Grain markets ended lower on Wednesday, with livestock sharply higher.
Grains See End of Month Liquidation
DuWayne Bosse with Bolt Marketing says the grain markets saw selling pressure from a stronger dollar and some liquidation end of month and ahead of first notice day on Friday, especially corn.
And he expects that to continue through the end of the week. “Corn, we’ve seen it every contract month, right? It goes back to March, it goes back to July. We had massive liquidation going into first notice day and option expiration.”
The end of August a year ago the corn market was a bloodbath with heavy farmer selling and long rolling head of first notice day which forged the low for the year at $3.85.
Bosse doesn’t think the selloff this year will be as ugly as there are less old crop bushels that have to move before harvest or before delivery.
The corn and soybean markets also had a respectable rally off the low and ran into chart resistance this week but were likely due for a little profit taking according to Bosse.
“Corn ran into the 50-day moving average of $4.17 and got stopped out,” he says.
How Big is the Corn Crop?
Corn futures were also lower Wednesday on spillover from weakness in wheat but the market is still trying to determine how big the corn crop is.
Bosse says USDA’s 188.8 bu. per acre corn yield estimate is too big but Pro Farmer’s 182.7 bu. projection may be too small and so the market is trying to find a happy medium.
“I think we’ve seen that high yield mark in there, you know, there were some guys talking in the 190s and I think that’s kind of gone away now. I’m at 182 .5 and a range somewhere like that,” he adds.
He is expecting USDA to lower corn yield in the September WASDE especially as they get into the fields for objective yield data.
“I think they come down some but not enough to make this market go flying higher,” he states.
Plus, increased disease pressure coming from Southern Rust and Tar Spot yields could trim yield, the question is by how much?
NW Corn Belt Farmers See $8 Cash Soybeans on China’s Absence
Soybeans also saw consolidation after hitting chart resistance and profit taking after a rally of nearly 80-cents off the lows.
However, the market is also seeing pressure as basis levels have collapsed in the Northwest Corn Belt on the lack of China export purchases.
China has usually started its fall buying program by now but has not bought the first bushel of soybeans.
He says, “The reason why the basis is that wide is of course up here in North Dakota, a lot of the soybeans get shipped out right during harvest straight to the PNW. That’s where China likes to pick up beans from because it’s the direct access point, right? Cheapest place to get, I can’t get a lot more expensive from the Gulf. Well, China’s not buying anything, so there’s no bid in the PNW.”
That has caused basis in the Dakotas and Minnesota to widen to $1.00 to $1.50 under the futures, putting cash bids in the $8 area.
“Just 10 miles north of me, the basis is $1.38. Now that’s a negative $1.38 for all of my Illinois farmer friends out there,” he exclaims.
Storage Crunch
Bosse says there will also be a storage crunch at harvest as more farmers will try to store soybeans and wait for basis to improve.
At the same time, North Dakota has less storage due to storm damage this summer.
“We have less bins, less demand, and there’s over a hundred million bushels of beans of soybeans that won’t be ground at crush plants that we need to find a home for,” he explains.
HRW Wheat Makes New Contract Lows
Wheat futures were down 5 to 13 cents and hard red winter wheat made new contract lows.
The market reacted to a stronger U.S. dollar index but Bosse says higher production estimates in Russia and Australia also added pressure.
IKAR pegs the Russian crop at 86 MMT, up .5 MMT from their last estimate and Australia’s crop was raised by 3MMT to 35 MMT.
He says Stats Canada also releases their wheat production estimates on Thursday morning with an increase expected.
Cattle Market....A Broken Record
Live and feeder cattle futures continued a string of contract and record highs again on Wednesday.
The fundamentals continue to support the rally with no change in supply, record cash prices and strong boxed beef values which have packer margins reportedly back in the black.
Bosse says the only thing that could change the trend is end of the month profit taking by the funds.
Still, the cash feeder market has been on fire and that seems to be supporting the rally and leaving a huge amount of risk for feedlots buying replacements.
“I’ve got some guys that bought some feeders and they said they have break even said above $356, $357 for February that just scares the heck out of me,” he remarks.
Deferred Lean Hogs See New Highs For the Move
Lean hog futures closed higher with October seeing follow through technical buying after closing above the 50-day moving average.
The deferred contracts also made new highs for the move as the funds have been buying not only the discount the futures are holding to the cash index but also the discount hogs are holding relative to cattle prices.
