Grain/Feed Buyers Update October 23, 2019
Grain markets gave away early gains in Tuesday's trade. Overnight markets led a stronger showing after the Monday Crop Progress report reminded the market of ongoing harvest delays. Corn harvest was estimated at 30% complete relative to a five year average of 47%. Simalarly, soybeans were 17% behind the five year pace of 63%. More importantly, quality issues and potential yield loss remain a concern that grows daily with field conditions remaining wet.
Regarding corn specifically, yield data to date remains variable. Reports of "larger than expected, but lower than last year" estimates remain the main stay of most farmer commentary. Moistures remain high while test weight remains average to below average. China has not been a direct influence on corn price. However, as Chinese interest in soybeans grow, corn will follow along in order to remain competitive in 2020 planting decisions. As Chinese news has become stale and news flow remains slow, attention has turned to the charts. See December Corn Futures below.
The upward channel was violated in Monday's retreat with new lows being established Tuesday, despite the higher settlement price. The test of $4.00/bushel failed in last weeks trade. As harvest continues, there is much question about the market's capacity to move higher. Keep in mind, this time of the year, prices often settle into a "winter range". See Weekly corn chart below.
These ranges generally will cover a 20-30 cent corridor. As ending stocks have remained perennially comfortable, the price range has held to similar territory. With ending stocks now below 2 billion bushels, this is likely to rise through winter. Given recent support, trade in the range of $3.75 to $3.95 would fit current fundamentals. A gap on the weekly chart still lives between $3.585 and $3.6575 and trade to that level should not come as a surprise under more extreme conditions.
Local grain basis around the country has remained mostly unchanged at average to slightly stronger than average levels in recent days as harvest has lingered. This is more true as you look further East. This may change rapidly if weather allows for nationwide harvest activity and buyers begin to fill up. The slower harvest pace has prevented that from happening up to this point.
Buyers are still encouraged to look for harvest opportunities to book feed for the coming year. With declining stocks and the potential of an actual "acreage battle" this winter between corn and soybeans, movement towards $3.75 should be viewed as a buying opportunity.
Soybeans remain a bit more volatile as the hope of a Chinese deal has led markets back towards summer highs. Local basis levels remain historically normal. Chart watchers will note the ongoing resistance encountered near $9.50/bushel. See November Soybean Futures chart. Bigger picture, soybeans have found greater resistance at $10 (see Weekly chart) which may allow for continued upside if Chinese buying is greater than currently expected.
As soybean oil continues to hover near 30 cents, soybean meal is forced to do more of the heavy lifting in terms of bringing profitability back to the crush. That comes more easily this year as slower ethanol plant production of DDGs and increased livestock consumption has caused a firming soybean meal market. However, let's keep this in perspective. See Soybean Meal Chart.
Since 2007, soybean meal has visited $380-400/ton in every single year except 2010 and 2017. With rising interest in US soybeans, current values should be given close consideration. Historically, October is generally the best time of the year to address purchases of soybean meal.
This piece will become a weekly publication. We invite any specific interests that you may have regarding grain as it relates to feed. More importantly, action is recommended as we consider the current prices. Give us a call to sort through coverage of your feed in these heightened milk price environments.