Grains were mixed on the close Friday, with livestock sharply lower.
Wheat Trying to Bottom on China Demand?
Wheat Futures tried to extend gains early on Friday seeing some short covering after hitting new lows for the move early Thursday.
While there was no confirmation of any sales, the market was still trading news that China’s COFCO was asking for bids on U.S. soft red winter wheat.
Brian Grete with CommStock Investments says the $2 drop in wheat prices has started to stimulate other export demand as weekly sales were a marketing year high at 31.2 million bushels.
“So we saw good global end user value buying on that week. That’s a positive sign. Then you get the Chinese news that they’re shopping around for U.S. SRW wheat. And so we’ll see. I do think that China will be a buyer of U.S. wheat. It’s a matter of when they buy and how much they buy. But it makes sense that they would use wheat to get to some of that $17 billion of additional ag purchases beyond soybeans that
they need to get to.”
He is not sure how much China has to buy because it is prorated but says China still needs to lower the 10% tariffs.
“And so until that happens, any buying by China would be by the state-owned firms,” he adds.
Could China Be A Game Changer?
How much wheat or other U.S. commodities would China need to buy to be a game changer?
Grete says China is not a large wheat importer because it is one of their major staples, along with rice and corn, and they want to be self-sufficient. “Well, historically, if you look back over the past 10 years, they’ve averaged about 330,000 metric tons of imports wheat imports from the U.S. and that includes the phase one years of 2020 and 2021. So they just aren’t big buyers of U.S. wheat,”
China has had some problems with their wheat crop this year, due to drought and flooding, and so there are some quality and even production concerns.
“So I think it does make sense that they will import some, I just don’t know how much it will be but it will go toward that prorated level of $17 billion.”
The time would be right for China to buy after a $2 break in wheat and $1 break in corn from the Sept. 2 highs.
End User Buying
The U.S. grain prices should be attractive for any end user right now according to Grete. Funds have been selling throughout the month in all of the grains and wheat has been down 9 strait weeks.
“We’ve had such big price breaks since the beginning of September in corn, soybeans, and wheat. If you need those supplies, they are on sale right now. And so step up and make some purchases,” he says.
The weekly export sales were strong, not just for wheat, but all of the grains on Thursday and that shows that the U.S. is finally competitive and getting some business with the disruptions in the Black Sea region.
Can Corn Bottom With Wheat?
Wheat needed to stop going down first for the corn market to find a low. Both have been seeing massive fund selling pressure and in the case of corn funds were liquidating after pushing to a long position of over 430,000 contracts.
“And it was record length at the beginning of September, and now they just continue to shed. So we need to find some footing put in lows and then start to work higher from there,” he explains.
Demand The Other Key for Bottoming Corn
Grete says demand is a big part of that equation and weekly exports were strong at 51.3 million bushels on Thursday.
However, they have some catching up to do with the running total 34% behind a year ago.
“So when you look at the export picture, it’s accumulated exports, which are actually running ahead a year ago. And then outstanding sales, which are running well behind a year ago. So it’s those outstanding sales that we just don’t have on the books right now that need to really pick up.”
Mexico Corn Exports Lagging
He says the reason is Mexico has been lagging significantly and they are the top corn customer for the U.S.
“So Mexico needs to step up on this big price break and start to really book some cargoes.” he adds.
When corn prices rallied over $5 the buying shut off so Mexico was waiting for prices to break. Higher freight rates have also been a problem as higher diesel prices are adding about 5% to 10% to the cost of rail cars going into Mexico.
Dec Corn Holds Around $4.50
Demand from all end users has been good around the $4.50 mark, which is seen as a value, and so Dec corn has been hovering around that price.
If corn prices continue to stabilize that should bring some additional buying in to help the market forge a low.
Funds Done Selling in Soybeans?
Soybean futures held on to slight gains into the close and tried to bounce as fund liquidation tied to end of month and first notice day on November contracts started to dry up.
