Grains were lower on Wednesday morning with livestock higher except live cattle.
Grains See Profit Taking
Grain markets were all lower on Wednesday morning after hitting new contract and multi-year highs again in the overnight session.
Mark Knight with Farmers Keeper Financial says the markets are way overbought. So right now he’s calling it routine profit taking after a huge rally of over $1 in soybeans and wheat and $.75 in corn. In fact he thinks this is healthy and may not last through the day.
“Look we’re just pulling back a little bit of yesterday’s gain. So, I don’t think you can act like this is a major market shift of any kind. We still have a couple of wars going on. We’ve got yields that seem to be coming down, we’ve got extreme hot dry temperatures in the Midwest currently that’s finishing off the crop really quick and probably peeling a little bit of yield down,” so he thinks the path of least resistance is still higher.
Counter Season Rally
Knight says what is impressive about the rally is that it is happening heading into harvest and that makes it even more bullish.
“In my mind, it absolutely does. In the last month, I’ve kind of been preaching that, hey, with demand situation like it is, we get past harvest. We’re probably going to have another January, February rally to $5.75, $6.00. Well, I didn’t dream we’d get anywhere near $5.50 pre-harvest on corn, to be honest with you. We don’t have a disastrous crop. We’ve got a lot of bushels that are going to be coming and the market knows that, but it’s still kind of just keeps pushing forward,” he explains.
The market is seeing the perfect storm with two separate wars going on and the Black Sea war escalating over the last two weeks.
Russia Lifting Export Tax
While Russian exports are shut off due to infrastructure issues Russia did announce it is lifting export taxes on corn, wheat and other grains through the end of the year.
Knight says that is also pressuring the wheat and corn market to some degree and rightfully so.
“Well, it should be, especially wheat, obviously. But that war rages on as Ukraine and Russia continued overnight hitting export facilities. They’re targeting those facilities now where they didn’t do that at least until the last month or so,” he says.
However, the pressure will be short lived because Knight says the he Black Sea is basically shut down for business.
“Turkey drastically continues to try to bring peace or some type of shipping arrangement for the Black Sea to try to continue business as normal. But it doesn’t seem like Russia and Ukraine are wanting to be a part of that, at least for now,” he adds.
Funds Near Record Long in Corn and Soybeans
The funds are estimated to be near a record long in both corn and soybeans but how much farther do they want to push their buying.
Knight says, “They are extremely long but really, no one knows where and when they’re going to stop. And I’ve heard all these different
analysts come out and say, hey, the funds will lighten the load here shortly. And that’s not necessarily true. They can hold a long position for a very long time. So I’m not, you know, yes, I believe harvest pressure will come. And yes, there’ll probably be some dips in this market. I mean, it can’t go straight higher just all the way through harvest. I’m not, you know, one that’s going to say the funds have to get out pre-harvest or,
you know, prior to the end of the year, any of that type of thing.”
Harvest Pressure?
Is the market seeing some harvest pressure or will it see the hedge pressure it typically does this year? Harvest has already started to pick up in parts of the South according to Knight.
“The South has moved along pretty well. Now you’re starting to get in the southern part of the Midwest, southern Illinois, southern Missouri and Indiana and you’re gonna start seeing that in soybeans already where you’re getting a little bit of harvest come in and and maybe helping to cool down the basis as you’re getting a little new crop in some spots that were really hot,” he states.
China Keeps Buying
Even with prices moving higher on soybeans China has continued its routine buying with another 7.4 million bu. of new crop export sales on Wednesday. They are expected continue to buy into the Trump Xi meeting on Sept. 24 which is underpinning soybeans.
Knight says soybeans have rallied over a $1.30 in the last month and it hasn’t slowed down China’s buying either.
“China’s been a pretty aggressive buyer that whole time. The price doesn’t seem to be a factor although we are you know very competitive with with Brazil currently so China’s been in here buying,” he says.
Although there has been no confirmation of Xi’s travel plans to the U.S. as he has other meetings to attend and details have not been finalized, which is unusual.
U.S. Soybean Prices Below Brazil
Even with Brazil’s record crop the U.S. soybean prices are running well under Brazil.
Farmers have not been selling in South America, plus there is concern about the impact of super El Nino.
Knight says, “Their prices are also following the rally in the U.S. soybean market.”
Crop Getting Smaller, Market Needs USDA Confirmation
The market is also well supported with ideas of shrinking yield and crop size but the market will need USDA confirmation next Friday to keep the bulls fed.
The market seems to already have a 177 to 178 corn yield priced into the market according to Knight.
“Expectations are that, the USDA will come down I’m going to say two to three bushels to around 177 is what I’m hearing a lot of people chime
in about. If they only come down a bushel or so, the market’s probably going to say, well, they don’t have a big gap between what the actual is and where they started. So, yeah, anything probably less than a two and a half, three bushel decrease is probably going to be deemed a little bearish,” he says.
Cattle Mixed
Cattle futures were mixed early Wednesday with feeder cattle getting some help from the pull back in corn prices.
However, live cattle have continued to struggle to bottom after hitting nine-month lows. The market was still holding last week’s lows but Knight says the tariff cut on beef imports that started Sept. 1 was negative for the market.
“You know, tariffs have been taken off of Brazilian meat as of September 1. So that’s a negative impact. The borders open with Mexico. So there’s been quite a few things that are weighing on that market,” he says.
Plus the grilling season is coming to an end so there is some seasonal weakness at play in futures and cash.
USDA Modernization
Knight also reacted to USDA’s Modernization plan released on Tuesday in the context of whether it will help the market and farmer confidence in USDA reports.
“Well, there’s been a lot of clamoring about it and the lack of trust. So it’s good to see at least a little recognition of the fact that, hey, we have some problems. Let’s address it and try to do something different. So, you know, I’m excited. What else, at least they’re not going to just stay with the current status quo. They’re going to try some other things. So we’ll see how it goes,” Knight concludes.
