Grain and cattle futures ended higher on Wednesday with hogs lower.
Soybeans Trying to Confirm a Seasonal Low
Don Roose with U.S. Commodities says soybeans ended higher for second day as it looks like the market is trying to carve out a seasonal low.
This is being indicated by firming basis levels and the forward spreads in the market.
“The seasonality is usually, Michelle, we bottomed this market in years like this around that first week of October. Certainly feels like that’s occurring right now. Also, we have bull spreads working, front months gaining on the back, big carries in the market. So that’s a positive sign,” he says.
He says harvest is now past the 50% mark and farmers are not willing sellers at these lower prices so they are storing more of the crop to wait for basis levels to improve or demand to improve with a China deal.
This is especially true in the Northwest Corn Belt, where soybeans generally are marketed through the Pacific Northwest, farmers are still seeing wide basis levels of $1.00 to over $1.50 in some locations.
Corn Market Following Soybeans, Confirming Lower Yields
The corn market has been getting spillover support from the strength in soybeans but has also been digesting the lower yields off the combine according to Roose.
“There is no doubt in the gut slot of Iowa, the yield is not there. I mean, it’s substantially down. You know, of course there’s some good corn too, but I mean, I’m talking like 20 to 30 bushels under a year ago. So the bottom line, we think the crop is not there,” he says.
He says there is also more corn that’s being stored and that is keeping harvest pressure at a minimum.
“Right now I don’t think producers are interested at this price level with a lot of uncertainty ahead selling cash corn for most people below the cost of production. It’s just not happening,” he adds.
Corn and Soybeans Range Bound: What Will it Take to Get Above Resistance?
Even if the markets are starting to bottom they are essentially still range bound with corn trading in a 15 cent range and soybeans around 30 cents.
So what will it take to break out above technical resistance?
For corn he says there is a head and shoulders pattern and if December can close above the gap at $4.32 3/4 it targets up to $4.46.
“So, what gets us out of this range? I think it’s a lack of producer selling and users steps up, because in the case of livestock feeders and ethanol producers its time to get aggressive. I mean you have corn below the cost of production,” he explains.
Roose says for soybeans it will take a weather problem in South America or a trade deal with China that includes U.S. purchases.
Wheat: Putting in a Low or a Head Fake?
All three classes of wheat scored key reversals on Oct. 1 after making new contract lows and Roose thinks that market is also trying to carve out a bottom.
However, analysts have predicted a low several times before.
Roose says the market has been struggling with big global supplies but that is priced in, “We’ve got a lot of big crops dialed in globally. You know I think the funds are short about 95 ,000 contracts so it feels like we need some kind of a catalyst to go up we’re probably a fair market value down here and remember when you’re building this long of a base once we break out you know you can have a better run than you think,” he says.
Yet, he admits it will take some sort of catalyst like a weather problem to really drive a rally.
Cattle Rally with Feeders at All-Time Highs
Cattle futures rallied again on Wednesday with feeder cattle making all-time highs.
Roose says the feeder market has been pushed by the strong cash market and the lack of supplies due to the closing of the Southern U.S. border to Mexican imports due to concerns about New World Screwworm (NWS).
“Remember that’s 50,000 a month less feeder cattle coming into the U.S. from Mexico.” he says.
Can the Cattle Market Sustain the Rally?
Can feeders continue to push higher and will nearby live cattle futures eventually move back to retest the record highs?
Roose says he’s cautious because the market has some headwinds including rising weights and poor packer profit margins.
“Actually the front months of cattle, December cattle versus normal basis is probably about I’d say four to six dollars too high versus the cash unless cash comes up but it’s going to be all about what happens with the packer and what happens with the demand box beef is going to have to move up or cash cattle down for the packer to make a little headway,” he states.
Lean Hog Futures Continue to Consolidate
Lean hog futures continued to see profit taking and fund long liquidation on Wednesday.
Roose says the market hit new contract highs and then topped after the bullish USDA Hogs and Pigs Report.
“It has been consolidating ever since because the market believes the disease issues are starting to subside and farrowing intentions indicate the herd is rebuilding,” he explains.
