Corn, wheat and cattle ended higher on Thursday with soybeans and hogs lower.
Soybeans Make Fresh Lows on Fund Selling
Nov. soybeans futures ended 9 cents lower at $12.84 and made new lows for the move.
Oliver Sloup of Blue Line Futures says funds were in liquidation mode as they are decreasing their risk exposure with spillover weakness in corn.
“When you’re looking at the soybean market, 265,000 longs, that’s a record net long position. And broken down, that’s 301,000 longs.
36,000 shorts. So when you get a market structure like that, you really need new news to attract new buyers,” he says.
He says with the funds crowded to one side it leads to asymmetric risk. “Sure, the market can continue to go higher for longer, but without any new news, it becomes really difficult,” he further explains.
Soybeans Break Support
Soybeans also fell below $13 and took out major support.
“That opened the door to $12.70, $12.75. If that can’t hold, potentially you see this thing overshoot and we go back down to $12.50, $12.55, which were the highs from July and the breakout point from August 26th. I think a few of the things keeping the market supportive,” he says.
China Bulls Disappointed
Sloup concludes the bulls also failed to get fed what they wanted in the China deal.
Funds had built a long position in hopes the China meeting was going to yield big results.
“That kind of fell flat. You had harvest delays keeping things afloat. But if that window opens up, potentially that takes away that lifeline as well. So I think it’s going to be interesting a couple of weeks here in the soybean market.”
Corn Sees Stock Shock, Holds $5
Corn saw early selling due to the shock from the quarterly stocks report, with the 173 million bushels of inventory USDA added to the balance sheet.
Corn fell below $5 during the session but clawed back above that level late in the day. However, will $5 hold?
Sloup is skeptical corn can hold longer term as the market continues to digest this news. “Corn at $5 you’d think would be psychologically a sticking point for the market. We talked about the asymmetric risk in the soybeans with how the funds are positioned. The same can be said for the corn market. Funds were net long, about 404,000 contracts in the last report. That’s 472,000 longs, 67,000 short. So without new news potentially you see some profit taking.”
If you throw bad news into the mix, Sloup says things get ugly really quick. That’s why corn traded from $5.25 down to $5.07 in the
matter of 60 seconds, slicing right through that gap that was left near $5.08 to $5.10 and then trading below that psychologically significant $5 level.”
He adds its important to realize funds weren’t just buyers here in the last week but have been buying for the last two months and had some good profits. So, they may take that risk off going forward.
Higher Stocks Absorbs Lower Corn Yield
The higher stocks also means the market will need to see more than a 2 bu. per acre drop in corn yield nationally just to get ending stocks back to square one in the October WASDE and stay below the 10% stocks to use ratio.
“So that’s the line in the sand,” he says.
Next Support if $5 Doesn’t Hold?
So if Dec corn closes below $5 how low could prices fall?
“So for corn, the next area of support is $4.90 to $4.93. Those were the peaks from July 23rd and 24th and the breakout point from August 19th. That’s going to be the technically significant pocket to hold the failure there. And you’re looking at a potential pullback towards $4.84 to $4.78. That’s 100 and 200 day moving averages.”
Seasonally, he says the corn market turns more friendly after harvest. Moore research show a bullish seasonal from October 10 to 23, the last 13 out of 15 years.
“So again, I think if you get some froth out of this market, maybe overshoot fair value to the downside, could potentially be setting up for a nice buying opportunity once the dust settles.”
Wheat Bounces
Wheat futures also recovered from selling pressure most of the day with a late day short covering rally.
Sloup says he’s optimistic wheat is trying to carve out a technical low because the market is oversold and seasonally this is the time the market usually bottoms.
“It was clearly the anchor of the grain markets over the last month. I think it was $1.20 off of the highs from about exactly a month ago. Now that I think about it, so deeply oversold, you’re coming into good support, $6.70 to $6.75,” he says.
He says the funds are not loaded up on the long side of wheat like they are in corn and soybeans either.
“In the wheat market, they’re net short like 15,000 contracts. So it’s not make or break one way or the other. And there’s still, I think, 100 and some odd thousand contracts on the short side of that. So if a catalyst does come up, disruptions continue to be a concern in the Black Sea, potentially that causes a little bit of a short covering rally as well,” he says.
U.S. Attract Any Wheat Exports?
So after a $1.20 pullback, is the market finally competitive enough to see some exports shifted over from the Black Sea? So, far that hasn’t happened as weekly exports were only 10.6 million bu. on Thursday and total exports are 31% below a year ago.
“Well, I think high prices cure high prices and low prices cure low prices. So we’ll see if $1.20 break can’t entice some sort of demand.
That’s going to be something to keep a very close eye on.”
Cattle Make Near Term Highs
Live and feeder cattle futures made new highs for the move and look strong technically.
To attract the funds he thinks the market needs to break out of its sideways, $3 range established the last two week.
“About a $3 range bumping up near the top end of that today in December, $223, $224 above that, and potentially make a run towards those mid-September highs, $225.50 and the 100-day moving average just above that, 226.60,” he says.
Plus the funds want to see the bad news thrown at the market the last several months to be over. They are long only around 49,000 contracts and so a technical breakout could attract some money back into the market according to Sloup.
Cash the Key
Beyond that that cash trade will be important and Thursday’s rally was tied to talk of $228 cash in the south.
“That would certainly be healthy for the market. And again, potentially get us that technical breakout that adds some optimism around the technical landscape as well, where we’ve tried to carve out kind of an inverse head and shoulder in live cattle, feeder
cattle. marking higher lows and higher highs.”
Sloup says if cash does develop at $228 it could be encouraging to the funds.
Boxes Slip
The market is also watching the boxed beef values which slipped on Thursday as slaughter starts to ramp up. Slaughter was down 45,000 head last week after the disruptions tied to ICE raids at packing plants in southwest Kansas.
Choice cutouts were down $3.81 at noon but the market was able to digest the lower values.
Hogs Make Contract Lows
Lean hog futures were down again on Thursday and hit contract lows.
Is the market getting close to a bottom? Sloup says that’s the million dollar question.
“I’ve coined the lean hog market as the revolving door of disappointment. It just seems to go lower every single day. And the one day you do get a rally, you think, man, maybe we’ll finally get some follow through on this thing to the upside and get a short covering or relief rally. And that just hasn’t been the case,” he states.
The market made contract lows again on Thursday.
Hogs Look for Good News
“I would like to be contrarian in the lean hog market. So, $71 to $71.60, that’s going to be the first big hurdle. If the Bulls can get out above that level, potentially that’s what spurs the short covering funds right now.”
Funds were net short in the last commitment of traders report, about 42,000 contracts, just shy of that record in July, which was a net short of 43,000. However, he thinks the market is setting at a new record.
“63,000 longs, 105,000 shorts, 105,000 shorts is a record and it is an eye watering number. I can’t. it’s hard to fathom how many shorts there are in this lean hog market. So again, kind of similar to corn, if we can get some good news, potentially there’s some excitement in this lean hog market, but we’ve just got to find that news first.”
With cutouts at $85 and 7-year lows, plus big slaughter numbers its tough to find good news.
cutouts and slaughter figures where they are not going to cut it. That’s for sure. All right.
