Row crops decline ahead of the weekend.

This morning, the grain trade has wheat short covering because of who knows what develops with Russia/Ukraine; meanwhile, corn continues to struggle from yesterday, and today on the news that railroads are struggling to facilitate the extra large export book the US has with Mexico is somewhat disappointing. Both BNSF and UP have announced they will not issue additional grain permits in the short term as they work to clear the current backlog they are seeing at the border. Several commodity groups and large elevator companies have complained about poor rail service on movement into Mexico for several months now, with the permit process introduced to help better organize shipments. Mexico is the largest buyer of US corn.

While private trains and those with permits already in place are still able to ship, UP’s announcement indicates that the sharp increase in demand and large book of shipments already on will likely keep delays a problem for the foreseeable future. Thoughts that will weigh heavily on additional wheat and corn export sales to our biggest customer helped to add pressure throughout the day yesterday, especially after ‘disappointing’ export sales. The lack of an announcement regarding Ukraine's use of US long-range weapons on Russian soil and the subsequent lack of escalation in rhetoric throughout the week has allowed sellers to return to the wheat market as well. The Biden administration was supposed to have made a decision by now, leaving experts to wonder what happens next as developments this week have been limited.

Calls from industry groups to delay the European Union’s deforestation regulations set to come into effect at the end of the year are growing louder. The EU voted in 2022 to implement these measures, making traders of cattle, cocoa, coffee, palm oil, rubber, soybeans, and lumber guarantee the products that they are sourcing and selling do not contribute to deforestation around the world. For the most part, adhering to the law requires traders to file paperwork and sign a due diligence form saying the products they sourced meet requirements.

The US seems poised to be the biggest beneficiary of the law at least when it comes to soybeans, with Brazilian producers and industry groups crying foul. Just last week Brazilian representatives asked the EU to delay implementation, saying it will impact up to 30% of Brazil’s total exports to the EU.
Members of the European Union have begun to push back on the implementation as well, with product prices already starting to soar after the New Year. However, according to an expert at a recently held vegetable oil industry conference, implementation could only be delayed if all 27 EU member states negotiated and voted to do so, something that feels unlikely to happen in the next three months but remains a possibility.

Brazil is expected to remain dry for the most part for at least the next ten days, with some thoughts that widespread rainfall may not be seen until the middle of October. Suppose further delays to monsoonal flow beyond mid-October are seen. In that case, it will likely have a more significant impact on second crop corn than anything, as producers will push to get beans planted, saying corn is a losing proposition at current prices either way.

According to the National Weather Service's latest 72-hour cumulative precipitation map, rain is expected for much of the U.S. Midwest and central Plains today through Monday, with a potential for 1 to 1.5 inches across Kansas, Iowa, Illinois, and Indiana. The northern half of Missouri and western Illinois could receive as much as 1.75 to 3 inches. Below-normal precipitation is expected for the western half of the Midwest and Plains from September 27 through October 3, based on the National Weather Service's latest 8-to-14-day outlook. Temperatures are expected to remain above normal during that period. Dryness expanded across the Midwest over the past week, with Iowa, Illinois, Indiana, and Ohio under “abnormally dry” or “moderate” drought conditions as of September 17, according to the U.S. Drought Monitor. Parts of southeast Ohio are experiencing “extreme” or “exceptional” drought.

Live and feeder cattle pushed higher yesterday due to optimism about improving the cash trade while box beef softened. This afternoon’s Cattle on Feed report is expected to show a slight uptick in cattle and feedlots through September 1. Analysts forecast cattle on feed to be 0.8 points higher than the previous month, while new placements are expected to be down 1.1 points, and marketings are forecasted to be 3.4 points lower. Cattle futures have risen in the past two weeks, with a downward trend coming after the Labor Day holiday not materializing due to the steep discounts.

Cash cattle have not yet been traded. This has provided traders with the optimism for higher cash. Feedlots are holding out with the expectation that packers will step up to procure the cattle they need. The delay of cash trading until Friday generally takes place during the week of the Cattle on Feed report. The increase in futures adds to the resolve of the feedlot, while the continued weakness of boxed beef may limit what packers will pay. Boxed beef prices were lower with choice down $1.82 and select down $1.49. Futures may trade mixed today as traders position themselves ahead of the Cattle on Feed report.

Something to watch for today is that if the cash cattle trade is only steady money, it will disappoint the trade and trigger selling pressure (sometimes trade waits until after the report). With box beef continuing to show weakness, choice cuts falling today below $300 would imply the decline in interest rates may have a limited impact on demand.