Grain futures trade lower overnight on China tensions.
Grain futures opened higher last night on concerning heat for this week but were sandbagged and sold on a higher start with a large drop lower as political talks between the US/China have become tense. China called US/China relations at a stalemate. China has presented the US with a list of demands, including US wrongdoings that must stop and individual cases that China is concerned with. US Sec of State Sherman had a final closed-door meeting with Chinese diplomats on Monday which was more conciliatory. Ag traders will be watching to see if China returns following the US/China meetings with new purchases of US Ag goods. It is expected that China will continue to fulfill its obligation under the January 2020 Phase 1 Trade Agreement, which is $43.6 Bil in 2021. They also have crop problems.
The Parana River in Argentina has reached such low levels that its threatening navigation and ag exports. The river has reached its lowest levels in 77 years. And the Parana River is forecast to keep declining into October. Ships are only being loaded to 75% and then have to move out to sea to be finished the capacity, a costly and lengthy process. Corn exports out of Brazil are becoming non-existent, with soybean sales also coming to a halt. The US is the only freely available market to seek exportable supplies. Still, importers are enjoying watching a seasonal price decline and are waiting to start what will be a renewed busy export season similar to last year. World crops are in decline, and Central US weather is far from perfect. Canada is seeking US corn this morning which is highly unusual but begs the question of the Canadian crop losses and forage availability following months of drought.
Something that is not being considered by the trade for total production on corn is that there is talk now that possibly 400,000-700,000 acres of US corn will be put up at silage amid the rising price of hay and lack of forge across the western US and Northern Plains. This is part of the longer-term supply/demand scenario that reignites the same problems we had last winter that will come into play this winter.
The forecast models agree and are consistent with prior day runs for the next 6-8 days. The GFS wants to produce a more amplified Ridge/Trough pattern across the US starting on the weekend while the EU compresses the high-pressure Ridge to a position across the Southern Plains. The GFS/EU models agree that a strong Central US High-Pressure Ridge will produces 5-6 days of hot weather. Extreme heat builds with widespread 90’s to lower 100’s featured for the Plains and the W Midwest. Cooler upper 80’s to mid-90’s occurs across the E Midwest. Such extreme heat will push crop maturity. On the EU model Ridge riding storms will produce rains late week from Nebraska into SE Iowa and through Missouri. The E Midwest will stay dry into mid-next week. Storms will also be featured for the Lake States early this week. 60-65% of the Plains and W Midwest corn/soy crops will be under acute stress. This is not a wet pattern for the Central US into August 10th.
Cattle futures finished higher last week and will be supported with an anticipated higher start this morning from a friendly July Cattle on Feed report. The CoF report showed a June feedlot marketing rate at 103% of a year ago (102% expected), a placement rate at 93% (96% expected), with the July 1 feedlot inventory right at expectations of 99%. Despite the strong June marketing rate, the percent of cattle on feed over 150 days on July 1 increased slightly from June to 22% but well below last year’s record 28%.
Last week’s cash markets saw cattle in the S Plains move at $119 or steady to $1 lower. The north traded cattle for $122-123 or steady to $2 lower. Beef cutout values were $1-2 lower for the week but were firming in the last half of the week. The choice rib value gained $23 for the week, showing the first sign of building seasonal demand.