Grains ended lower Monday, with livestock higher.
Soybeans Tank as Argentina Lowers Export Tax
Arlan Suderman, chief commodities economist for StoneX, says the pressure in soybeans was two-fold.
Argentina announced it would be dropping its export tax on grains until Oct. 31, which will have the largest impact on the soybean complex.
Suderman explains, “That comes to about $3 per bushel for their soybeans, about $0 .50 per bushel for corn, for example. Taxes that won’t be collected, therefore, exporters can sell it at a cheaper price on the world market. They’re trying to generate dollars to pay off their dollar -denominated debt. So, once you reach $7 billion received, that means that the program is off and so therefore exporters are really going to focus on soybeans and the soybean complex because of the higher value of that complex.”
Will China Buy Soybeans?
The soybean market also had a hangover on disappointment from Friday’s China, U.S. talks as there was no mention of soybeans in the trade discussion between Trump and Xi.
“The market seems to have woke up to the reality now that we’ve lost a lot of Chinese business and with President Trump now delaying his visit to Beijing until early next year indicates we’re probably not going to have a trade deal anytime soon. China could always come in at any point and make some purchases if they choose to. So far there’s no indication that they are doing that and that leaves us vulnerable to a bloated balance sheet in the absence of a clearly defined biofuel program,” he explains.
Suderman says China bought 841 million bushels of soybeans from the U.S. in the last marketing year, but does not have to buy this time around.
“It comes down to whether they feel comfortable digging into the reserves. Their reserves are on nearly twice what they bought from us last year so they could stay out of the market if they wanted to and just pull from their reserves maybe up to 10 to 12 million metric tons. The question will probably be answered by how Brazil’s soybean growing season gets started.”
China has booked most of its needs with Brazil through November and they have been building their stocks to get through until Brazil’s next crop starts to come to market in January.
This could significantly hurt the U.S. export program, even though other countries will likely back fill in with business.
“We have already lost several hundred million bushels worth of business,” he adds.
Will Soybeans Hold $10?
The soybean market saw significant chart damage as it took out many moving averages that were layered together serving as longer term support.
So will the market be able to hold the $10 mark?
Suderman says technical traders will likely exit positions and could easily test that psychological mark on the charts.
“I think $10 is obviously the next psychological support area. Below that, then you have, as you look at to the November contract, the lows that we set back in August of around $9.811/4 or so. And then see if that holds. Those are going to be a couple of the key areas the market’s going to follow,” he says.
Corn Follows Soybeans Lower
The corn market saw two to three cent losses on spillover from the lower soybean market and also feeling the impact of Argentina’s tax holiday.
However, Suderman says corn isn’t likely to be as negatively impacted by Argentina’s lower export tax as soybeans because of its lower value.
Corn was also drug down by new contract lows in soft red winter wheat.
However, Suderman says with lower yield reports in the field that should help stabilize the market.
Corn Demand Surfacing at Lower Prices
Suderman says at these lower prices corn demand is being stimulated and the export program is on record pace.
“Weekly sales and shipments remain solid. And when we look at new marketing years, only three weeks old, so to speak, in the data that we have. And if you look at commitments to date, they exceed the seasonal pace needed to hit USDA’s expert target by 175 million bushels. And that target is a record 2 .975 billion bushels to shy of three billion bushels. So exports are really strong.”
Corn Yields Falling?
With yield reports coming in below last year in the East and Southern Corn Belt many are expecting a lower national yield average, but Suderman thinks the Northwest will be record high.
” And in some cases, we expect to blow away those records by based on some reports I’ve seen by 20, 30, 40 bushels per acre. It’s not going to totally offset the losses that we see in parts of Iowa, Illinois, Indiana, et cetera, but that will help reduce how far we fall. Where will we be? I anticipate we may end up somewhere in the 178 to 182 yield by time we get to January,” he states.
Wheat Hits New Contract Lows
Soft red winter wheat futures hit contract lows again on Monday as technical selling was noted, but also spillover from the lower soybean futures.
However, at these lower prices it is stimulating demand.
“I think 16 weeks worth of data now and basically marketing year to date export inspections exceed this seasonal pace needed at USDA’s target by better than 30 million bushels and that’s been growing. Every time we drop the price, we get more export business,” he says.
Poor wheat quality in the Black Sea is also making it difficult for Russia to push prices any lower either.
Cattle Futures Explode on NWS News
Live and feeder cattle futures exploded higher on Monday with limit up closes in the deferred feeder cattle futures.
Suderman says the news that New World Screwworm or (NWS) was only 70-miles from the U.S. Mexico border pushed the market higher.
“Mexico does say that it was they caught this animal that had been brought up with just the larvae in it that there are no adults so they say it’s not an increased threat at this point but I think it’s a wake -up call for Secretary Rollins and I think she’ll be reluctant to open the border anytime soon,” he says.
Fund buying also escalated as the futures pushed above key resistance.
Suderman says that kind of performance could support a higher cash market this week and that could in turn help the futures retest the contract highs.
Last week’s cash cattle average sunk another $1.82 to $237.51.
Lean Hog Futures Make Contract Highs
Several lean hog futures contracts were able to make new contract highs on Monday on a combination of fund buying and the rally in cattle futures.
Suderman says funds are record long in the market and continue to add to their length despite the increase in inventory as slaughter was up nearly 3% last week at 2.593 million head.