Grain futures are called sharply lower to resume trade after July 4th weekend.
Grain futures are called sharply lower to restart after a three-day hiatus, as rains forecasted for the northern Plains and Western Midwest is prompting calls of soybeans 20-30 cents lower, corn down 15-25 and wheat 12-20 lower. A sense of improved rainfall chances this week was already hinted at in late-week models, but the reality of them arriving and in the near term forecast will create a typical post-July 4th liquidation.
The 3-day US holiday weekend produced hot/dry weather that further stressed N Plains/W Midwest crops. However, a storm system did pass across portions of the Dakotas late Monday, producing .35-.75″ of rainfall. The forecast models call for .5-2.50″ of cumulative W Midwest rainfall over the next 10 days in Minnesota, Iowa, and Wisconsin. The best rain chance for Iowa and the remainder of the Midwest is from late Friday thru the weekend. It is the prospect of rain/mild temperatures that will aid in pollinating corn.
Unlike most post-July 4th selling events, large demand awaits in the wings to buy. Reports of growing losses on the Brazilian corn crop continue as last week's 20-year cold weather event caught the late-planted/immature Brazilian winter corn crop. Immature corn in Parana, MGDS and S Mato Grosso is prematurely dying, with farmers likely to cut their crop for silage rather than harvest poor-quality corn. AgRural dropped their 2020/21 total Brazilian corn crop to 85.3 MMTs, with private estimates as low as 82-85 MMTs. This is a sizable 13-16 MMTs (510-630 Mil Bu) below the June WASDE forecast of 98 MMTs. Brazilian cash corn prices surged upwards on Monday amid the fear of a shrinking/poor quality crop. Brazilian corn exports will be in fast retreat beyond September, with the US to dominate world trade after that. WASDE 21/22 US corn exports are too low.
Upcoming is next week's WASDE July 12 crop report. It is expected to hike US 2020/21 US corn feed/residual use by 50-100 Mil Bu and raise ethanol use by 25 Mil Bu. WASDE should also raise 2021/22 US corn exports by 100-200 Mil Bu. US 21/22 corn/soy end stocks will stay tight. There is another 6-8 weeks of significant growing weather ahead for US and Canadian crops. Spotty rains fell on Canadian crops over the weekend, but the drought shows no sign of relenting and sizable spring wheat, barley, and canola yield drops are feared. This afternoon's crop rating reports anticipate a 1-3% drop in the GD/EX category for corn beans and spring wheat but will likely be ignored on improving conditions anticipated this week.
Tropical storm Elsa slowed her forward progress and has been downgraded in intensity over the long holiday weekend, allowing a cold front to sink farther south and become more active across the N Plains/NW Midwest this week in an area in dire need of rain. The forecast models agree that a front resting across the N Plains and the N Midwest will produce several rain chances, with the best chance being from Friday into the weekend. Cumulative 10-day rainfall totals range from .5-2.50″ with locally heavier amounts. The rains are welcome after weeks of heat/dryness, but a future wet weather trend for this drought-stricken area of the Central US is not forecasted.
The coming rain continues to look like an interlude, not a lasting pattern change. The primary weather models return a sizable high-pressure Ridge across the Intermountain West with intrusions of the Ridge into the Plains/NW Midwest. Some forecasters do not foresee an ending of the drought across the Canadian Prairies, the Northern Plains, and the NW Midwest. Based on depletion of subsoil moisture, crops here require regular weekly rains of more than 1.00″. Heat is expected to return to the Plains and NW Midwest in the last half of July.
Deferred live cattle futures made new contract highs on Thursday before a mild setback on Friday, with feeder cattle set to open firm on anticipated weaker feed grain prices. Cash trade last week was light and mixed. Cattle in the S Plains sold from steady to $1 lower at $120-121, and cattle in the N Plains bought $125-126. The early week cash outlook is steady.
US cattle slaughter last week dipped to 623,000 head, down 38,000 head from the previous week as plants transitioned to holiday schedules. The Saturday kill was down more than 50% from the previous week. This week's slaughter will fall even farther and likely to test the Memorial Day low near 550,000. With back-to-back light production weeks, beef stocks will be tight heading into mid-July. The choice cutout is now $55 under the June high, and tightening stocks could slow the beef values decline. A seasonal low is due in the last half of July.