Grains ended mostly lower on Friday, with livestock mostly higher.
Soybeans Sell Off on China Disappointment
November soybeans ended 11 cents lower on Friday and 21 cents lower for the week, with selling pressure following President Trump’s social media post about his talks with Chinese President Xi, which did not include any mention of soybeans.
Shawn Hackett, Hackett Financial Advisors, says he wasn’t expecting any progress on ag trade or soybean sales during this call but the market apparently was.
“In the minute that President Trump tweeted the meeting was good, but didn’t mention anything about soybeans, we had an immediate persistent sell off that went right into the close,” he explains.
China has still not bought any new crop soybeans from the U.S. and Hackett says the next time the two leaders may address that is in October.
“That’s the meeting we’re gonna start to get more granular about what an actual finalized trade deal would look like, which would certainly include soybean purchases. So my expectation is that that meeting is the one to be looking forward to. And it may be that we start to rally the market again as we get closer to some of those meetings in mid to late October,” he adds.
Will Lower Soybean Yields Offset Lack of China Demand?
Hackett says the best chance soybeans have for a recovery now will be tied to lower yields.
He thinks the flash drought conditions in the Eastern and Southern states likely trimmed yields enough to offset some of the loss in China export business.
“I would say that in order to get the market excited about getting carryouts down from 300 million bu., you’d probably need to knock the yields down by 2 bu. per acre. One bushel probably offsets the fact that exports are too high in the USDA estimates at the moment,” he says.
He thinks soybean yields will be disappointing enough to get that accomplished.
“Remember, we had the driest finish to the soybean crop in about 65% of the production in the United States in 50 to 100 years,” he explains.
However, he thinks it will take a few weeks of consistently lower than expected yield results to do it.
When Do Lower Soybean Yields Narrow Basis?
With the lack of China business basis levels are wide, especially in the Northern states, and the national soybean basis is the worst since 2019.
So when will the lower yields start to be reflected in the basis?
Hackett predicts, “When we start talking about carry outs more, let’s say low to mid 200s, I think a lot of those buyers that have been sitting back will come to the market domestically and get more aggressive on those purchases. And that’s the point with where I think that basis can come in. To me, I think that is probably a second week of October time frame where we might get the confluence of those two events.”
Corn Lower But Being Held Up By Lower Yields
Corn futures were nearly flat on Friday but down 6 cents for the week.
However, Hackett says he is not concerned that market will fall much farther, especially with the lower yield reports he’s hearing in the country.
“The yields are clearly, in my opinion, more disappointing in corn than they are in soybeans,” he says.
Plus, unlike soybeans, corn has strong demand and doesn’t need a China deal to keep exports running at a record pace.
” I think we’re going to be bringing those carry outs down to 1.5 billion bu. or less like we did last year come January and you know we can argue what that means but probably it’s a mid to upper four dollar corn market not a low four dollar corn market,” he adds.
Wheat Fails With Growing Global Supplies
Wheat had another disappointing week with lower weekly closes in all three classes.
Funds have continued to be successful pushing the short side of the market but Hackett says the bigger problem is just the huge global supplies.
“The spring wheat crop in Russia, which is being harvested now, is coming in significantly above expectations and so that does not help our spring wheat market. And of course, we know that we had a very, very strong, large hard red winter wheat crop here in the U.S. and even though Russia had disappointing winter wheat production you know, it’s kind of it kind of got offset by our production being so strong,” he says.
Cattle Post Higher Weekly Close
Live and feeder cattle futures were higher on Friday and posted higher weekly closes as steady cash at $240 in the South seems to attract some late week buying.
But can the market build on it?
Hackett says, “I don’t think though it’s building on a new rally to new highs and entering another parabolic move that we’ve been in for quite a few months. I think what it’s done is it’s moved us into a sideways trading market.”
He points to the correction in cutouts which indicates softer seasonal demand which is being offset by tight supplies.
“And it seems to me like for right now, we found ourselves a good balance on live cattle in the low $230s to the upper $230s,” he adds.
Hogs Ready to Break Out?
Lean hog futures ended mostly higher on Friday and were higher for the week.
Hackett thinks that market is poised to retest the contract highs and stage a technical breakout.
Fundamentally, he thinks pork will finally win out to higher prices beef.
“I don’t see consumers wanting or being willing to chase beef prices any higher. In fact, I see them being more and more willing to reduce those meat protein budgets in favor of more chicken and more pork going into the holidays,” he says.
