Grain and cattle futures ended mostly lower on Wednesday with hogs higher.
Grains See Profit Taking
Grains finally took a breath on Wednesday with some profit taking and hedge pressure after hitting contract highs and hitting some chart resistance.
Matt Bennett with AgMarket.Net says grains rallied most of August and got a bit overbought so the correction was overdue and healthy.
“If the market’s going to continue higher you’ve got to correct every once in a while. You’ve got to sell something off. I mean no doubt some profits to be taken of course a lot of these people that have wanted to be along this market I think are remaining in it for the long run but at the same time if you made lot of money in August you might want to take some profits,” he says.
The market did not see big profit taking at the end of the month like some had anticipated. Bennett says the buyers seem committed.
Markets End Well Off Lows
As a result the funds and end users bought the break and grains ended well off session lows.
“The market on the overnight got beat up pretty good but, boy, we bounced strongly off those lows. Corn was 13 off the lows at one time. Kind of pushed Dec up to that magical $5.50-type number where you hit stiff resistance, and we kind of bounced off of it. But regardless, I mean, pretty impressive day. We’re well off the lows, even though we closed lower,” he explains.
Funds, End Users Buy on the Breaks?
So in this bull market will these breaks be seen as buying opportunities by the funds or the end users?
“That’s a tough call, to be honest. The funds, how far could they push it? I do believe that there’s enough money available to push this significantly farther if that’s what they choose to do,” he says.
What Feeds the Bulls?
So what do the bulls need to sustain the rally?
Bennett says one key will be the confirmation of a lower yield. “Clearly, there’s a big gap over seven bushel between Pro Farmer and USDA’s August number. You know, if that’s closer to Pro Farmers than USDA’s August number, you know, you’re talking a full on bull market. And that’s part of what we’re already into,” he says.
The August WASDE confirmed a 10.1% stocks to use ratio on corn. “We all know sub 10% gives you a demand rationing rally. And I believe that’s why Pro Farmers numbers were so strongly followed. I mean, I think people always watch them, but this year, it made people feel like they need to start buying already because we’re heading to sub 10%.”
The other factors that feed the bulls include increased Chinese demand or South American or global weather problems.
“El Nino is definitely causing some issues for more people than just the proposed South American problems,” he adds.
How Far Do Funds Extend?
How far will the funds extend their long position in the grains and are they already record long in corn and soybeans?
Bennett confirms, “Yeah, I would assume that they’re at a record amount. You know, the last COT report, of course, is as of last Tuesday’s close. There’s a lot of stuff that’s been bought since then. There’s no doubt that we’ve rallied sharply. And so I’ve got to assume that they’re pushing a
record long if they’re not already there. You know, could they could they double that long?”
He thinks its possible because the money is available to do that. However, they will need more than a bushel drop in the September WASDE.
“I think if you get like a 178 or below on the September WASDE, in my opinion, that’s going to be very well supported,” he explains.
What Yield is Priced In?
Bennett says 178 is already priced in and he pegs corn yield at 178.5 bu. per acre, which is above that.
“I mean, in all honesty, I think there’s some phenomenal corn out there and there’s also some corn that’s been hurt really bad. And of course it
all depends. I mean, if you do like precipitation yield model, I know I’ve talked with Eric Snodgrass about this quite a bit. We’ve argued about it all summer. You know, that would suggest a massive yield, but the problem is sometimes you get too much of a good thing and I think that’s
what the Pro Farmer tour found,” he adds.
Many of the states in the east had too much water in June which caused issues with nutrient uptake and lost some nitrogen. Plus, the hot nights created pollination issues. He says the market will know part of the story in September but thinks it will take a while to determine crop size.
“I think we’ve got to get the crop harvested, get in the bin or elevators if you will. Even in January I’m not totally sure we’re going to know exactly what we’ve got,” he states.
Plus, USDA often slow plays their yield estimates in September.
“We’ve seen it in the past, where people say, oh, they’ve got to drop this thing three or four bushel and then they take it down a bushel or two. You know, I mean, it’s just something we’ve seen over and over in the past,” he adds.
USDA is more methodical with yield cuts so they may take it down a bushel in September and another bushel in October. “Once you get some harvest data, it certainly gives them more confidence to go ahead and continue dropping that yield.”
Soybeans Also Trading Demand
Soybeans are also trading strong demand with China buying another 7.4 million bu. of U.S. new crop soybeans Wednesday morning.