However, will funds continue to liquidate their hefty long in the soybean complex?
Grete says, “The fund liquidation and selling has been broad based across the grain and soy markets. And so, you know, they once held a record long position across the grain and soy markets. And that’s now cut
basically in half from where it was at one point in time.”
Funds Done Selling in the Grains?
In addition to the length funds have shed on corn and soybeans, they are also short in SRW wheat and have gotten out of all their length in the other two wheat markets according to Grete.
“So the question now becomes which one do they favor and which one will they start to buy first? I don’t think it’s probably going to be wheat,” he says.
It is more likely to be corn or soybeans but Grete says money flow can be powerful and it can change on a dime,”
Soybeans Have Better Demand Story
Funds may also be interested in soybeans due to the better demand story. USDA reported flash sales on Friday morning totaling 10.9 million bushels of export business to unknown destinations.
Weekly exports are also 80% ahead of last year. Grete says they should be considering the U.S. did not have a soybean export program last year at this time.
“If you remember back, we didn’t have any business to China. We had no exports going out. We had no sales on the books at this point in time. So we didn’t really get anything until November. So we should be well, well ahead of year ago, which we are,” he says.
Export demand will now rely on who buys U.S. soybeans besides China.
“Because China is going to get to the 25 million tons that it needs to to meet its trade commitment. Then who steps up after that? Because China isn’t going to go above that 25 million tons. And unless Brazil has some sort of a major issue and it needs to go above that level.”
Ugly Day in Cattle Futures
Cattle futures were down sharply on Friday and sold off towards the end of the week.
Dec live cattle were down $10.17 for the week and Nov feeder cattle also lost $10.35.
The market was pressed by lower cash and saw profit taking after three and half month highs. The key is did this move do any technical damage?
Grete says, “We rolled over and fell through a couple levels of support. And then you got your chart based selling coming in.”
Cash Falls Sharply
Fed cash trade developed early in the week at sharply lower prices. That is after feedlots and the market were expecting steady to $2 higher cash trade due to the bullish Cattle on Feed Report.
“Boy, that went out the door in a hurry and ended up sharply lower for the week,” he says.
Northern cash was mostly $350 to $352 dressed and $223 to $225, few to $226 live.
Outside Market Pressure
Some of the bloodbath on Friday was tied to the sell off in U.S. equity markets and the higher crude oil futures, both of which can hurt demand.
“I think the macros came into play. Now, keep in mind that, the election is next Tuesday here in the United States. And there’s just a lot of uncertainty. I don’t think there’s a whole lot of people that are like, hey, I’m going to throw a lot of money at any one of these markets right now. In more likelihood, they’re going to take some money off the table ahead of the elections.”
How Low Will Prices Fall?
So after this technical damage how low will prices fall as the market had a key weekly reversal lower.
“Well, you know, the technicals would tell you that we’re headed lower yet. But I think if we can shore up a little bit on the technical standpoint, maybe bring some stability back to the cash market, then you get into some damage control at that point in time. But otherwise, bulls are on the defensive at this point in time,” he adds.
Lean Hogs Hit Multi-Year Lows
Lean hog futures had a reversal off contract lows on Thursday but ended up lower again on Friday.
The market is hitting multi-year lows. So what will it take to bottom that market?
Grete says the hog market sees a fresh round of selling on every correction.
“The cash market is falling just incredibly fast. Product market, the problem there is that the packer can’t raise prices because they can’t keep up with product. They need product to flow through the pipeline and not back up. And if they raise prices, they just can’t find enough retail or demand to keep that process going. And so it’s kind of a perpetual ball of bearishness right now,” he explains.
As Bad as During COVID?
Currently the hog market for October ended at levels not seen since COVID and even beyond that.
“I looked on the continuation chart and for the month of October. we were at the lowest that we’d been since 2018. So there were some months in there, years where we had lower seasonal lows in other months, but for the month of October, lowest we’ve been since 2018.”
