Grains get closer to Lows, Cattle question everything

Good Day,

All things considered it felt like a positive week for the grains to my eye which is hard to explain in the face of the weekly price change and new lows for the corn market.  There was a bearish crop report, but it felt overshadowed by flash sale announcements of large soybean sales to China.  These sales seemed to be priced in by the time they were announced as the market sold off some after the announced sales became official but that is not unusual.  Perception is as important to futures markets as reality and these sales were a little later in the year than normal for their size giving credence to the idea that the weather in South America is concerning enough for China to speak up for some U.S. soybeans while they still can.  However, it is still early enough in the South American growing season that it wouldn’t be a surprise to see China cancel some of these same U.S. soybean commitments next year if the weather cooperates.

The November WASDE report from the USDA was released Thursday.  The USDA raised both corn and soybean yields.  Corn went from 173 bu/ac in last month’s report to 174.9 bu/ac and Soybeans went from 49.6 bu/ac to 49.9 bu/ac.  The price impact of the yield increase was minimal initially as the market has already shifted its focus to the weather in South American production areas.  However, the window for the USDA providing any more bullish fodder with yield reductions to the 2023 crop has probably been shut.  

Cattle Lower

On Wednesday January Feeder cattle futures posted a new low for the move sinking to $227.425/cwt before rallying back and closing positive on the day at $232.775/cwt.  

January Feeders 2023

A spike lower with a higher close like this can lead one to think a short-term bullish development, in an otherwise bearish market, is in the works where a nearby low has now been established.  That was not the case.  Jan Feeders blew through Wednesday’s lows the next day closing at $224.925/cwt down $7.85/cwt on the day.  Jan Feeders are now roughly $44/cwt off the highs from mid-September, a 16% drop, and Thursday’s move lower was the equivalent of a kick to the ribs after taking a heavy beating already for cattle bulls.  Putting fundamental discussions aside for the moment this is a market that will probably trade technical aspects going forward in the short term.  Both cash fat cattle and the feeder cattle index are now trading well above the board in price, but still the market broke hard lower on Thursday.  Technical speculative traders who enjoyed a bountiful two years of a “buy the dip” market have now switched to “sell the rip” until further notice, that is, if they are truly disciplined technical traders.  Besides the fact that not everybody reads a chart the same, the kind of discipline required to switch sides after Team Bull just won the super bowl for you isn’t easy.  Neither are margin calls.  With this kind of volatility, it is likely that margin call exhaustion will be a real player in dictating how low prices can go between now and the end of the year.  The difference between, “Its due for a bounce”, “It can’t go any lower”, and “I’ve had enough, get me out” aren’t labeled on a chart but they are the prices that matter most.  Two out of three ain’t bad but the third can ruin more than a weekend.  

“Listen, nothing I’m going to say is going to make you feel any better. Everything is going to suck for a while and then it will be fine.” – Will Emerson played by Paul Bettany in the movie Margin Call (2011)

Have a comment or question? Please reach out to derrick.hermesch@pinion.global.com

Opinions are solely the writer’s. Derrick Hermesch is a commodity futures broker with Pinion.  He can be reached at 785-338-9605. This is not a solicitation of any order to buy or sell nor does it provide any recommendations in regard to the market. Information contained herein is believed to be reliable but cannot be guaranteed as to its accuracy or completeness. Past performance is no guarantee of future results or profitability. Futures and options trading involve substantial risk of loss and is not suitable for all investors.