Grain and livestock futures ended mostly lower on Monday.
Soybeans Lead Grain Losses
The soybean market was lower with Nov closing 30 3/4 cents lower on disappointment on the outcome of the U.S. China Summit.
The U.S. and China put out joint meeting statements indicating duty reductions on $30 billion of non-strategic goods, however, soybeans were not on the list to see the 10% reciprocal tariff cut.
Chip Nellinger with Blue Reef Agri-Marketing says that was a disappointment for the soybean market.
“I think that the market was really hanging on this fact that once there was an agreement that China would reduce their 10% tariff to let private firms import U.S. beans. To this stage, they haven’t done that. That doesn’t mean they won’t continue to buy. They agreed to buy the same amount. In fact, they also agreed to it for another two years. So all told, I don’t really see anything wildly bearish out of the results of the trade agreement.”
He thinks China purposely omitted soybeans from the tariff cuts for leverage in future talks and adds that it doesn’t matter who buys the soybeans because China has re-committed to buying 25 MMT a year for the next three years. Plus, so far they have been fulfilling that promise with soybean purchases.
Deal Lacks Details on Purchases
However, the agreement lacked details on China’s purchases of ag goods as part of the $17 billion of pro-rated ag goods outside of soybeans.
Nelliger says it was unrealistic to expect China to provide more specifics. “China’s not going to you know, dictate ahead of time what they’re going to take and when. They’re not going to play that card so easily,” he says.
Fund Liquidation
With the disappointment regarding the China deal and with funds record long in the soybean complex, they took profits on Monday.
Nellinger says with it being the end of the month and end of the quarter there could be more liquidation to come especially as Nov soybeans closed below $13 and key support.
“I would say there’s some initial support here where the market kind of settled at the lows, in that upper $12.80 range, just under $12.90. If you get below there we could take another leg lower to $12.50 on the November,” he explains.
He doesn’t see a reason to get below that level on soybeans but with end of quarter profit taking and better extended weather forecasts for harvest that isn’t a given.
Corn Disappointed With Lack of China Buying Detail
December corn was also lower by 5 1/4 cents and closed at $5.23 as it followed soybeans and wheat lower.
While China did commit to cutting tariffs on corn by 10% the lack of details about whether or not they will buy corn also weighed on the market.
Again Nellinger says it would not be good business for China to forecast their purchases so why the market was expecting it was a head scratcher.
“Sometimes the market gets a little bit ahead of itself. The markets don’t like uncertainty. Whether you’re talking about the grain markets, livestock markets, financial markets, they want certainty. And when you don’t have certainty, sometimes it sets up a lot of disappointment for the market,” he explains.
Still he says China will play to the vest and buy only what they need, when they need it.
Market Wants Proof of Sales
The market will now be watching for flash sales or proof of China buying in the weekly export sales report and it could happen soon.
“There’s times running out to fulfill this $17 billion of other agricultural products, as well as the beans. We’ve got a short window here as far as calendar year goes for China to make some additional purchases. Market’s going to be very attentive every day for USDA, you know, flash sales reports to see if there’s anything in there to China in regards to corn or wheat,” he says.
If the market sees proof of China buying, that will put a bottom in the corn and the wheat market very quickly.
Corn Takes Out Chart Support
The corn market also took out key support in the $5.25 to $5.26 area on the charts. So how much lower will prices fall?
Nellinger says the corn market held up better than the soybean market. “We have some initial support at $5.15. We haven’t been able to take that out. We took it out by a tick, I think, last week, but we haven’t been able to get under that. There’s a gap on the chart that everybody’s
looking at. It goes from about $4.90 down to somewhere around $4.85. That seems too easy to me. We just go to the gap and stop and reverse. I personally think it would be tough to get the corn market down towards $5.”
So if prices fall to that zone, he thinks it is a buying opportunity for end users. “Seems to be a massive amount of pent -up buying underneath this market from end users that didn’t catch lower prices a couple months back,” he says.
