Corn and soybeans were lower Wednesday, wheat slightly higher. Cattle rallied, while hogs plummeted.
Corn and Soybeans Fall on Weather, Yield Estimates
Corn was down on Wednesday with December losing 5 1/2 cents to $4.60. November soybeans fell 3 to $11.74 3/4.
Kevin Duling with K.D. Investors says the favorable weather continues to keep pressure on the row crop markets with rains in key areas of the Corn Belt in the last few days and more in the extended forecast.
However, private yield and production estimates from various private firms ahead of the Aug. 12 WASDE are adding bearishness.
Duling says, “It’s that silly season where people start throwing numbers out there. And, we don’t know how much damage the heat did. You got a bunch of haves and a bunch of have nots. And I think the key word going forward is going to be variability. And it’s going to be hard to get those lofty yield expectations with things as variable as they sound.”
StoneX Bumps Up Corn Yield
StoneX released their farmer survey estimates with corn yield at 184.8 bu. per acre, up 1.8 bu. from USDA’s trend line yield. Soybeans at 53 bu. is right in line with USDA.
With corn ratings 12% below last year Duling thinks it may be difficult to achieve at 184.8 yield.
“Last year, the story was the fringe areas did exceptionally well. You know, you’re talking eastern Kansas, you talk the Dakotas. We had lots of good crops there. This year is not the case, not the case at all. So those areas are going to really bring down that average. And I just don’t see that. You know, last year, I think we were under that original estimate by quite a bit. This year, I think we’re going to be under this one,” he says.
Still he points out that is how yield models work as they have a specific criteria used to weigh several factors and sometimes the model doesn’t account for a lot of the problems currently being seen.
Since USDA uses the same type of methodology he says the market could be set up for a bigger then expected yield in the Aug. 12 WASDE.
“I think as far as those yield models, I think they’re right in line with USDA’s. And the market’s going to trade those, computers are going to trade those, and we’re going to get stuck scratching our head. But that’s the life we live now. It’s ran by the computers, ran by the algorithms, and we kind of have to feel our way through it and try to pick where the opportunities are going to be.”
Soybeans Helped More Than Corn?
Even with the weather improving is it too late to really help the corn from a yield stand point?
Duling says, “Any kind of good weather from here on out helps with kernel depth and the test weight on corn. Soybeans you have most of the reproduction cycle in the process here.”
He says yield is still evolving in August for soybeans but the weather has improved for both corn and beans which will keep yield estimates fairly elevated.
Corn and Soybeans Hold Support?
Even with the pull back on Wednesday both corn and soybeans held support that was important. For corn that was Monday’s lows.
Duling says, “There was a big, long sideways pattern in June, and we’re not that far above the highs of that June move. And as long as we stay above that technically, we’re fine. It would be nice to get some legs here. I’m probably going to have to use wheat to to to catalyze it I don’t think there’s going to be anything shocking in the soy or corn markets to make a move on their own.”
He points to the fact that demand has been strong for both corn and soybeans and there has been more rumors of China business but just nothing flash enough to get the computers on the buy side.
Demand Provide Support
Duling also mentioned that if prices did fall below these support areas on the charts it would uncover end user demand which is acting as a floor for the grain markets as well.
Plus, he says when prices get that low farmers are not willing sellers.
“I can’t see any logical reason why producers would really want to let loose here especially knowing the heat we just came through and some of the dry pockets, I don’t know why producers would be super excited about selling these prices,” he says.
So he hopes the market can stay sideways until harvest with strong demand.
Funds Long in Corn and Soybeans
Funds are long in both corn and soybean markets which is unusual for this time in the season without a major weather problem.
Duling says that is a head scratcher but may be tied to hopes for China demand or El Nino causing global crop problems.
“I see the reasoning behind why they’re long. I get that. What concerns me is why is the market not more elevated than it is? Who is the big seller that’s been offsetting them? If you look at the report, it’s the commercial. The commercial is holding a big short position. So who’s going to blow out of that first? If we stay down here and capture the demand, then the commercial is going to be liquidating those short positions, we should get some buoyancy as long as the hedge fund decides not to liquidate the longs.”
Wheat Bounces
Both classes of winter wheat were higher on Thursday and Duling says some of it was short covering or a technical bounce as the market held support.
He thinks concern is starting to grow about the loss of exports from the Black Sea region but he still believes the market is down playing the seriousness of the situation. Plus, the market will need to see business move to the U.S.
“That’s probably the one missing link we have in the wheat chain is the confirmation business that typically routes to the Black Sea is coming to the EU, coming to the US, that we have not seen yet. Now, we just saw Algeria launch a tender. We have Jordan launch a tender. Where are they going to fill those? The Black Sea is mostly shut down. There’s got to be a premium involved if they do try and buy out of the Black Sea. So are we competitive with those?”
Even so, he thinks wheat is under valued at $6.50 and he’s not sure what it is going to take to change the narrative. Still, the problems gets worse the longer the duration.
“You cannot shut the Black Sea down that long especially some of those ports that freeze up in the winter time and are pretty well booked in the spring there’s really no you’re going to lose that capacity. So if this thing stays shut for another couple of weeks, I mean, there has to be ships moving to other areas to pick that supply up. And maybe that’s what it’s going to take to break this thing loose,” he explains.
Spring Wheat The Sleeper?
The spring wheat market did not follow the winter wheat and ended a penny lower. The market may be seeing some light harvest or hedge pressure and its still too early to tell how much the heat in the Northern Plains trimmed yields.
Early harvest results have been variable according to Duling. “I mean, when I talk to producers up there, when they move into Canada and whatnot, it’s a pretty variable harvest. I mean, it’s going to be interesting. I don’t have my finger really on the pulse of what this crop’s going to do yet. I need a bigger sample size and a bigger region.”
Duling thinks the spring wheat market needs to see some Chinese business but so far they have been largely absent from the U.S. or Canadian market.
That could change with China reporting heat and drought in cotton, corn and wheat areas.
“There should be a pretty good story there we’ve already had some sales of soft white through the unknown category and there’s really not that many locations they can buy a lot of wheat from right now. If Australia has a little bit of a problem I mean where are they
going to get it?”
So he thinks that leaves room for upside in the in the export category as well as the price.
Cattle Push Higher With Cash
Live and feeder cattle futures had a strong day and keep grinding above various moving averages.
However, the higher cash market is helping as there was some Nebraska trade at $370 to $371 which is $2 to $3 higher than last week.
Cash feeders have also seen higher prices at auction barns.
Duling says, “We’re in that range from $340 to $380 on feeder cattle and have been there for quite a while. And we broke down below it here a month ago. And, you know, the funds sold it down. But there really wasn’t anyone left down at the $325 area to sell it. So now that we’ve bounced back to $340 and looking at the October, why would they want to sell it here, especially if cash is starting to firm?”
He says that doesn’t mean the market is going back to $380 right away but a close in feeder cattle futures above $340 would be a strong technical signal and get the market back into that longer term range.
Numbers Not Building
He says cattle numbers are not building very fast and so it will be a while before the market sees a great deal of pressure.
“We’re just not seeing the build that is going to be required. It’s such a tough, tough thing to expand, especially with prices the way they are,” he explains.
The one fly in the ointment, says Duling, is the consumer.
“The consumer can’t afford a certain level. And that’s why we’re kind of capped. We can’t get above that $370, $380 in the futures feeders because it’s just the consumer is not there,” he concludes.
