Grains ended mixed on Monday, with livestock higher except nearby feeder cattle.
Wheat Trades Black Sea Disruptions
Wheat futures were higher overnight putting in risk premium with fighting escalating over the weekend in the Black Sea region.
Wheat ended well off highs and mixed on the day despite exports remaining at a standstill according to Arlan Suderman of StoneX.
“Ukrainian ports, essentially nothing going out of those. The Sea of Azov, no Russian wheat going out of that. So it is slowing export movement. The market, the global market, not really feeling it at this point because many of the countries who import from those markets or from those points had bigger crops themselves. And so it delays when they really need the wheat by a few months. So maybe later this year, we start feeling that pinch,” he describes.
Plus, there are other places with cheaper wheat in the world that will get that business before the U.S. does. So the U.S. price can’t rally or it becomes noncompetitive.
“So we may not feel that really in our export market until later in the marketing year. So that kind of limited gains today.”
Corn Awaits WASDE
The corn market was nearly flat on the day and is waiting for the August WASDE before making any big price moves.
He says says demand for corn will have a bigger influence on the market than supply down the road.
“When you look at the Black Sea, when you look at the European drought, when you look at the risk for Brazil, etc. Again, I think the fear is that USDA will have a surprise on the supply side. So I think the market’s reluctant to trade that until they’re comfortable with the supply side of the market, whatever that may be, however high or low that may be, then they’ll focus on the demand.”
Corn Yield Estimates
Reuters released an average trade estimate for corn at 182.4 bu. per acre nationally, down 0.6 bushels per acre from July and trend line. StoneX put out a yield of 184.8.
Suderman says 183 bu. is not really a trend line yield but a placeholder yield that the WASDE committee put in the report and they’ve had 181 to 183 for four years in a a row. “They’re waiting now for NASS to give their first yield of the year, and that’s what will be in this
report based on farmer surveys and satellite data,” he says. \
So, will the yield battle be one of east versus west? Suderman says the Plains states in the South and West have been seeing heat and drought and it is playing out in state-by-state yield results.
“So I think it’ll be real interesting where USDA comes in and then where the acreage comes in for corn and soybeans as well.”
FSA Certified Acres
This will be the first month with adjustments in acreage due to FSA certified acres being incorporated into the balance sheet. So, Suderman says there could be surprises.
There are some thinking that FSA planted and harvested acres will be up for corn and soybeans, while other think that corn acres will be down further due to the high price of fertilizer this spring.
“I’ve heard those stories too, arguing both ways. I looked at some satellite data that we’re kind of testing out on the accuracy earlier today, and it would argue that corn will lose another million acres and that will go to soybeans. So, a drop of a million in corn and an increase in a million of soybeans, we’ll see how accurate that is,” he adds.
Suderman says they question USDA’s ability to discern average estimates thinks farmers need to be prepared for anything when it comes to USDA and these acreage numbers.
Raise Corn Exports?
What about demand? Will USDA have to raise exports because old crop corn exports are running above USDA’s estimate.
He states, “Yeah, when we look at export inspections for corn, year to date, they’re over 200 million bushels above the seasonal pace needed to hit USDA’s target. Now, that doesn’t account for uninspected corn, relative to normal years. That’s assuming normal and inspections. We won’t know that till late September, early October, but that suggests a significant increase.”
Plus, he says USDA knows their feed and residual number on corn is too high right now.
“But they can’t change that unless USDA NASS would lower the size of their crop significantly from last year. And they won’t know if USDA NAS is willing to do that until September 30th. And so in the meantime, if they raise that corn export number, that brings the ending stocks number unrealistically low. And so they have to just stick demand into feed usage. So I think that’s why they’ve waited so long to push that export number higher,” he adds.
Soybean Yield at 53 BPA
Most of the trade guesses on soybean yield are really close to the 53 bu. per acre as it is too early in the season to make an accurate estimate.
“As early as it is, even in our customers survey most people for their region would just put in a trend yield. And so therefore it comes out as basically a trend yield. A 30-year straight line trend yield is right about 53 bushels.”
Soybean Demand the Real Story?
The focus is on supply right now but is soybean demand the real story with China back in the market and record soybean crush?
Suderman says that is the long term story but it won’t be reflected in the report.
“As I do the math, it looks like USDA has factored in about 16 million metric tons going to China. Our contacts on the ground continue to say that China will buy all 25 million metric tons, even though they’re more expensive from the United States, because that’s a cheap price to pay to get concessions out of President Trump and other areas that are worth a lot more money. So they think they’ll do that,” he explains.
Still he thinks USDA will be very slow to recognize that, to make sure that relations don’t fall apart in the meantime.
“Right now, China has bought about 6 million metric tons of the 25, and they’re steadily making their progress toward that 25 million metric tons,” he says.
Suderman believes it will likely be several months from now before the U.S. has an idea what China will really do. If China does purchase the full 25 MMT and that is added on top of a record crush pace, the 300 million bu. of ending stocks will not be enough.
“Yeah, there won’t be enough soybeans unless we have a significantly above trend yield, or the market has to ration that demand. By rationing, it would be to raise our prices high enough so that non-China business goes south to South America and South American beans start coming north to the United States. There’s a limit on how much we can import due to logistics issues. The highest we’ve ever imported was about 2 million metric tons or 72 million bushels,” according to Suderman.
Corn and Soybeans Hold Support
So far December corn has held the 50-day moving average right around $4.60 and soybeans have held the 100 day moving average around $11.70. So will the funds continue to defend those support areas or will there be good end user buying below those price levels?
“If you dip below it, then the end user may say, hey, I’m just going to step aside and let things come my way. And so they’re hoping for a bearish surprise on Wednesday to get that to happen, to break below. If we don’t get that bearish surprise, you may see the end user start chasing,” he remarks.
Suderman points to the fact that Mexico make some notable purchases of next year’s or the 2027 corn crop.
“I think giving us some indication that they’re concerned longer term about what the price of corn may be doing.”
That’s tied to El Nino and the fossil fuels issue with rising demand for biofuels like ethanol.
“We have trouble getting our Congress to go to a voluntary E15. Many other countries around the world are raising their mandatory blend levels. Brazil’s one example that are already going to 32%, and they’re talking about 35% blend right now, mandatory.”
Cattle Market Supported by Cash
The cattle futures were higher except nearby feeder cattle contracts.
Live cattle were supported by last weeks’ higher cash and a $7 jump in Choice boxed beef prices at noon. However, the market still can’t get above major chart resistance areas around the 50% retracement levels.
He says, “The problem is the funds are looking at the product market, and the product market is struggling. You look at last week’s slaughter, 509,000. Our weekly production numbers around 450 million pounds of beef, that’s the smallest that we’ve seen in a non-holiday week this year.
That should be strengthening the product market and so far it has been lack luster. The pork market is having similar issues even though it has slowed down chain speed.
“So that has the fund somewhat concerned,” he says and that is evident in the open interest, which has been declining.
Packers Slow Chain Speed
Packers have been slowing chain speeds to help prop up the boxed values but it has been slow and ineffective.
JBS in Grand Island, NE was offline on Monday as packers are trying to regain some of their leverage and their margin.
It also gives them an opportunity to do some maintenance as well.
“They have improved their margins. They’re still in the red. About half of what they were earlier in the year, though, as far as the losses per head,” according to Suderman.
Until that changes it is going to be difficult to keep pushing the market. “It comes down to how much the packer wants to fight in order to maintain market share. That’s ultimately what has been driving cash prices up when they do go up,” he concludes.
