Grain and livestock futures all closed lower on Friday.
Grains See Pre-Holiday Profit Taking
Grains futures all ended lower on Friday on pre-holiday profit taking and pre-WASDE positioning.
Chip Nellinger with Blue Reef Agri-Marketing says the selling was actually more muted than he expected in corn and soybeans.
Wheat saw more pressure due to talk of a potential peace talks between Russia and Ukraine, or at least some talks.
Do the Funds, End Users Buy the Break?
So the question is do the funds buy on the break or not?
“That’s the thing that’s concerning right now. Corn and beans, essentially record long position by the funds. Now, all along, I thought that eventually when the funds got into the next bull market, we would exceed the previous all-time high record length by maybe 5% to 10%. But it is concerning that the funds have such a long position built up,” he says.
The commercial and end user may also be out of position according to Nellinger. “I think it may be more of a case where if we see a break, commercials need some ownership and they’re going to be the buyers.”
However, he thinks right now funds hold their long position at least into the middle of the month, if not the end of the month.
Inflationary, Super El Nino Buying
With the large amount of money that is coming into the market on inflationary and Super El Nino buying there is speculation the funds could stay in the their long position well into 2027.
“There’s no question that if you look at a lot of different markets, particularly the energy markets, you know, you’ve had crude oil prices back north of $90. Cotton has had a run, sugar’s had a run. So commodity-wise in general, we’re on a bit of an upswing here. And to your point, there could be some longer-term money flow coming out of the stock market or other assets into commodities. That could help us longer-term as well,” he says.
Technical Damage on Grains Charts?
Even with the lower close on Friday corn and soybeans still posted higher weekly closes and November soybeans are above $13. This indicates there is no technical damage that has been done.
That might not be the case with wheat.
“We did a little damage maybe on the wheat chart but I think it’s just wheat being wheat. If we can kind of stabilize this wheat eventually north of $7, maybe towards $7.10 and find some footing and rally again, it may just be a correction. Unfortunately, it’s such a geopolitics and war
vehicle right now, that it’s hard to trade that thing. Support and resistance doesn’t really matter as much in that type of an environment where you’ve got rumors coming out and news on a daily basis in the wheat market,” he explains.
Peace Deal Unlikely
The wheat market did chase headlines this week about Russian President Putin saying he was open to talking about peace with Ukraine. However, there was no cease fire and attacks continued through the end of the week.
So, the skepticism is high for any deal.
“There was some chatter that there’s some parliamentary elections coming up in in Russia apparently and Putin may just be jawboning and more of a political statement than actual reality,” he says.
So, Nellinger thinks if in the next week or two there’s no further talk on peace and the the war escalates or stays the same the market could add that premium right back that was lost this week.
WASDE and Private Yield Estimates
The market was also seeing some positioning ahead of the WASDE and with private estimates being released.
S&P Global was the latest and came in at 180 bu. per acre on corn and 52.6 bu. on soybeans. The 180 is above what the market is currently trading for a corn yield.
“I would say the market’s trading 177, 178 on corn. probably unchanged 53-ish on the beans. But yeah, I would say the market is well under the most recent USDA number in August and that sets up some potential disappointment. If we’re coming into Friday’s report at this level or higher and you don’t see a big cut by the USDA, it leaves the door open for a lot of disappointment right on the doorstep of harvest here,” adds Nellinger.
USDA to Punt in September
So is it possible the USDA could slow play their estimate in September?
Nellinger says, “A lot of times they do that, barring maybe going back 2012 during the drought year. That is a risk, right, that they get out there and say, hey, this is. You know, we’re lower, but let’s just lower it half a bushel, three quarters of a bushel. We can address it more in October and November. They’ve got several more cracks at this.”
If that is the course USDA takes it doesn’t mean the market can’t rally though.
“It just raises the bar a little bit higher and it opens the door to a lot of volatility. If they slow play it. could still have a really healthy break that really kind of shocks people in here,” he says.
Poor Finish
With the extreme heat in portions of the Corn Belt the crop is getting pushed to maturity and is not having the best finish.
“That may have been at the end of the day why we held together so well for the weekly close in corn and beans is that it is just not the ideal finish you want to have to this type of crop. Triple digit heat multiple days in a row. Water’s kind of shut off for most people. So, you know,
it’s for a record crop or a near record crop, it is not the kind of finish that you want to see,” he states.
That might result in some additional premium being put into prices.
Harvest Pressure
If that is true will the market see the traditional amount of harvest pressure this fall it normally experiences?
Nellinger says, “I think farmers in general have more sold right now than we have for the last five, six years at least. So I don’t know that you’ll see as much farmer selling. It probably depends on individual yield results.”
If farmers have pretty good yields there could be some additional selling to capture the strong prices.
“Overall, though, I don’t know that we’d see the type of hedge pressure that we would have expected the last three or four years because farmers have more sold than that,” he says.
Demand Underpins Soybeans
Demand is also contributing to the resilience in the soybean market. Unknown destinations bought another 9.2 million bushels Friday. China has been in buying routinely and now new crop exports are more than double of last year when China was out of the market.
“That’s good news because that means that we’re still firing on all cylinders domestic crush numbers continue to be above expectations, crush margins are strong. So I think that’s something that’s supporting the market.”
Plus, crush margins are to the point where any little break brings crushers in to buy beans because it really doesn’t matter what price beans are at. “Whether they are $16 or $12, $11, it doesn’t matter. They’re going to buy them to lock in those strong crush margins.”
Any Demand Destruction?
Even in corn and wheat it doesn’t look like the higher prices are leading to demand destruction.
“It sure doesn’t look like it at this point, which is a little bit scary. You don’t see that immediately. That takes some time to figure out. But to this point, it sure doesn’t look like that, which argues that eventually we need to rally corn and beans both to a higher level for long enough to slow that down. It’s impossible to peg what those numbers are, but it sure looks pretty supportive out into winter and next spring,” he adds.
China Soybean Demand
China continues to buy U.S. soybeans as prices are lower than Brazil through January. “They’re also ramping up with purchases up until the meeting on the 24th of September and the talks between Trump and Xi.
‘We’ve got some important talks coming up here. And I don’t know that it’s a price. It’s more of a political thing. For a period of time, we weren’t the cheapest source of beans in the world. South America kind of running out of those old crop supplies. So I think it’s more political than price-related right now,” he says.
Nellinger thinks China continues to ramp up purchases until the meeting and then the question is do they buy other commodities?
“That’s a possibility as well that we need to watch going into that meeting.”
USTR Jamieson Greer says non-tariff barriers are going to be dropped as part of that meeting, and maybe something that’s more omprehensive as well.
Why Can’t Cattle Sustain a Rally?
Cattle futures gave up early gains and failed to see follow through buying after the strong close on Thursday and a higher open on Friday. This was disappointing considering cash news continued to improve through the end of the week. Why can’t the market sustain a rally?
Nellinger says, “I think one reason is that we don’t have the same fund enthusiasm as we have the last three or four years in here. So that makes it a little bit more difficult. With all that being said, I think we’re still trying to hammer out a bottom in here.”
He thinks if the futures can hold together early next week the market can build a base. However, it will help if the cash can perform and rally a bit off the lows.
Presidential Executive Order
The market may have also been spooked by President Trump’s executive order signing which supported MCOOL, stricter enforcement of the Packers and Stockyards Act and less regulations for small processors.
He says, “I think what the cattle market needs now is an extended number of weeks with no announcement. Let’s just zip our lips in Washington and not say anything at all, good or bad, about the cattle market and let us heal up a little bit here. But to your point, it
could have spooked us just a little bit there Friday.”
