Grain markets ended mixed on Friday with soybeans higher and corn and wheat mostly lower. Cattle and hogs closing mostly higher, with milk futures lower.
Soybeans Bottoming?
Soybean futures were higher for a second day with the Nov contract up 3 1/2 cents, closing at $12.56 1/2.
So is the market trying to put in a low?
Dan Basse, president of Ag Resource Company, says he thinks the soybean market put in a bottom earlier in the week, likely Wednesday.
“We think that the market is making that bottom because of export demand. Something the grains are lacking is what the soybeans have, which is China. So with China buying 25 million metric tons and already having secured an estimated 18 million metric tons from the United States, my confidence is starting to grow that the soybean market is forming a low.”
Watching Brazil
Basse is also watching Brazil’s presidential elections which will take place over the weekend.
“I think the farmer down in Brazil is hopeful for Bolsonaro that he’ll continue to build out the
biofuels industry with expansion in ethanol likely in the years to come,” he explains.
The real pushed higher on Friday with indications Bolsonaro’s leading but it is still too close to call.
“That will be important for the real. But as you think forward, I really think that the lack of expansion in Brazil, if you look at Conab numbers, they’re roughly flat with last year, gives the U.S. market a chance
to do better going forward.”
China the Difference
China has been on a buying spree and is at around 18 million metric tons of the 25 MMT commitment.
Basse says they bought another four to six cargoes on Friday.
“So I’m pretty comfortable they’re 7 million metric tons from reaching that 25 million metric ton purchase commitment. Again, it’s purchases, not shipments that need to be done by the end of the year. So Trump and Xi will be meeting in Sichuan, China in the middle of November for APEC. I think the Chinese want to be
somewhere between 22 and 23 million metric tons heading into that meeting,” he says.
So they could buy more for late late November, December. But China has been really active after the Golden Week holiday.
“I’ve got them buying a little over 4 million metric tons in that two-week time frame.”
All Political Buys or El Nino Concerns?
So is China buying U.S. soybeans solely for political reasons or is there fear of the impact El Nino could have on the South American crop?
Basse says it’s hard to say, “I’m not able to get into the heads of the Chinese, but I think they are anxious to meet their commitment with the United States and look like they’re good actors.”
However, he adds that the Chinese understand Brazilian soybean production may not be up a lot from last year.
“So we think of a Brazilian soybean crop of 180 or 181 million metric tons. Brazil may export 114 or 115, but that’s only stable. So with world crush rates, as strong as they are, in Brazil, United States, I think that crush and oil seed products will be the key. And with that, the Chinese may be wanting to get ahead of the Brazilians, but we’ll have to see. I think it’s a combination of both right now, Michelle.”
Higher Soybean Yields
Harvest pressure may be subsiding in the soybean market as well which allowed the market to rally the last couple of days. However, the market is digesting higher yields.
Basse says, “I’ve been looking at soybean yield and we are up fractionally from where USDA is at 53.3 bushels an acre. That’s still a record. And remember, this is a record large soybean crop in the United States, but we need every bushel of that because demand will be even larger.”
He thinks demand will outstrip the record crop by 40 to 60 million bushels, leaving tighter stocks. Crush demand won’t come down and Basse believes exports still have another 50 or 60 million bushels to move to the upside. He is using an export number of 1.750 billion bushels.
Corn Closes Below August Low
Corn futures were lower on Friday and the Dec contract closed down 4 1/2 cents at $4.56 and below the August 6 low.
The corn market continued to see harvest pressure ahead of the weekend and Basse says inter commodity spreading was also evident.
“Corn is trying to find a price that is going to build export demand. Now, the big country that’s behind is Mexico. We still do not see the Mexican, let’s call it the cola or soda industry, buying their high fructose corn syrup, which causes futures to be hedged and an announcement to be made.”
However, Ag Resource is hearing from the Trump administration that they are close to a trade deal with Mexico.
“I expect that to be announced before the midterm election, and that may be good for U.S. corn demand.”
Corn Exports Lag
Corn exports are lagging 34% behind last year which is also weighing on the market.
Basse says the big shortfall is largely due to Mexico due to logistics and high freight rates. “I don’t think Mexico is going to buy that corn abroad. So I’m pretty confident that Mexico will still buy a billion bushels of U.S. corn. It’s just that they’re are not as active as they were last year.”
