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Corn finished slightly higher Thursday after sliding sharply on USDA’s Quarterly Grain Stocks report, but Bryan Doherty of Total Farm Marketing says the pressure on grains has come largely from fund liquidation, a rallying dollar and harvest-time selling. Doherty, a senior market advisor with Total Farm Marketing, spoke with Market Talk host Jesse Allen after Thursday’s session as the markets also kicked off the month of October and the new quarter.
A quieter day after the stocks surprise, yield questions remain
Corn crept back into the close with a small gain, which Doherty said was notable given how the session looked at one point. He asked whether Thursday amounted to a victory, then turned to Wednesday’s stocks number, which he said “came out of nowhere.”
Some analysts point to residual and feed usage adjustments as the explanation. Doherty said he wonders whether the shift reflects “a fudge factor” or the real effect of corn moving from roughly $4 to roughly $5.
He said the selling has been “primarily a liquidation move by the funds,” which he described as “way overextended from a lot of perspectives.” By his estimate, funds sold about 57,000 corn contracts Wednesday after being more than 400,000 contracts long through the previous Tuesday. Doherty added that farmer selling picked up late last week as producers decided it was “a pretty good price.”
Doherty said the stocks figure should roll into USDA’s projected carryout, raising it by roughly 150 million bushels in his round-number example. That takes urgency off end users and leaves speculators in a more precarious position, he said, because yield results could still swing the other way.
His own read on the crop is that it is off. Of every 10 farmers he talks to, he said, one reports the best crop ever, one or two are close to that, and seven or eight are seeing yields that fall short of expectations, last year or their five-year average. “I think there’s more yield reductions coming,” Doherty said. He believes the early Pro Farmer estimates are closer to reality than not, which he put at “a yield somewhere in that 175, 176 area from my perspective.”
Soybeans saw some pressure Thursday even though Doherty called the stocks number “a little bit friendly.” He pointed to harvest, early yield results that look as expected or slightly better, and money movement. When managed money sells baskets of ag commodities, he said, it sells all of them, regardless of the individual report.
In wheat, Doherty said the market has seen “ebb” rather than flow. Prices have dropped more than $1 before bouncing late Thursday. He said he sees no sign of a big reopening of shipping out of the Black Sea region, and that wheat appears to have run out of news. Rains in the winter wheat belt are a mild negative.
The dollar as the swing vote
Doherty spent the most time on the U.S. dollar index, which he said is up about 4% in a month and set new contract highs Thursday. He said the move reflects expectations that interest rates could rise. By his math, roughly 35 cents of wheat’s decline could be tied to the dollar if a one-to-one correlation is assumed. He said trends attract players, so traders keep buying the dollar and selling wheat until something changes.
“All else being equal, the dollar is the swing vote,” he said. A rallying dollar is “the 600-pound gorilla or the wet rag over the market,” he said. “Dollar rallies, you start harvest, and then you get a negative stocks report. No wonder why corn’s down 50 cents.”
Some Optimism for Cattle; Dairy and Hogs Another Story
Doherty said August and early September were a tough political stretch for cattle, with attention on Mexican cattle imports and beef coming in from overseas. A downtrend line he has drawn was broken in early September, and the market has since returned to test it. He sees an inverted head and shoulders pattern developing and noted that fall weather tends to slow weight gain, which has historically been supportive. With December live cattle near 223, he said it would not surprise him to see 235 to 240, though he is “not suggesting we’re going to see a bolt back up to 245.”
The cattle market needs the lift, he said. “There’s red ink in the feedlots right now.”
On the dairy side, producers feel “brutalized,” Doherty said, though those who used risk management should get through this stretch. He said prices may be low enough to eventually change the steady stream of higher production numbers, but the industry is unlikely to shrink herds quickly. Some dairy contracts finished more than 40 cents higher Thursday, which he attributed to profit taking, short covering and bottom picking. “We need to see the cheese market get out of the dumper” before gaining confidence in a rebound, he said.
Hogs remain in a downtrend, with December hogs posting new contract lows Thursday. Doherty said hogs have a history of weakness in early fall and he is hoping a low is in place. Producers who hedged at higher prices earlier in the year are probably in decent shape, he said.
Marketing never takes a day off
Doherty closed with a reminder that momentum fund buying can unwind fast. “Stair step up, elevator down,” he said, and he expects high volatility and possibly a fight for corn acres next year. His advice for farmers busy with harvest is to keep marketing on the list. “Marketing never takes a day off,” he said, and even a quick conversation with an advisor is worthwhile.
Farmers can reach Doherty at Total Farm Marketing by calling 800-334-9779 or visiting TotalFarmMarketing.com.
