Grains ended higher Tuesday with livestock in the red.
Soybeans Lead Rally on Demand
Soybeans rallied on Tuesday with bean oil and meal on strong underlying demand.
Sam Hudson of Cornbelt Marketing says the rally the last two month has been driven by crush and renewed export demand from China.
He says despite the rally, crush margins have paced with soybeans the whole way along.
“They’ve actually been starting to firm again here again of late with diesel fuel going into new highs. And that fuel market, I think, is really setting the theme for things as we move forward. Even if we run into a wall in terms of crush capacity,” he says.
The demand for biofuels is not just domestic, it is global, as countries around the world are ramping up production even faster than the U.S.
“We may end up exporting some of those raw materials just so they can process,” he says.
Record Diesel Prices Push Bean Oil
Diesel prices are at record highs and have pushed above $6 for a national average which will also keep a bid under bean oil.
Hudson says end users like farmers are scrambling to get inventory in place before harvest as many waited and that is creating peak demand.
“Along the way, we’ve been told, hey, wait, wait, wait. Things will get better once the war is over. Unfortunately, I think that’s provided a false sense of security. And I think farmers have been lured into that to a certain degree when you hear about how much has been booked for harvest. Unfortunately, this big push for purchases, there’s just no time left on the clock to wait, and you’ve got to bite that bullet.”
This comes as more infrastructure around the globe is damaged. “Whether it’s in the Middle East, Russia, Ukraine, and that continues to constrain our ability to refine these products around the world, and the U.S. is going to keep feeding that need.”
Buying Pre-China Summit
The other demand component is exports and while China has been quiet to start the week they have over 50% of the 25 MMT purchase commitment for U.S. soybeans on the books.
Rumors have continued to swirl about China buying more beans ahead of next week’s U.S. China Summit. Plus, there is optimistic buying ahead of the meeting.
Hudson is skeptical about the meeting because China has pledged to buy soybeans and if South America doesn’t have a weather problem he thinks they could get canceled.
However, the global narrative right now is that China will keep those purchases and may add to them. And if there is a weather problem prices could explode higher.
China to Lower Tariffs?
There are expectations that the U.S. and China will lower the 10% reciprocal tariffs. That would be positive because it would make U.S. soybeans economical for private crushers.
However, Hudson says it is a global market and it doesn’t change supply it just shifts it. “When we displace this stuff, you may just buy it from somebody else anyways. So I think it’s really more about lining up the timing. And, you know, this has been positive for us on the front end, because as long as China’s buying now, we have confidence that they’re going to take them off the combine and throughout winter, which is a complete contrast to what we were seeing last year.”
CONAB Releases Bullish Brazil Estimate
CONAB also released the first Brazilian production figures for 2026/27. The estimate on soybeans was 181.6 million metric tons (MMT), which is below USDA’s 186 MMT. They only showed a 1% increase in acreage.
Hudson says that also gave beans a push, “It’s probably just underlining the fact that there’s very little room to wiggle here. In addition to the fact that you’ve got a forecast down there for December, January and February that does not look good with a super El Nino. It just looks like a vacuum cleaner is going to suck out all the moisture from northern Brazil and in southern Brazil, while Argentina looks wet.”
Soybeans and Corn Retest Contract Highs
All of these factors combined could help soybeans retest their contract highs. However, he’s more confident it will happen in corn because of the lower yield ideas versus soybeans.
As farmers get into the field to harvest they are also finding lower corn yield.
“And I think that’s changing people’s mentalities. We’re starting to see people pump the brakes on sales.”
Corn Market Determining Yield
The corn market had already priced in the 178.5 bu. per acre corn yield offered by USDA and is now trying to determine if the yield needs to go lower and by how much according to Hudson.
“You know, the report kind of came in as expected. I think there were some that feared that it would still be a little bit higher than that anyways, and it wasn’t. But at this point, you know, again, we’ve got to get deeper into harvest for, you know, a certain sector of the crowd to get on board and say, hey, this thing is decidedly under that and we just don’t have enough work completed yet. I think over the next month you’ll start to see that.”
Hudson thinks there could be some revisions to supplies already in the September Quarterly Stocks Report.
“The room for breathing here just continues to get narrow, more narrow by the month,” he says.
Rains, Harvest Delays
The weather is also starting to turn wetter at the wrong time with heavy rains of 3 to 7 inches forecast in part of the Corn Belt, even some flooding, causing harvest delays.
