Grains ended lower on Wednesday. Cattle and hog futures were leaning higher, at least in the nearby contracts.
How Much Will Yield Need to Fall to Get a Rally?
Darren Frye with Water Street Solutions says grains saw technical selling pressure ahead of the WASDE, with November soybeans closing below key moving averages.
Average trade guesses indicate about a 3 bu. per acre yield cut in corn and less than 1 bu. on soybeans.
So, how much lower would yield have to fall to get a rally?
He says the cut would have to be fairly large, “I mean, two or three bushel lower on corn. I don’t think moves the needle because we got plenty of demand that was overstated in the August report. So I just doubt that that gets the needle to move to the upside at all. And I suppose we’d have to lose over a bushel in beans that would surprise everyone.”
Frye says USDA doesn’t usually make big adjustments in the September WASDE but he is still expecting some cuts because of the dry finish in the Eastern Corn Belt and the disease issues that have emerged.
He also thinks USDA will need to make some incremental cuts starting in September to get to a much lower yields, at least on corn, in October and future reports.
Is Final Yield Moving Below 2024?
Frye says the early yield reports he’s hearing on corn are all below last year but in varying amounts and early soybean yields have also been disappointing.
That leads him to believe that corn yield could be below last year’s 179.3 bu. per acre final yield.
“Today after seeing some of these early yield results and knowing what I saw in Iowa, knowing how diseases rapidly come on that crop in the finishing days, I think we could have a crop smaller than last year. And so my range I’m working with is really 174 to 178 now, and I think we could end up in that range,” he says.
He thinks soybeans could also be below 52 bu. per acre
Will USDA Also Lower Corn Demand?
However, even if yield is cut on both the corn and soybean crops it may not be enough to offset lower demand.
He thinks USDA is too high on their corn demand estimate.
“I think demand’s probably overstated by at least 500, if not 600 million bu. I don’t know why the USDA did what they did with the feed and residual side last month, but I don’t see it being that high. I don’t see ethanol being where it is. Even exports as great as they’ve been, I think they’ll be a little bit less this next year,” he explains.
If demand is lowered by 500 million bu. it would take a yield of 177 or lower to pull ending stocks down to around 1.5 to 1.6 billion bu.
If that happens it could push corn back to $5 he says.
What About Soybean Demand Without China?
For soybeans it would take sub-52 bu. yield to offset the possible loss of Chinese export demand.
So far China has not bought any new crop soybeans from the U.S. and may not until a deal is struck between the two countries.
Frye thinks China will eventually buy soybeans but it may not be in the prime export window for the U.S.
“They’ll buy from us because that’ll be part of the deal. But if we don’t get any deal at all, then I would imagine we lose another 100, 150 million bushels of export demand. I’m not in the camp that it’s 300 or 400 or 500 million less because other countries will need to book U.S. origin because Brazil simply be out of beans,” he says.
Frye doesn’t think USDA will recognize this in the September report.
How Low Do Soybean Prices Fall Without China?
If China doesn’t strike a deal with the U.S. Frye thinks soybeans could fall as low at $9.50 but it will take a deal with China or a bigger production cut to get over $11.
Wheat Continues to Struggle
The wheat market was lower again on Wednesday with increasing global supplies, including higher crop projections for Russia.
“Russia really sets the price for world wheat. And so if we don’t see end users really getting excited about booking ahead and they’re just covering boats, you know, hand to mouth, it’s just not really going to get going. Now this is a time where
seasonally we could turn. I don’t think we go a lot lower, but I just don’t know if we go a lot higher and quickly,” he explains.
Cattle Futures Staging a Healthy Correction?
Live cattle and nearby feeder futures were higher on Wednesday, trying to recover after the bloodbath on Tuesday and the limit down closes in all of the feeder cattle contracts.
Frye is of the opinion the correction was needed as the market was overbought and so this is healthy.
He thinks the market could correct a few more dollars but likely has one more push higher yet in 2025 or early 2026.
Cash has led the rally and at least in the feeder cattle market there has been no evidence of a slow down in the cash values leaving him optimistic about the bull run continuing.
Some light trade fed cash cattle trade was reported in parts of the North though on Wednesday at $375, $3 lower than Tuesday’s business, and $8 below a week ago. The South remains at a standstill.
