New month/quarter, brings a new focus. October 9 crop production report is now in sight.
Grain Overview
Whether we like USDA’s numbers or believe them, there is no getting around yesterday’s corn stocks number. It was a shock, and it was bearish. But I think it’s important to understand what kind of bearish it was. Demand didn’t suddenly fall apart. USDA corrected a feed number that had been running too high in their estimation, which was the wild card going into the report, and simply found more corn sitting in the bins than the trade expected. That loosens the new-crop balance sheet, setting corn up for a corrective price move lower.
The size of the break was also magnified by a market carrying a large fund long position. Once support gave way, those positions started coming out quickly. There could still be some additional downside in the short term, particularly with harvest bushels coming at us. With end of month and end of quarter, there were no buy orders from the funds yesterday, only position exits. Today is a new month/quarter with new money. USDA built themselves a buffer now to act on further lowering yields. There are more concerns also building over mold and fungus being found in corn where yields were hoped to be good, which may cause an increase in salvage.
Don’t overlook what happened in soybeans on their balance sheets. September 1 stocks came in at just 315 million bushels, below expectations and below last year, despite an unchanged crop estimate. That tells us soybean disappearance this summer was considerably stronger than a year ago. Beans initially traded higher on the number but simply couldn’t withstand the pressure coming from collapsing corn prices.
Wheat became a follower of corn again. Its own report was fairly neutral, with stocks near expectations and total wheat production little changed as slightly larger winter wheat production was offset by a smaller spring crop. Once corn broke hard, wheat followed.
The longer-term wheat story hasn’t disappeared. Russian export expectations continue to decline, while US supplies remain historically the tightest in 56 years. Wheat is also becoming genuinely oversold technically and is approaching important support, with the 100-day moving average near $6.75.
Corn may need some time to absorb yesterday’s surprise, but don’t assume one USDA report suddenly erased the larger fundamental stories developing around these markets. What’s yet to come is the concern of a 2-bushel drop on the October crop report that puts the corn carryout right back to 1.5 Bil Bu and the $5.30+ corn market in play again into harvest. And let’s not forget China wants/needs to buy corn along with renewed European buying. USDA is going to need to up the export number 150 Mil Bu in the coming months, which goes against that 200 Mil Bu feed reduction.
Dec corn in the near term is going to find willing sellers now on recovery bounces initially into the 514-517 range (38% retracement) until it shakes off bearish sentiment, while December wheat will need to close above 703 to change its bearish outlook. Soybeans remain in a positive uptrend, with a January contract close above 1335 (only $0.25 away in the daily price swing for beans) enticing new annual highs to come into play. Estimates will start coming out for the October 9 crop report, with StoneX out today, and they will likely be the high-watermark yield guess. Everyone else will dribble out lower numbers over the next week.
Cattle Overview
Yesterday’s revelation of more available corn supplies certainly was a celebration for the feeder cattle trade, which had seen November trade to new monthly highs of 335.45 before retreating a bit over $1.00 to post a new monthly high close at 334.35. Live cattle also performed well, but December cattle remain stuck right at the infamous 223 range at the close.
There is a sense that cash cattle trade will likely see steady money, with even some better cash showing up in the countryside. Boxed beef yesterday had Choice up $0.13 at $382.79, while Select gave back a bit over half of Tuesday’s strong gains by declining $3.89 to $360.59. Movement was 108 loads, with 55 of that being Choice, 13 Select, 27.62 ground beef and the balance trim. With slaughter back to normal in Kansas, and some steady cash trade already taking place with last week at $350 in the North, feedlots are feeling optimistic about better pricing.
Here we go into today’s trade with October cattle struggling with its shadow and still wanting to forecast a cash break into the end of the month, when in the near term, consumers are not showing any softening in demand. December cattle have the momentum to challenge the 100-day MA today but will then likely stall into that resistance at 224.20-224.50. Intraday renewed support has now risen to 221.
November feeder cattle have now breached the 333 resistance, which today should become their support with slippage if they choose to set back. Meanwhile, rising intraday support is now at 328.50-329.00. Unless they can get feeder cattle to break on a wild headline story, their solid upward momentum since September’s COF report continues to point toward the challenge of 338-343. Silage and corn are coming in and the lots want the feeder cattle, and they don’t care currently if the cattle can moo in Spanish.