because of
optimism of dealings with China,” however, they didn’t bet on Lula winning the presidential election he says..
“You have a government that continues to have a good and growing relationship with China. And you have a currency that was under a ton of pressure, giving the rest of the world business more incentive to go to Brazil.”
While China has bought a large chunk of the 25 million metric tons they agreed upon, he says there’s no reason to believe that they’re going to do any more. “And in the meantime, the rest of the world
business is really lagging behind.”
Minus China the U.S. soybean export business to the rest of the world is at a 12 year low.
Soybeans Take Out Support
Soybean futures closed below the 100-day moving average for the first time since July. So how much lower do prices need to fall before finding support?
Seifried says soybeans are not oversold at 32% on the relative strength index. The funds were still long over 200,000 contracts as of last Friday’s CFTC report, so there is room to the downside.
“If soybeans aren’t able to turn around and particularly get above Tuesday’s high, close above Tuesday’s high, then ultimately this is a pretty negative outlook that takes us down to about the $12 mark in the Jan soybeans,” he explains.
A technical bounce in soybeans would need to be led by either corn or wheat he adds.
Corn Sees Harvest Pressure
Corn futures were also lower as harvest is at 60% nationally and farmers are selling what they don’t have room to store. Seifried says they’ve also been hearing of some better corn yields as the harvest has progressed.
“Corn has been disappointing, especially in Indiana, Southern Illinois but as harvest moves north I’m hearing more pleasantly surprised farmers,” he adds.
The combination of hedge selling and fund selling are converging which is a double whammy on prices.
“The funds have sold off a lot more of their what was a record long position in corn but now the question is are they going to be getting short in corn? Fundamentally I don’t really feel like there’s great reason for them to do that,” he says.
Corn Makes New Lows For the Move
Corn made new lows for the move and closed below $4.50, so the technicals look poor according to Seifried.
“You had an outside reversal down day into new recent lows. Again, the lowest that we’ve traded since the beginning of July. So again, not a great look for corn.”
However, the RSI on corn is at 20.66% so the market is oversold and due for a corrective bounce. “That is by far the lowest RSI reading we’ve seen in the lifetime of the December corn contract.”
He says if corn continues to move lower the obvious target is the June low at $4.26, about 20 cents away.
Wheat Lower
The wheat market also made new lows for the move with concerns about slow demand and the ongoing chance for peace in the Black Sea with Russia wanting talks in November.
“The news on Monday was that Russia was looking for talks to resume Black Sea traffic again to get the grain flow moving. And so that put pressure on us on Monday. That followed through into Tuesday,” he explains.
Yet he says despite the slowdown Black Sea exports the U.S. has not picked up additional export sales.
“But until that business comes to us, until we see it happening on our export sales and eventually our
export shipments, it’s really hard to get excited about that here in the States. In our domestic
balance sheet, you’re still at almost 40% stocks to usage ratio basically half a wheat crop in storage at the end of the year or projected for ending stocks. It’s not a tight scenario.”
U.S. Wheat Not Competitive
While U.S. wheat prices are down $2 from the highs the U.S. is still not competitive.
Shipping is a bit of a roadblock and so is the higher dollar.
Live Cattle See Profit Taking
Live cattle futures set back on Tuesday on profit taking but the reaction to the bullish placements in the Cattle on Feed Report was disappointing.
Still the feeder cattle futures have rallied $50 off the August lows and live cattle have rallied over $20. So the market may have been due for a correction.
He says the report shows supplies are tightening.
“We are digging ourselves a bigger and bigger hole of animals that goes through the winter and into the early part of the new year, new calendar year. So a little surprising we weren’t stronger than we were,” he explains.
He says the RSI is at 71 on feeders so they are also in overbought territory with the bull move that’s been happening since the third week of August. “You’ve got a lot of technical traders out there in the form of funds, it is kind of an area where they would maybe take a little bit of a pause, take a little bit of a breather, try to let that relative strength index sort of correct.”
Longer term though the lack of animals and strong demand is bullish.
More Contract Lows in Hogs
Lean hog futures were down again and made more contract and six year lows. The cash market was down nearly $8 on negotiated hogs on Monday afternoon and lower cutouts are also pulling down the futures.
What gets this market to quit going down after the market completely fell apart on Tuesday?
Seifried says the Relative strength index at 25% so hogs are very oversold. However, the extreme loss on Tuesday could be the start of an exhaustion blow off to the down side.
“That’s really the only thing that that that I can kind of hang my hopes on at the moment because it was a really nasty day,” he says.
Other than that the market will need a big demand infusion.
