USDA crop report out Wednesday morning
Better rains for Illinois and Iowa over the weekend and a little profit-taking ahead of the upcoming May WASDE Report on Wednesday (concerns of what the USDA may get the world to believe in carry out's) created an overnight correction Sunday night. Soybeans bottomed on the opening, with corn meandering the night and wheat futures lower into the morning hours. The GFS, which has been the most inaccurate forecasting model out there, shows rains for the northern Plains next week. End users and importers are hopeful for a bearish USDA May report to secure a break. The risk of summer weather lies dead ahead, and China is likely to ramp up its soy/feed demand on any meaningful CBT correction.
Underlying support continues do to the dire drought on the winter corn crop in Brazil, and new reflation trades by index funds. The US dollar continues to erode this morning, challenging the 90.00 valuation. The January low was 89.15. The overextended nature of the price move in the grain complex without a large correction creates these not surprising 20 cent drops in corn, beans and wheat.
China remains active in the world grain markets securing at least 1.5 MMTs of Ukraine new crop corn on Friday and 500,000 MTs of Canadian old crop corn. Rumors continue to persist that China is still bidding for US new crop corn this morning after securing an estimated 5-6 MMTs last week. China will likely use any acute CBT weakness to add to their forward feed coverage.
The US forecast has the 3 primary weather models are in fair agreement on the 10-day forecast. The differences are mostly in days 9-10 as the forecast models pull a trough eastward try to work through the location and amounts of rain for the W Midwest and the C Plains. All the models maintain an arid weather pattern for the Canadian Prairies and the Northern Plains. This is a trend that extends backwards to September and is likely to persist. The Northern Plains and Canadian Prairie drought is expected to be a draw for a high-pressure Ridge later this spring/early summer that produces heat/dryness. The overnight forecast is warmer than prior runs, with the coldest weather occurring this week followed by warming on Sunday and most of next week. High temps will push into the upper 60’s to the lower 80’s which will aid crop growth. Seed that was planted several weeks ago is struggling to emerge amid cold soils.
Cattle futures mounted a 3-day short-covering bounce into Friday. This is creating an expectation for a firm start, along with feeder cattle because of the softer overnight grain trade. $1 lower. Top prices were again paid in the north. At the same time, the boxed beef market continued to push higher. The choice cutout was $9.38 higher at $305.88, and the select value was $7.22 higher for the week at $290.27. A top in the beef market is expected within the next few weeks, ahead of the Memorial Day holiday.
The disconnect between retail beef prices and negotiated cattle trade continues to deepen. Based on the choice cutout price, cash cattle prices should be $20-40 higher. However, limited slaughter capacity, slowed chain speeds and record carcass weights have pressured cattle prices.