Grains are posting a slight overnight correction after yesterday’s strong performance.
Grain Overview
After yesterday’s robust action, soybeans maintained most of those strong gains overnight as strength in the Brazilian real proved to be a topic, with Brazilian bean values getting elevated along with reports they are raising their soy crush and trimming some exports. Corn and wheat went into a mild retreat from yesterday’s strong values overnight, but December corn remains well above 5.00, while wheat contracts toy with resistance that threatens to change the September bearish price trend.
December Kansas City wheat above 754 and Chicago above 708 are declining price values that bears are trying to take a stand against. A close above that today is friendly. Slow winter wheat planting, with the pace 10% below last year, is also experiencing slow emergence. The most important part is the revelation that values for wheat are back on the rise, with Black Sea exports not being able to find a solution that many were embracing 2 weeks ago. Wheat exports are rising from European sources in lieu of Russia and Ukraine’s roughly 50% drop in wheat availability.
Corn yields are being debated as harvest gets underway in a more widespread way this week. Heading for Friday’s report, it seems like analysts are playing it cautious, with the average guess at 177.8 BPA. This would be the 3rd-highest national average yield and hardly seems practical given the surprising drop in ratings on Monday and problems that are not just regionally bound. Even the 10-year average is near 176. A USDA yield guess of 177 BPA on Friday would be bullish because it would eliminate the corn stocks that were just found last week in the carryout. Brazilian corn exports have fallen off as they have raised their ethanol blending rate to 32% for gasoline supplies.
We have beans in the teens again, with November soybeans under harvest pressure, the contract is 23 days out from first notice day, but it is still above $13.00 on yesterday’s close. Pres. Trump, on the campaign trail midmorning, said China would double its US purchases without giving specifics. This reminded the market that China will certainly fulfill commitments for 25 MMTs this calendar year, and with their Golden Week coming to an end on Thursday, we expect to experience more flash sales. Tight meal supplies and a strong basis in the East continue, while Western margins struggle with cash soybean pushes that are needed to keep plants operating near capacity. The guess for soybeans Friday is centering in at 52.9 BPA, right near last year’s record.
Dry weather looks to be in play through Saturday, with rain chances picking up by then. We have the first hurricane of the season (Tropical Storm Isaias) pushing moisture right up the center of the country, which will have rain into southern Illinois/Indiana by Sunday morning.
The inability for the grain trade to quickly give up yesterday’s price push is price supportive and that a first of the month price washout has been experienced with a new positive price trend shift coming into play for October. This is similar to 2010 as prices rose during harvest and experienced a bullish October yield guess. The wrecking crew sellers arrive at 8:30 Chicago time this morning when the day session reopens, and if they can’t get a handle on stopping yesterday’s significant price rise, buying interest from index funds will be energized. Today’s trade is about consolidated yesterday strength on the charts.
Cattle Overview
On Monday, cattle held chart-based support after a 2-day selling hit, along with explosive box beef that had Tuesday’s trade setting up for a strong opening. What happened after that was a massive inflow of money interest. Whether it’s consumer relief on the red-dyed diesel exemptions, further Brazilian currency support, which puts a slight increase in the value of their boxed beef trimmings sales to the US, or the fact that the feeder cattle runs from Mexico still remain slow, or just likely the combination of all 3, put in spectacular gains.
Those big gains yesterday, especially the deferred feeder cattle, will likely get checked today as the close experienced a short-covering panic/push. Boxed beef action in the afternoon showed a big movement of 125 loads, but choice was only up $0.67, while select gave back half of Monday’s gains, sliding $2.23.
Heavier feeder steers are finding a firmer footing, as 800-pound steers or heavier are steady-$2 lower this week, while the calves under 800 pounds are $3-$8 lower. The explosive lift in feeder cattle yesterday has October feeders now again above the index. That will likely get challenged today, especially deferred feeder cattle contracts experiencing gains of over $9.00. What’s interesting is, with all of the bearish influence on the Mexican feeder cattle coming into the US, cumulatively we have only seen 25,450 head through Monday between the 2 ports, and we have been open since August 24.
How much of yesterday’s gains get corrected will be today’s storyline. December cattle were kept in check at the 100-day MA at 224.25, with 223 being the pacifier number that will likely get checked today. Major support remains at 218.75-219.
November feeder cattle pushed a new fall high and poked our 338-344 large upside window target, and now today will have to prove 333 is sustainable on any deeper correction. That’s been the pacifier number that November feeder cattle have struggled to recover above as well.