Grain and hog futures end lower on Thursday, with cattle higher.
Grain Futures Run Into Chart Resistance
Dave Chatterton with Strategic Farm Marketing says corn, soybeans and wheat were all lower on Thursday after running into solid chart resistance.
“So the overhead resistance that’s been tested here of late, we’ll call it $4.25 in the Dec corn, $4.30, $10.30 in the Nov beans and $5.30 in the Dec Chicago wheat all kind of holding and intact here. And just not a lot of traction for either the bulls or the bears,” he explains.
There is also a lack of news to help push the markets through those chart areas including the absence of the October WASDE which was not released Thursday with the government shut down.
Cash Basis Firming on Corn and Soybeans
Despite the lower futures cash basis levels are firming up in the country for corn and especially soybeans says Chatterton.
“Particularly in soybeans, we’ve seen basis rebound as much as 30 cents in our part of the world here in the central Midwest. And I think it’s a combination of a couple of different things that the yields, not quite being where they, where they, you know, hoped they would be at one point,” he says.
It’s also a function of soybean harvest wrapping up in some areas and farmers are also putting bushels in storage as they wait for basis to tighten or a rally tied to a China deal.
Is China Buying?
Chatterton says with CIF and PNW bids both firming and futures spreads tightening there is talk that China may be in the market buying U.S. soybeans.
“There’s a lot of rumors that China may be under the radar here buying a few cargoes of U.S. soybeans. And we’ve
seen that, you know, rallies in CIF markets, both at the Gulf and in the PNW indicating that they’re probably likely is some export business getting done. Now, we won’t know the details on that until we get the USDA, you know, turned back on,” he states.
China did this in 2018 when the government was shut down as they can buy without it being reported since USDA is not releasing flash sales or weekly export sales.
Chatterton says, “It would be very much in character for them to come in on the backside and and use that as a some cover here to get some soybeans bought. We do think that they will buy some beans from the from the US eventually whether it’s this week or in the subsequent months coming up Here but you know whether that amounts to enough quantity to really change the narrative here I think is the question.”
Soybeans Export Window Closing
Even if the U.S. and China get a deal done at the end of October the amount of soybeans the U.S. can sell to China has already been compromised according to Chatterton.
“So if we had 830 million bushels of soybean exports last year to China, we had maybe an opportunity to do 250 million from November, December, and early January, you know, we still have a lot of a lot of a big hole there to make up for.”
No WASDE: Is That a Good or a Bad Thing?
Grains also faded as USDA did not release the October WASDE on Thursday and there is a high probability the report will be struck all together.
Chatterton says while there is some skepticism about past projections from USDA, especially regarding yield, he thinks it would have been good for the market to have that news.
He still believes harvest reports indicate that corn and soybean yield averages are coming down.
“I think we’re trading a yield probably in that 182 range in terms of corn. We really need a yield below 180 to start talking about a carryout number below 2 billion bushels. So, I don’t know that that’s just moving the narrative a whole lot,” he adds.
Cattle Rally for a Fifth Day
Cattle futures rallied for a fifth day and feeders and deferred live cattle futures all ended at all-time highs.
Chaterton says Choice boxed beef values have stabilized giving some hope to the bulls that cash trade could be steady to even higher this week. Those two factors have fueled the rally as well as strong cash feeder prices.
What Finally Stops the Cattle Rally?
Chatterton says right now it shows no signs of stopping but there are a few factors that could tip the market over.
1. Reopening the border to Mexican cattle imports.
2. Lifting the additional 50% tariff on Brazilian beef imports.
Lean Hog Futures See Fund Liquidation
Lean hog futures were down again on Thursday and closed below key support causing fund liquidation.
The charts had already suffered damage and so Chatterton expects more fund selling, plus fundamentals are starting to erode.
“We’re seeing supplies start to increase, slaughter start to increase, weights are going up, they’re above where they were a year ago, and production is starting to come up pretty firmly,” he says.