Harvest Pressure
While harvest has been slow in the western Corn Belt due to continued rain the rest of the Midwest is seeing progress. So harvest pressure and farmer selling may offset the end user buying.
“There’s a lot of harvest to come. But you have to understand, too, that on corn and beans both, producers have a lot more sold ahead of this year’s crop than they have the last four or five years. So I wouldn’t say it’s a record amount, but will be less selling across the scales. I think it’ll be a little bit more lighter than what we’ve seen the last three or four years.”
End of Month, End of Quarter
The funds are also record long in the soybeans over 265,000 contracts and near record long in corn by 414,000 which leaves these markets vulnerable to more profit taking end of month and end of quarter.
“I think that’s a part of what you’re seeing here. The market probably got a little ahead of itself. And, you know, I’ve talked about that in weeks
past. The market seemed like it was having a struggle to go up and really put higher highs in. We were probably overdone. A correction is healthy,” he adds.
Harvest Delays
Harvest has been slow due to heavy rain in the Central Plains and Western Corn Belt and the futures will soon start to price that in if it lasts into the first half of October.
“That’s going to start to become a very supportive factor. very quickly in the corn market and the bean market. I don’t think the market’s quite concerned about it yet, but by the end of this week, early next week, it could be a different story,” he says.
Right now the cash market has been showing that in the form of big basis pushes over the board around soy processing plants that have run out of soybeans.
Southern Plains Rains Weigh on Wheat
The wheat market saw additional selling following lower corn and soybeans, plus pressure from the higher dollar, poor exports and recent rains in the drought-stricken hard red winter wheat areas of the Southern Plains.
“It’s going to be seen as something that’s maybe yield supportive. I know we’re just getting the crop in the ground and going there, but I think that was probably part of it.”
Quarterly Stocks
The markets are also gearing up for the USDA Quarterly Stocks Report, as well and the USDA Small Grains Summary out on Wednesday.
“Yeah, the pre-report estimates are pretty well in line with what the last old crop carryout figures were. Just a touch above 1.9 billion bu. on corn and soybeans around 325 million bu.
“These quarterly stocks reports, the surprise is because they’re hard to peg, right, because there’s so many moving parts to them. So I think it’s open for a shock if they’re on the extreme of one side or the other on pre-report estimates. But the market right now doesn’t seem like it’s expecting much of a change at all compared to the last USDA old crop estimates,” he adds.
Cattle Fall on Risk Off Selling and Lower Cash
Live and feeder cattle futures saw a lower day on profit taking after higher weekly closes last week and with risk off selling in the rest of the markets spilling over.
He says, “It seems like the futures have been held back just a little bit. I don’t think the outside markets helped at all. At one point, you had crude oil $4 higher. It faded way back later in the day. The stock market got beat up. Interest rates just continue to scream higher. I think that all kind of worked in on top of the end of the month and the quarter coming to cause a little bit of a headwind for the cattle market.”
Lower Cash and Slaughter
Another negative for the market was last week’s lower cash. The steer average was $220.67, down $1.20 from the previous week but again did not include southern business due to confidentiality.
Plus, the ICE raids slowed kill down to a record low 484,000 head last week. Nellinger thinks the market is past the worst of that situation.
“That certainly was a disruption. We have to kind of see how that’s going to go. There’s always been a lot of moving parts there with the packers over the last few months here, really the last couple of years. And so let’s hope we get back to normal there sooner rather than later, kind of keep the engine prime there as far as the kill goes,” he says.
Because the excess in packer capacity last week took the leverage away from producers in the cash market.
Hogs Fail a Second Day
Lean hog futures were down a second day following a constructive USDA Hogs and Pigs Report showed lower inventory by 1.5% compared to a year ago. The reaction has been nothing short of disappointing.
Nellinger says the market is oversold and the funds have a near record short position but so far that hasn’t produced a relief rally.
“I’ve said this all along that the hog market has been so out of sync with normal seasonals. And unfortunately, we may be getting back into sync and third and fourth quarter is never a good time for the hog market. I think that’s more than anything what’s kind of created a little bit of a seaonal headwind,” he concludes.
