Cattle futures are in a longterm uptrend, with prices recently topping just under $130 on April futures. On Friday, October 21, the USDA released its monthly Cattle on Feed Report. The placement (cattle placed in feedlots) figure was 105% of the previous year’s figure. This would imply there could be a back-log of cattle headed to the marketplace during the winter months, most likely around April. A defensive posture is warranted. Conditions currently provide an opportunity for producers wanting to protect high prices for live cattle.
According to a study we conducted, soybean prices have a tendency to move higher over the next 30 to 60 days. This could reflect in post-harvest recovery and/or improved demand as end users more aggressively buy. Farmer selling is generally light after harvest once the crop goes into storage.
After plunging $2.00 it may be difficult to argue a bullish picture for corn. As we look ahead to next year, we'll lay out the track for a potential strong bull market. Last week we discussed the bear argument for corn and this week we'll explore variables that support a bullish outlook. The strongest argument is that the world just doesn't have enough supply. The recent plunge is related more to world economic concerns than supply increases. Commodities and stock prices have been correcting to the downside for nearly six weeks.
As the third week of September comes to a close, we're hearing many farmers tell us their corn crops are a little better than they expected. Given all of the challenges this year, many didn't have high hopes, especially as the dry August stressed crops. In the southern half of the Midwest, temperatures soared in the upper 90s or low 100s without much moisture. Pollination was affected as was kernel depth and test weight. Yet, as combines roll, we're hearing many say they are pleasantly surprised.
Over the last ten years as the world has changed, so has demand. Increased migration of 50,000,000 to 100,000,000 people a year from third world status to middle class is helping to provide for an undercurrent of demand that the world has never seen.
So while demand is the backdrop of higher commodity prices, it's really the supply picture that has changed the fortunes for the corn market over the last 60 to 90 days.
As grain prices have crept higher this summer, specifically corn, the growing question is whether demand can either sustain or build. The answer on the surface is probably not, yet don’t be surprised if it does. What really matters is end user’s margin. Depending on what corn buyers receive for their product, the price of corn may be irrelevant. As feed prices move upward, we continue to hear more talk about how demand will shrink. In a general economic model, higher prices equal less quantity demanded.
Crops in the Midwest this year faced significant hurdles, and perhaps the biggest one that could have impact may yet to be in front of the market. This could be devastating not only to buyers of commodities, but those who have forward sold and whose crops could be behind schedule due to late planting.
The stock market has taken a historic plunge after reaching a high of 12,749 on September futures July 22. The market plunged to below 11,300 by August 5. Initially, nervousness came over concerns of the government's inability to solve a debt ceiling crises. A bill was passed on August 1, which the president signed. Yet, the market continued its downward plunge. The stock market could be viewed as a collective vote of economic confidence. It may also be suggesting it does not like the climate in Washington.
In both the corn and bean markets, there have been debates whether less-than-ideal conditions so far this growing season will keep supporting prices. That could be the case. In fact, prices could even rally from here. However, from a historical perspective, what goes up, comes down. History would suggest there is plenty of downside risk, but realistically it is limited this year.