“Especially with demand so strong, those end users are going to be thirsty to get it in. You could start to see some basis or spreads move because of it. But it’s just a little too soon to say if you were to tack on another two or three, four weeks to this in a row, similar to what we saw over the summer months, then it definitely becomes a bigger problem,” he adds.
Black Sea Risk Premium Added to Wheat
The wheat market added back some risk premium on Tuesday with the Black Sea war seeing no signs of slowing down even after talk on Monday about a deal to end attacks on energy and food infrastructure.
This is supportive but the market is getting weary of chasing the Black Sea headlines according to Hudson.
“Especially when in the U.S. we don’t see any really benefit from the export market. And that’s been the case the entire time along. I think what’s interesting about the timing, though, Michelle, is some of this risk premium has been added at a time where we’re figuring base prices for this next winter wheat crop,” he points out.
Winter Wheat Prices Attracting Acres?
That could result in wheat stealing more acres from corn and soybeans because of the insurance prices and due to the drought situation out west.
Winter wheat planting was at 8%, which is 4% behind normal due to the dry conditions. However, if those areas get enough rain to get a crop emerged it could mean an additional two to four million more acres.
“We also have to keep in mind just how low our prevent plant acres have been over the last few years. Plus, cotton at 90 cents plus will steal some acres away back there probably in the mid-south. So an all boats rise type of situation I think is starting to become noticeable around the globe and it’s actually starting to get into some of our specialty crops around the globe as well,” he adds.
Higher Energy, Inflation and Higher Interest Rates
The high price of energy and inflation fears could push the FOMC to raise interest rates a quarter percent. Could that bring additional fund money into the grain markets?
Hudson says funds are buying and will continue to buy as the inflation fears are real and may just be getting started. “It seems like a real pickle here because there’s so many arguments on why we should raise rates, but just as many on why we should not.”
Funds Add to Long Position
So he thinks the funds will continue to add to their long position even though they are record long in soybeans and meal and near record long over 400,000 contracts in corn.
“I think corn and soybeans will be along for the ride because of it, even though long term, you know, eventually we’re going to have to
start worrying about global recession and what the outcomes are on all of this. But that’s pretty far down the road,” he says.
Hudson says there’s been a lot of talk about where the fund length is as a percentage of open interest. “But I’ve tried to remind people, too, this August-September time frame is actually seasonally our lowest amount of open interest because it’s ahead of the new crop harvest and pretty much after all the old crop’s out of the way. So we’re going to be increasing the depth of the pool here pretty soon. That’s
going to create a lot more market participants and a lot of up and downs and volatility along the way.”
That will take place when farmers will have their overrun in a bin. “They’re probably not going to be a storage deficit as they thought. And if they’ve already got a decent chunk priced, I think it’s going to be hard to find a seller,” he adds.
Cattle See Profit Taking
Cattle futures saw profit taking after new highs for the move and awaiting cash direction.
“It feels like we finally got that automatic rally that everyone wanted. I didn’t think we needed to lose it to begin with. It’s nice to see the feeder cattle index bounce, but we’ll see what type of upside lies ahead from here. I think you’re going to continue to deal with elevated feed costs, and that’s going to be a variable we’ll have to continue to dial in,"he states.
Plus will beef demand take a hit as fuel prices stay high.
Higher Cash the Key
So another week of higher cash trade will be needed to get cattle above chart resistance areas.
“Absolutely and you know we’re still chewing on some of these logistical changes from the Joslin plant shutting down. It’s just interesting to see the timing of that as well, because you’re spending more in fuel costs now to truck these cattle out west to have them processed, and then you’re shipping them back east just the same. So we’re not going to reduce the cost just because someone says we can or we should.”
Getting through the next chart resistance will be key to getting funds back in to buy cattle.
“Well that’s probably part of this rally too you finally base the market for long enough you’re probably sucking some of that fund money back in as some of the short-term technicals improve but as you mentioned you’re going to need to really breach you know some of these overhead technical resistance areas to really get these people to pile back in and that could take a little bit of work here over the fall months,” he points out.
Lean Hogs Hit Contract Lows
Nearby lean hog futures also made new contract lows for a second day. How much farther will prices fall before finding support?
Hudson remarks, “They’re already cheaper than I would have guessed.”
He thinks the hog market is repeating the pattern in cattle. “You’re just going to chase out anybody else who’s still long in that market. Obviously, we can regenerate numbers there a lot faster. But again, I think demand kind of becomes a question mark here as well as we move into those fall and winter months.”
Pork and poultry prices are cheaper than beef prices but struggle to compete because so many things are so expensive.
