Markets ended lower except the soybeans complex Thursday.
Soybeans Bounce as Harvest Pressure Subsides
Nov soybeans ended 7 3/4 cents higher at $12.53 on Thursday, finally seeing a pop after eight straight days lower. The market was oversold and due for a corrective bounce.
However, Sam Hudson of Cornbelt Marketing says the market is also starting to see harvest pressure subside.
“You are so oversold, but as harvest gets over with and farmers move their interests over to corn and creating that cash flow, there’s not going to be a lot left against that spot contract. And so we’ve seen the spread start to rally already.”
He says there was a considerable amount of hedge pressure from the farmer off the combine to create income and yields have been strong. Plus, there are quality concerns and no one wants to store beans.
Big China Buys
During the eight day slide in soybeans the market failed to rally on confirmation of China export sales.
China bought big on the price break and as a result made up 80 million bushels of the 104.4 million bushels of exports on the weekly sales report, which was a marketing year high. China also bought 7.4 million bushels on a flash sales, plus there was talk of then buying another 5-7 cargoes off the Gulf.
Hudson says the market has to start pricing that in because China bought nearly every day the soybean market was down. Right now South American weather is not a threat and planting pace has been quick but if dry weather persists for the next 30 to 45 days the market will need to pay attention.
“Because we continue to sell to China and if we have any sort of a production problem down south because of that cycle, the prices are just too cheap for corn and beans both.”
He adds China might buy now and cancel it later but they want to have it in their hip pocket if they need it.
Funds Done Selling?
Managed money was considerably long in the soybean complex ahead of harvest and has liquidated a good chunk of their position. So is the fund selling pressure about done?
Hudson thinks the speculative crowd is about done liquidating in the soybean complex.
“You’re going to need to see another reason for them to facilitate another downturn in that bean market. Not saying we can’t get that, but I just don’t see it. And even though yields may go up, I don’t think that’s going to be a surprise to the market.”
Corn Fails to Extend Gains
After the outside day higher in corn on Wednesday there was hope the market was carving out an early low.
However, the market failed to see much follow through on Thursday with wheat serving as an anchor and the headwind of a huge week of harvest.
Funds Done Selling Corn?
Hudson thinks the funds have exited enough in the corn market and are only around 100,000 to 150,000 contracts long.
He doesn’t see a reason for managed money traders to come completely out of their long position with the uncertainty of El Nino and USDA’s national corn yield coming into question.
Lower Yields
Hudson says unlike soybeans, corn has not had consistent yields.
“We are seeing some disappointment it’s really just because of how the water laid on it and these flat areas just are not performing. That may take a while for us to see that reflected in USDA data but I think a lot of people have that conviction that it eventually will,” he adds.
Hudson is confident the USDA will cut back corn yields and supply at some point. “I don’t know if I’ve got a lot of conviction unfortunately that they have to do a bunch of that here in this November report. Just keep in mind we don’t get a December update. So, whatever number we get on November 10 we’re going to be living on for a little while,” he explains.
That could create some pretty choppy markets into the end of the year with the basis and the spreads really leading the way.
Corn Exports Disappoint
Weekly corn export sales were slightly over 60 million bushels, which was better than the last few weeks. However, total sales are nearly 34% behind last year.
Hudson says that is a concern longer term. “But I do think you’re going to see a pretty quick recovery. I think part of the reason, Michelle, that those numbers look so bad is just how late of a start we got. And any corn that was being harvested was getting head off by the processor.”
He gives the example that last weekend cash corn was at $5 in Blair, Nebraska and three days later when the combines were in the field it fell to $4.35.
This illustrates that once it is easier to source corn after harvest the exports should improve.
Technical Signals
Even with the lower day in the corn market is still held above the August low of $4.57.
Hudson says if the corn market can hold above the $4.60 level into this time next week there is a good chance the low is in place and the market could recover back to the $4.85 to $5.00 area.
“It may have to get farther into harvest next week before we see it and I do think that first rally if we see it will be sold I think there’s a lot of people that are going to still want some cash flow and if they can put anything close to a $5 mark on it I think they’ll do that,” he adds.
Wheat Falls...Again
Wheat futures were down again on Thursday on technical selling and poor weekly exports of only 8.8 million bushels.
Hudson says the market is also numb to the whole Black Sea story and continual back and forth headlines about possible peace and the escalation of the war.
“You know yesterday again there was you know some rumors about peace talks again the path of least resistance is just lower because, as you mentioned, we have seen very little export interest from this whole thing.”
He also thinks winter wheat is getting planted after delays due to areas that were too wet and others that were too dry.
Wheat Takes Out Key Support
Both classes of winter wheat closed below the 200-day moving average on Wednesday and so the market needs to hold the long term uptrend line.
Futures have lost over $1.50 from the highs but Chicago wheat could test the $6 level basis December before all is said and done according to Hudson.
“I don’t think you’re going to be able to stay there even if you get there. And, you know, if we bounce and consolidate, I think it’s going to be more than that $6.85, you know, sub $7,” he says.
To go back over $7 will need a confirmed threat again in the Black Sea.
Cattle Correct
Cattle futures saw some profit taking after hitting three month highs on Wednesday.
Hudson says, “Yeah, you got a little bit tired here, but I mean, a very defined channel on the way up, especially for the feeder cattle. And I think a lot of that’s based on the fact that we’ve continued to recalculate that feed cost variable, continue to see the feeder cattle index rise, but it’s going at a lot slower rate.”
Still he is optimistic January feeder cattle could have an upside target around $355, $356 as long as corn prices don’t recover too quickly.
Cash, Cattle on Feed
The cash trade also has to appreciate again this week to keep the rally intact and get over these technical objectives according to Hudson.
Plus, the market is expecting a bullish Cattle on Feed Report with placements down over 8%. So if the report is a miss that could meet a quick retracement.
If cash doesn’t weaken he thinks Dec live cattle could get back to $237 to $238.
“But to go back over $240 we’re going to need a little bit of help from government data,” he adds.
He is also cautious that inflation concerns could impact demand moving forward and that was reflected in the equity markets on Thursday.
Lean Hogs Hit Contact Lows
Lean hog futures hit more contract lows with continued technical selling and the $4 drop in cutouts on Wednesday also added pressure.
Hudson says demand is not strong enough to chew through the bigger supplies and technically the market needs to close back over $67.50 on the December to stop funds from selling.
“I’m pretty negative unless you can get back over that on a closing basis.”
Funds are already short in the hog market and may be adding to that through short hog/long cattle spreads.
“And when you unwind those, if that is part of it, I think you got to keep an eye out for it. So if you get a quick recovery on decent volume in a market like that, I think you really got to have your interest peak. And if that were to happen, it’s possible you could still take that December contract back to like $72.50 or $73.00 before it goes off the board,” he adds.
