Corn and soybeans ended slightly higher with wheat lower. Cattle futures were mostly higher, hogs lower.
Grains Ride China Roller Coaster
Corn and soybeans ended slightly higher on Friday and staged an impressive rally off the lows. Overnight and early pressure was tied to the lack of details on ag trade from the China Summit.
However, USTR Jamieson Greer appeared on CNBC and stated significant progress had been made with China, including on ag trade, and details would be released on Monday.
Shawn Hackett with Hackett Financial Advisors says that brought buyers back in and helped the markets recover to end well off their lows.
“I think the market is looking for headlines, details, you know, things that they’ve discussed. We got nothing like that last time when Trump went over to China and the market sold off. So with Greer saying they would have some details, justifiably, the markets rebounded back,” he says.
What’s the Market Looking For?
So what does the market need to know to avoid a selloff?
Hackett says there needs to be specifics on terms such as how much, when, and which crops.
“I don’t think generalities are going to cut it. I think we need hardcore details, kind of like what we got back in 2019 when we had specific quantities and a time frame. The market wants to see that to get more comfortable that something really material occurred here.”
China still has quite a bit of work to do on the prorated $17 billion dollars of ag purchases outside of soybeans. They’ve been doing regular purchases of soybeans and are at over half of the 25 MMT.
Tariff Drop Coming, Purchase List?
Does the market also need to China to drop the reciprocal 10% tariffs on grains and soybeans?
“Well I think one leads to the other right?” he says, “I think it’s important that these tariffs drop and then and then they show their hand they show that they are going to purchase other products beyond soybeans. So,corn, wheat, cotton, I mean we can go down the list of things they wanted to buy before.”
Following that Hackett says its important to watch whether or not China shows their hand as Greer suggests that they’ve agreed to these expansion purchases in other areas. Because if it’s just a soybean buying thing, that’s great. That’s fine. I mean, we’ll take it. But to really get a significant overall push for the complex, we need to spread out to other markets.”
Hackett is confident that is the kind of result that will arise from this type of meeting.
China Purchase Framework Like the Phase One
China has offered a specific quantity in the 25 million metric tons of soybeans and Hackett says it will be similar for other products.
“It’ll be for corn. It’ll be for wheat. It’ll be for other markets now that we can define how much, when, and then we can start monitoring. Are they living up to what they agreed to? Like we’ve been doing with soybeans now for weeks and months,” he says.
Won’t That Just Drive up Prices for China?
If China provides details of their purchases that will drive up prices for the good they are buying, so why would they do that?
Hackett further explains,"It is going to drive prices up, but currently prices are still pretty attractive.”
He also believes China is concerned about the Super El Nino.
“And from what I can see from the type of weather they had over there and all the disruptions that we’re seeing elsewhere, I think that they need it. And I think they want to have some extra buffer because I think we all can agree the future about how everything’s going to play out is a little uncertain right now. And better to have. more birds in the hand than in the bush at this point.”
Greer Says China at $4 Billion
Greer said this week the Board of Trade is active and so far China has bought around $4 billion of U.S. ag goods. That would leave about $10 billion of the prorated purchases left to buy. They also have about half of the 25 MMT of soybeans left to buy.
Added together that would equate to about $1.2 billion a week in U.S. ag purchases that need to be done by the end of the year.
What is that going to mean for this market and prices?
China to Buy Beyond Purchase Agreement
Hackett says that would be positive and he expects China to exceed that level.
“I actually think we’re going to see them expand what they agreed to the last time. And if I’m correct about what we might see over the next few days and few weeks, you know, that would be much more akin to what we saw during the first term of President Trump when we had much more of a broad, defined, ag market purchasing program than just some isolated benchmarks,” he adds.
The reason is due to concerns about Super El Nino due to the history it has of creating weather and production problems in their country and across Asia.
