Short covering is giving the market some much-needed support this morning. Futures were starting to crowd oversold, with a market mostly void of risk premium. US crop conditions remain favorable, but we did see deterioration in soy condition last week. Reports are starting to come in of stress on corn as well. While the crop remains in very good condition and above average for potential, boots on the ground reports indicate the USDA may be too high in its crop assessment.

We need to remember that the US corn yield can fall below the current USDA estimate and still be record-sized. As the crop matures, we will get a much better indication of yield potential. The trade deal with Japan is supporting the market, although provisions for the ag sector are pretty light. Trade is also disappointed that only five trade deals have been completed so far, with only Japan being a major player.

It’s been reported that China is looking to pull back on hog production to lift farm profitability. The Chinese government is pledging to reduce the number of breeding sows and control slaughter weights while trying to curb new production investment to boost farm margins. Mega hog condos have been overdone. This curtailment of China’s hog herd could lead to a future reduction in soy meal usage and soybean imports.

There is concern that the Chinese/US trade delegations that meet in Stockholm next week may have difficulty as Pres. Trump looks to end section 301 tariff exemptions, which may not help Chinese importers. China has no new US crop soybean sales on the books, and Chinese buyers are not even asking for FOB or freight offers. Also, in October, it’s hoped that the Trump administration will again defer ocean freight taxes as they expire at the end of October.

Forecasts show heat ending in the East on July 28 and in the West on July 29. After those dates, high temperatures are forecast to be curtailed, with temperatures cooling considerably. Ridge-riding storms should then frequent the Plains and the Midwest, with above-normal rainfall potential from the start of August into August 9.

Another explosive day yesterday for cattle futures, making new all-time highs for any spot live cattle contract, along with feeder cattle pressing higher. The cash feeder index climbed to $327.44, up $0.61 yesterday, with August cattle well above the June contract expiration. This morning, there is potential for a softer open with news that Australia and China are resuming beef trade. Hogs are facing pressure from news that China will start culling its herd, again.

Given the recent sharp rise in cattle futures, feedlots are holding out for no better than steady trade this week. Meanwhile, box beef values remain in freefall with the choice cutout dropping $4.98 yesterday and select down $2.55. Since early July, the select cutout has tumbled $36; seasonally, it is expected to be corrected further into August. Our cattle slaughtered midweek totaled 331,000 head, off 12,000 from last week and 31,000 head less than a year ago. Part of this is tied to a packing plant having mechanical problems this week.

Cattle futures will become more volatile intraday, but on a percentage basis, the swings are similar to when feeder cattle were trading in the 290 range. Volatility appears high, but will still be considered normal. Feeder cattle have achieved the 330 range, and our measured move had a target of 330 to as high as 337. Be careful of abrupt swings. Feeder cattle have recently been known to tumble $5-6 intraday just to recover.