Soybeans ended higher Tuesday, with corn lower and wheat mixed. Livestock were higher except some live cattle contracts.
Soybeans Bounce on Renewed China Export Interest
Nov. soybeans ended 9 1/2 cents higher at $12.97 3/4 on a technical bounce after 30 cent losses Monday.
Market sources indicated some renewed export interest from China out of the Pacific Northwest and Gulf.
Greg McBride of Allendale confirmed that China was inquiring for soybeans to be sourced from the Western Corn Belt.
“We know that a lot of the beans from the Western Corn Belt go that way but it is iffy where they can pull beans from with the slow harvest,” he says.
McBride believes the impact of China demand on the market is overblown.
“If they start to look like they could get more than 25 million metric tons, let’s get excited. But for right now, I think it’s just as long as they’re doing what they say they’re going to do, that’s the important part,” he says.
More Than 25 MMT of Soybeans to China?
Thoughts by some traders that the U.S. could get more China soybean business than 25 MMT if the 10% tariffs were dropped may be why soybeans sold off so hard on Monday. That would have allowed private crushers to buy.
McBride adds, “If you go back to like, I think it was February, the president had made a comment about China buying additional beans. We didn’t know how much it was. Maybe it was going to be another 8 million metric tons, something like that. But they’ve never said anything about that.”
He remarks that in conversations about trade and about tariffs, the Chinese have pushed back and said everything else was on the table except soybeans. “So I wasn’t necessarily looking for that adjustment to the tariffs on the soybeans.”
McBride says he was looking for more clarity on what China would buy outside of the soybean agreement and the market was as well.
Harvest Delays
Soybeans also seemed to be supported by the harvest delays in the western Corn Belt. Iowa is 14% behind normal on soybean harvest and Nebraska is 12% behind.
He says the market is watching the one to five day forecast which shows heavy rains across the Western Belt into Illinois, into Wisconsin.
Past the 5 day forecast it looks like dry weather until around Oct. 15.
“So you’ve got about a 10 to 12 day window, at least for right now, that looks clear that there’s going to be a lot of harvest that gets done. Obviously, some of those areas are going to have to dry out a little bit, but I think we’re going to get a lot done over the next two weeks,” he says.
Soybeans Vulnerable?
Soybeans did technical damage to the charts on Monday so with funds record long could the market see some end of the month and
end of the quarter profit taking?
McBride says, “Yeah, I think it does set us up for maybe a little bit further retracement, getting yourself back to maybe that $12.50 to $12.80 area. There is still some more room that can go. And this would be more of a retracement. This is not a failure by any means. It’s just doing a little bit of chart damage,” he explains.
Considering the current ending stocks for soybeans at 310 million bu. the price may be over valued.
“With those numbers, we should be somewhere around $12.25. So being up near $13 is still a blessing at this time of the year.”
Corn Sees Harvest Pressure, Report Positioning
The corn market tried to follow soybeans but the rally was capped by report positioning and harvest pressure says McBride.
“You talk about the size of this crop. And even if we’re talking about lower yields than last year, we still planted a ton of corn acres here. We’re talking 95, 96 million acres of corn. And yes, you are down a little bit on your yields, but we’re talking about maybe the second largest ever production that we’ve had here in the United States. So at this time of the year, this is the biggest and the most amount of corn we’re going to have on hand at any given time. So that’s going to put a little bit of pressure on things.”
Plus, he says export demand is not keeping up with the pace needed to hit the USDA’s goal.
“It’s still good,” he says, “We’re about 9% ahead of the five-year average at this point, but we need to be about 27% ahead
at the end of the marketing year. Good thing about this is that we still have 11 months left, and the big time for corn sales comes in in, say, January. So we’ve got some time to play some catch-up.”
China to Buy Corn?
Corn purchases by China would provide the needed boost to demand but will China buy corn?
McBride says, “I don’t think China wants our corn. I think you look at the situation that they’ve got. They’ve got a good supply over there. They’re actually trying to draw down their own domestic stocks right now. So they don’t need U.S. corn right now. Now, that’s not to say that they couldn’t in three months, five months, six months. But right now, they are on a different situation. They don’t need the U.S.'s corn.”
He also thinks it is the wrong time of year for China to buy U.S. corn.
Technical Damage in Corn?
Dec corn ended 1 cent lower on Tuesday at $5.22. The market already fell below the $5.25 area on the charts but did the market do enough technical damage to cause fund liquidation end of the month and quarter?
McBride says funds are long over 414,000 contracts and the market is at a tipping point.
“Last week, we turned it a little bit negative when the market pulled below support. A weekly close below $5.20 would open the door to Dec retracing back to $4.90,” he explains.
At that level he recommends re-ownership on the board for anything farmers sold above $5.20 to $5.50.
Report Positioning
Wednesday USDA will release its Quarterly Stocks and Small Grains Summary and so especially corn and wheat may have been seeing some positioning ahead of that.
He says Quarterly Stocks tends to blow up markets. “We go back in years past, we’ve seen 200, 250, maybe 150 million bushels adjusted higher or lower. And that can throw that market into a tizzy at the end of a quarter, end of a month.”
The trade guesses for the Small Grains Summary don’t show much change from the last report so traders are not expecting any fireworks on production.
Wheat Pricing in Rain
The winter wheat market is pricing in better rains in hard red winter wheat areas. Planting is behind but it isn’t a concern because the rain will help get the crop emerged.
Black Sea and Exports
The Black Sea export situation has not changed much as exports have been constricted but the U.S. is not getting any business as a result. Exports are at a four year low.
McBride says, “That’s the biggest driver right now is that we can’t sell additional wheat. So we’re struggling to see these markets go back and retest those highs.”
Cattle Mixed
Feeder cattle were higher on Tuesday on technical buying. However, live cattle gave up early gains and stalled out even though boxed beef values were up again at noon.
McBride says even though beef prices have improve the last few week the cash has not seen a major rebound.
“You have cash that trades somewhere, say, $219 to $226, but it trades back and forth in that range. Technically this market looks like it’s trying to hold its uptrend. I think there’s a little more upside to this,” he says.
Still he is cautious because USDA is showing increased production for next year as a result of higher imports.
“So any recovery that we get, we need to be careful about maybe getting some protection in place.”
Hogs See Short Covering
Lean hogs were slightly higher on short covering and with cutouts rebounding at noon.
McBride says the market is suffering from slow demand. “The October Pork Month buying that we would see in September and into very early October hasn’t come in as great as expected. It hasn’t provided the pop that it normally does.”
He looks for a V bottom that would take summer hogs back up to $100 to $105 but it will take time for that recovery to occur.
