Volatile trading night with flipping weather models.
Grain futures started higher in the night session, but night time weather models flipped markets before recovering into the early morning hours. The dry European forecast model that was released Tuesday afternoon (after CBT closed) prompted the higher start. When the overnight US GFS forecast model added rain for the parched state of Iowa, that caused CBT values to decline, and in the case of soybeans, to sharp losses on speculative selling. The drier Canadian model added some support, but it was the delayed European weather model that finished its run around 5:30 AM CT that rallied CBT values on its continued dry solution for Iowa and Illinois. The European weather model's release was delayed due to a hardware failure.
The forecast models are struggling with a developing tropical depression in the Bay of Campeche, its future path and its intensity when it makes landfall near New Orleans as a tropical storm or weak hurricane this weekend. The models differ on the resulting downstream weather across the Central US based on this tropical system. Historically, the EU model has the best track record with tropical systems, but last week's GFS Dakota rain win has traders cautious. Picking the right model forecast is difficult enough, but the importance of rain for Iowa, Dakotas, Minnesota, Missouri, Wisconsin, and Michigan crops can not be overstated. The rains are critical with crops under acute stress due to limited soil moisture and the coming few days of extreme heat. Some Iowa corn has halted its growth phase due to the acute soil dryness. So far, May-June has been as dry or drier than 2012 across the N Plains and the W Midwest. Grain values will explode upwards if a good 1-2″ of rain does not fall across Iowa/Minnesota/Wisconsin and Illinois in the next 10 days.
The forecast for July looks to return a Ridge of high pressure to the Intermountain West amid their historic dry soils (drought), with this area being a breeding ground for high-pressure Ridging. This Ridge would return the N Plains and the W Midwest back to a hot/dry upper airflow. The 0Z US GFS forecast went wetter for Iowa/Illinois with rains of .8-2.50″ while the Euro has rains of traces to .8″. The Canadian model is in between with rains of .25-1.50″. None of the models will solve Iowa's deepening drought, but amid the coming 2-3 days of extreme heat/dryness, any rain is welcome.The next 2-3 days will feature dryness with extreme Midwest heat. Des Moines, Iowa is forecast to reach 99 degrees today. Rain chances start Saturday and persist into next week. Our weatherman see's GFS as too wet, but the Euro is too dry. A compromise is advised. Yet, there are clear indications that a Western US high pressure Ridge will return in late June/ July, creating additional heat/dryness. The coming rain chances and cooler temperatures are an interlude, not a pattern change.
Cattle futures enjoyed a robust day yesterday while crash trades for Tuesday remained limited to Nebraska and the Western Midwest. Cattle sold for $195 on a dressed basis, up from $190-191 last week. The outlook for the rest of this week's business is firm. Boxed beef values were again lower on Tuesday. The choice-value gave up $1.04 to $334.43, and the select value dropped $298.28. Estimated packer margins on the beef have soared to historic levels in the last three months, reaching $746/head last week. However, the by-product value continues to climb, adding another $143/head to the already fat margins. The by-product value last week was the highest since June 2015. Beef tallow is at a record high near $.68/Lb, while steer hides last week were at a 3-year high of $50/hide.