“If you look at the weather that they’ve had, endless, endless typhoons that have flooded the south, drought in the central plains. I mean, they had a lot of problems with their own crops. We never know for sure how bad because they don’t really are aren’t very clear about what the issues are. They don’t let anybody go in to check it out. But I think there’s been weather worries over there to suggest they want to get some extra bumper stocks into their country, be on the safe side, not knowing how these extreme weather and geopolitical events are going to play out,” he adds.
Soybeans Supported by Harvest Delays, Cash Basis Push
The soybean market got some help from strong basis pushes of up to $2 over the board in the western Corn Belt where they have been inundated with rain causing harvest delays.
“Processors are out of soybeans they desperately need them, they can’t wait to buy them. Delayed in harvest is not good. A wet harvest is not good,” he says.
Yields Falling
He contends the weather delays are also cutting into yield. “We think that when we get to the end of the line here in January, we might be looking at a half a bushel to a bushel below where the current estimates are for the USDA on soybeans.”
With carryout at only around 300 million bu. on soybeans that would take supplies down to pipeline levels, which is where he thinks it will end up when all is said and done.
Acreage Battle
That could set up an epic acreage battle according to Hackett.
“If were are planning for next summer and we have a situation where we’re almost out of soybeans and we need more acres but corn is tight we need more corn acres the battle for acres could be epic because both markets are going to need a lot more acres and not everyone’s going to get what they want,” he explains.
Cotton and rice prices are also offering prices that are attractive enough to fight for acres.
“It’s just a very different scenario than the one we’ve seen in the last few years where everyone wants more acres. And of course, in the U.S.
at least, there’s not enough acres to go around.”
Corn, Soybeans Hold Technical Support
Corn and soybeans both closed back above key support on Friday of $13 for Nov soybean and $5.25 for Dec corn.
“The corn market looks great technically,” says Hackett.
He says with the technical and fundamental picture looking strong corn will not stay at $5 very long.
“Historically these kind of demand led markets ended with a $7 to $8 corn market.”
Black Sea Exports Limited
Wheat futures were down with talk of a Black Sea grain export corridor in the works. However, Hackett says with the export disruptions in the Black Sea region not much grain is getting exported.
“We keep hearing about you know alternative routes and all from our analysis they’re going to be 50% below exports if all they do is rely on these alternative sources of exports, if we’re not able to open up these other channels that have been closed up to this point. So I don’t view any of that as being a permanent detractor of the fundamentals, just short-term trading ebb and flow that we see in wheat from time to time.”
With the European corn crop the worst in 50 to 100 years that bodes well for U.S. grain demand.
Plus, he says Super El Nino typically means a poor second crop corn crop for Brazil.
“So the corn market is this is in a situation where there’s not enough corn. Anybody that needs it and wants it has got to be extremely worried and concerned about the future supply. I think any dip like we saw today is going to be bought aggressively by end users.”
Cattle Shrug Off Bearish Headlines
Cattle futures ended mostly higher on Friday and posted higher weekly closes, shrugging off the bearish headlines.
Those include ICE raids at packing plants in southwest Kansas slowing slaughter rates down to only 87,000 head on Friday.
Plus, the second southern port was reopened at Santa Teresa, New Mexico, allowing Mexican cattle imports. Only 400 head crossed on Thursday but its expected to ramp up quickly.
Hackett says technically the cattle market held the $210 support area which was positive.
Tighter Numbers
The Cattle on Feed report showed record low placements for August and that indicates tight supplies ahead.
“And so, I still feel in the short run, this market technically and fundamentally probably needs to go higher,” he states.
Longer term he says the economic headwinds will keep the market from making new highs and so it is likely to stay in a trading range.
Hogs Disappoint
The lean hog futures were low on Friday, a real disappointment considering the positive USDA Quarterly Hogs and Pigs Report which showed contracting numbers.
“The market didn’t seem to like it. The market just continues to be disappointing. I really, really thought that we would see better action in hogs. The COT report, the way that we have analyzed it, suggests that the commercials have zero interest in selling this market, which usually means the market’s at a low. But it’s been very sluggish trade, and I wish I had some better news.”