He says last year the U.S. was threatening Mexico and with Canada with tariffs. “So, the Mexicans wanted to look like they were good players and they were buyers. progressively early in the season. I think Mexico’s a little more measured in their buying. They’re a little more in the five-year average. And with that, we’re behind. I do think we catch up, but it’s going to be in the last two-thirds of the crop here.
Funds Still Liquidating Corn Positions
The funds are still liquidating long positions in the corn. Basse estimates think the managed money traders are getting close to 175,000 contracts of fund length.
“I think somewhere between 125,000 or 150,000 there’s an embedded long in corn just due to the super El Nino that everybody talks about. The funds want to be long for some kind of weather event in Latin America. We’ll see if that plays out. But I think we’re getting very close, maybe within a nickel or so being out of the corn market.”
He thinks the $4.45 to $4.50 level will be very tough get below in corn as end users step forward including ethanol plants as margins on ethanol and the biofuels in general are very strong.
Corn has also done a 61.8% retracement on the spot corn chart.
Yields Tell the Story
The corn market also had that shock of the extra 2.7 bushels USDA put on the balance sheets.
Are the yield results telling you that that crop is there or will USDA have to adjust it in November?
Basse says, “The fight I’m having at the USDA currently is that the anecdotal yield estimates, and that’s what I call them, what we collect, are still not matching up to what USDA is suggesting. I still think the U.S. corn yield will drop somewhere between 177, 178.5 bushels per acre.”
He adds that yields in Iowa are disappointing and yields in Nebraska don’t suggest yields that 11 bushels higher like USDA printed in the October report.
“I’m still believing. crop is smaller. But again, because of the report rate from the farmer, we may have to wait till January before we figure this all out.”
Wheat Sees Another Lower Week
Wheat ended mostly lower on Friday and was down for the week by 35 to 39 cents. The winter wheat contracts moved below the 200-day moving average and are oversold.
The market has seen pressure from geopolitical uncertainty in the Black Sea according to Basse.
“Are we going to unlock that very cheap Ukrainian and Russian wheat that’s caught within either Odessa or Novolinska? Those are the key questions,” he remarks
The talks will start some time in the first half of November and will be closely followed. These are technical meeting but not with high level officials he explains. “If you were to tell me that the leadership of Zelensky, Putin and Trump were all getting together, I would give you a higher odds that maybe. we’ll get to a ceasefire and some kind of war resolution.”
That hasn’t slowed the fighting in either country but the market is still trading as if there is a deal at hand. So, there is little to no war premium in the futures.
More Wheat Acres
The market is also preparing for additional wheat acres in 2027.
“I know that if you’re a farmer looking for seed wheat across the plains or the Midwest, it’s very difficult to find. $8 plus revenue insurance prices is pushing farmers to plant more wheat, and they should. We have wheat acreage going up 3 to 4 million acres this year on a winter wheat classification,” Basse says.
So he sees stocks building without a weather problem next year.
That creates problems for corn and beans which also need more acres.
Cattle Rally to Continue?
The cattle market saw higher weekly closes and rallied to three month highs before consolidating under those levels.
The market was optimistic about the USDA Cattle on Feed report and with record low placements confirmed he sees futures continuing to move higher.
“I believe that demand stays strong. I see tightening numbers into February. Thereafter, of course, we have some seasonality in demand. If we’re not getting the placement rates now, that gets extended. So with all that in mind, I think cattle’s in a big range trade for the foreseeable future,” he points out.
Basse projects cash cattle prices within a range of like $220 to $260 as he thinks there will be volatility in the cattle futures in the year ahead.
Milk Production Tanks Milk
Deferred Class III milk futures were sharply lower on Friday in reaction to the USDA Milk Production report. It showed record cow number and an increase in milk production of 2.6% over last year.
The market had scored new highs for the move mid-week after a $2.50 plus rally that started on Sept. 30, but this report will reverse that.
Basse says the dairy industry continues to keep cows to produce bull calves for beef on dairy production.
“That Black Cross or that Holstein bull calf is worth a lot of money, $1,200 to $1,500 in some auctions and locations. That’s where the profit is for the dairy farmer. Milk is now a residual, so he keeps increasing cow numbers because he gets a calf.”
So the market needs to build demand or cut back on cow numbers and he doesn’t see that happening without a federal program.
“The only thing that will really change this argument or the math on all of this is that calf prices or bull calf prices need to drop. But boy, we need that for the beef industry. So I think the dairy industry is kind of stuck right now with low milk prices for the foreseeable future.”