The market is betting on more going into the Sept. 24 meeting with President Xi he says. However, there are other news stories that say the meeting may not take place and it will be pushed off a bit.
“Regardless, though, the Chinese have been buying like it’s going out of style. Obviously, last year, they hadn’t bought any beans going into
harvest. And it sounded like maybe they aren’t going to buy any beans, you know. And so this year, you come in with wildly better numbers than what we’ve seen many other years as well, quite frankly,” he says.
So Bennett says that has put the market in a position to say things will be extremely tight if exports are decent and China buys 25 million metric tons, given the crush. He says even adding 5.4 million acres this year, USDA shows no growth in stocks. “So boy this acreage thing for 27 could be seriously interesting throw wheat in the mix and boy it gets pretty pretty wild,” he says.
How High Will Soybeans Run?
So to ration demand how high will prices need to rally as they are already over $13? “Yeah, I mean, that’s the big question,” according to Bennett, “I think it’ll be a function of is this crop size.”
He contends in much of the corn belt that despite lower pod counts the crop finished with good weather and so that could help the yield hold.
The other factor that will determine how high soybean prices run is South American weather.
“There’s a lot of question marks as to how much could their production be impacted considering this El Nino is the strongest El Nino on record and with that being the case you look at previous El Ninos and their production was affected in many of those years,” he says.
The market has seen big crops back-to-back from South America and world stocks have still tightened over the two year window.
“So what does that tell you here? We have to have big-time production out of South America. And that’s why they’re watching very closely. So if you even take 10% or 5%. off that crop this year that’s something that could project these prices significantly higher,” he states.
Reward the Market
With that being said Bennett advises producers to reward the market as it rallies because these are prices farmers have not seen in the last three to four years.
“So, we don’t want to snub our nose at profitable areas,” he reminds farmers.
He says farmers need to look at what their profit margins are because prices were only $10 or lower for some farmers last fall out of the field and this is a totally different situation.
Black Sea War, Russia Lifts Export Tax
The other big factor supporting grain prices is war, both in Iran and the Black Sea. This fighting between Ukraine and Russia has escalated and neither country is getting much wheat moved to the export market.
As a result, Russia announced they were dropping their export tax on grains through the end of the year, which was a negative headline for the market.
“I mean, we all know that wheat’s there. It’s in the Black Sea region. It will make it to the market at some point. It’s just we’ve really disrupted global export flows. And that’s part of the reason for the excitement,” he says.
Wheat Runs Into Chart Resistance, Hedge Pressure
Wheat also saw profit taking after running into chart resistance and it encountered some hedge pressure.
“We were looking at July 27, Chicago wheat and were topped out at $8.05. Boy, what a price to hedge off a little bit of wheat, for some of these wheat growers that frankly haven’t had a whole lot of shots at profitability the last couple of years,” he adds.
He thinks this price will attract some wheat acres and set up a bit of an acreage battle.
“If you can get the rain out west, some of the areas in the western half of Kansas that have really struggled as far as rainfall is concerned this year, you know, they’d be able to get out there and sow wheat maybe a little bit right when they want to. You know, our office in Kansas, they seem to think that you could be looking at a significant increase in wheat acres in that part of the world. So you’re able to hedge off wheat at these levels dollars a couple three dollars higher than what we’ve been able to the last couple years that’s pretty tough not to look at for sure,” he concludes.
Cattle Mostly Lower
Cattle futures closed mostly lower except deferred feeder cattle futures. The market saw early strength with the pull back in grains and feed prices but could hold those gains.
The market is holding last week’s lows but still struggles to confirm a low after the futures have take out all the key moving average support areas and the long term up trend dating back to 2020.
He says this has been about the negative headlines with the Trump administration’s beef plan because the fundamentals are still strong.
“One thing you got to remember, of course, is that you’re opening another port here, probably going to have all ports open. Mexican cattle coming back north again as we move through the next few months. But from a fundamental standpoint, we’re still very, very tight, very snug numbers. First of all, second of all, the U.S. consumer hasn’t backed off of buying beef. There’s no doubt that these protein rich diets have been fashionable to say the least.”
He says the problem is funds have been long cattle for a long time and with the administration trying to lower food inflation they have zeroed in on beef and spooked the speculators.
."I’ve got to think some of these funds have said, you know what, let’s take these profits we’ve piled up over the last couple, three years and let’s
maybe back off just a shade,” he concludes.
