Grains and hogs were higher on Friday with cattle lower.
Grains Hit Contract and Multi-Year Highs
Grain markets ended higher on Friday with contract highs across the complex. Corn and wheat made three-year highs and soybeans 2.5 year highs.
Don Roose with U.S. Commodities says the grains have seen rotating leadership but the bull market is currently being led by wheat.
Wheat was initially fueled by drought concerns in Europe and their shrinking crop size. However, it was super charged with the escalation of the war in the Black Sea.
Black Sea Wheat Exports Cut in Half
How much export capacity has been lost in the Black Sea?
Roose estimates nearly 50% of the export capacity is down right now and it has sent wheat prices in Russia down below $3 in some areas as they can’t ship it out.
“The government there in Russia is looking to subsidize the farmer to keep him in business. But you had a drought in Europe, the largest country as a wheat producer. Well, now you’ve got the single biggest country, Russia, the biggest wheat producer having some real issues. It looks like to us that Russia, the shipments that we had in August were down something like 50% versus a year ago. So, a lot of chatter that you could see exports out of that Black Sea. Hard to believe down somewhere 40 to 50%.”
The 2027 planting season is also right around the corner and there will be issues with planting that crop as well with the ongoing war.
How High Could Wheat Prices Rally?
For the week, soft red winter wheat was up 85 cents, hard red winter up 72 cents and spring wheat up 45 cents. So how much higher could prices rally?
Roose says when the war first started in 2022 the wheat market quickly shot to $13 on the anticipation of lower exports.
“Well, I would say that we’ve got more problems now going on than we had then. And they’re real problems, you know, with ports being bombed, vessels being hit, grain being not able to be shipped,” he describes.
Plus the market has El Nino year ahead of it, on top of the problems in Europe.
So he says their price targets are around $8 on December soft red winter wheat but the market will need to continue to be fed bullish news to get there because it is overbought.
The risk is that there is some resolution and shipping improves in the Black Sea region.
Corn Hit Contract Highs Again, Will it Hit $6?
The corn market also made contract and three year highs on Friday and December was up 28 cents for the week.
Roose says the market is getting help from wheat but also trying to determine how much lower the yield is from the August WASDE.
“The Pro Farmer estimate really spooked people, pushed us to the upside. And since then, the crop has just seen too much water, too much heat. And we said that all the way along the middle of the corn belt was going to have to carry the torch. And it looks like that’s not going to do it, so that’s a real problem,” he says.
Roose says funds are long around 300,000 to 320,000 contracts long, the record is 480,000 contracts. “You know, there’s more length they could add. It’s just a matter of how. But very typical of the funds, if they think there’s a market that has been set back on supply, they’re very quick to jump in.”
So that could mean a push to $6 quickly. “The market made its seasonal lows early and not it’s just a matter of how high is high. The stocks-to-use ratio certainly give you a chance to go to $6 plus.”
Will USDA Lower the Crop in September?
To keep the funds buying though USDA will need to confirm the lower corn yield to keep the market going and get over the $6 mark.
“Well, I think it’s all about the stocks to use ratio. But I think when you’re looking at that, when you have the crop ratings well under a year ago, and it looks like they could go down again 1% this next week, you have to be very careful. The government usually doesn’t take you down a lot in the September report. They want to be consistent and go down gradually. So we’ll see if they go down, one or two bushels, I would suspect that might be enough until they see really how things go,” he says.
However, USDA is already going in that direction with the 2.7 bu. cut in August which is continuing to show smaller ending stocks and stocks to use ratio every month.
“The market usually likes to keep the momentum in the direction we’re going.”
Soybeans Also Make New Contract High
Soybeans also made new contract highs on Friday and were up over 48 cents for the week in the November contract.
Beans have been a follower of corn and wheat but have also been pushed by the demand coming at the market. USDA reported flash sales totaling 15 million bu. on Friday morning and new crop exports were 91.1 million bu. on the weekly export report. New crop exports total 527 million bu. which is double of last year.
“And remember, you have China signaling that they’re going to meet the commitment that they’ve agreed to. You know, 25 million metric tons. They need to buy, you know, like 30 some million bushels a week. President Xi comes September 24th to the U.S. I imagine he’s going to keep the pace up and get close to that number, you know, by the time we hit the end of the year. So you have that buying,” he explains.
Soybean oil has been a drag on the market on fear of the SREs being nearly doubled to 1.8 billion gallons. News stories Friday indicated the White House would offset some of those by increasing the 2027 RVO’s by 500 million gallons.
Poor Finish on Soybeans
Roose is also concerned about a poor finish to the soybean crop as disease is starting to show up in the Eastern Corn Belt where it was too dry.
“You know, when you see this disease start to show up in some of these areas that are supposed to be so good, you know, Iowa, parts of Illinois, you know, it’s just one of those that yield can change so fast and you can get these ending stocks so tight.”
The Western Corn Belt has seen dry conditions the last couple of weeks and could lose some yield as a result.
“It doesn’t take a lot to take the bean yield down a bushel, and that’s 85 million bushels of production,” and he says that would pull ending stocks well below 300 million bu.
El Nino will also be a factor to watch for the U.S. harvest and Brazil’s planting season in the North where it is expected to be warmer and drier than normal.
Will Soybeans Exceed $13?
The deferred contracts have already rallied above $13 but will the November contact do the same.
Roose says he is watching the structure of the market, “You need bull spreads to work and you need basis levels to firm to confirm that the end user wants to own this crop.”
However, he thinks there is a real possibility of $13 soybeans near term and then beans in the teens in May and July.
“So you don’t really like the back months pulling you up here. But yeah, I think that’s the target. November tries to get to $13. But you know, in some of these big bull years, Michelle, you’ve had not only in the soybeans, but also in the corn, you’ve had these spreads really go inverted. So I don’t think we’re in that total panic situation yet. We’re just more in a realizing market, trying to figure out if I need to panic if I’m an end user. He’s not yet, but we’ll see if he does going forward.” he adds.
Profit Taking End of Month
Monday will market the end of the month and first notice day for the September contracts which usually forces liquidation and profit taking.
However, Roose thinks the opposite may happen where the funds buy on the break.
“We’ve seen the funds buying into the end of the month. So I think you could see some mild liquidation here. In fact, actually have maybe a little bit of a bear flag possible chart on corn bear spreads working here to end the week. But I think it’s a market that it’s going to be two steps up, one back,” he says.
Cattle See Lack of Follow Through or Bottoming Action
Cattle futures ended lower on Friday and were down for the week by $6.20 in the October live cattle contract and down $7.12 in the September feeder cattle.
The lack of follow through buying after a higher close on Thursday was disappointing according to Roose, even though cash trade improved through the end of the week.
He says the market is still looking for a bottom. “Remember last year, October cattle went to $197, and then we still made new highs after that. I think it’s a market that probably is down here opposite of the grain market and is kind of oversold. The feeder cattle certainly took it on the chin with the corn moving up. So I think if the corn market would just take a little bit of a breather here, it would give a reason for, you know, the cattle market to find a little bit of strength,” he states.
Futures Discount to Lower Cash
Futures are at a discount to the lower cash trade and Roose points out that basis levels are indicating the futures are too low versus the cash.
“Cash end of the week traded, you know, a little bit better, $222, $223. better than the early in the week at $218,” he says.
Still he think the market has put in a multi-year highs.
“And while you’re going to get rallies back, overall is two steps down, one up. We’ve got a lot of issues with the government coming out with things that really are price pressuring. You don’t like to bring it up, but last time we had something like this, 1973, with the Nixon price
controls. But, you know, and that one didn’t turn out very well,” he concludes.
