Risk-off with the overnight commodity theme. Wheat finds support.
Grain Overview
The grain trade opened lower Sunday night in sympathy with sharply lower crude oil, creating a risk-off event across the commodity complex. At one point, corn and wheat traded slightly higher on the session, but then crumbled overnight as managed money continued its liquidation. Additional selling developed during the night session after China commented that it was unhappy with Pres. Trump’s additional tariffs imposed last week, which increased tariffs on Chinese goods by another 2.5%. That added further selling pressure to soybeans and corn overnight.
The sharp break in crude developed late Sunday as hostilities agreed to end, as weekend discussions between Oman and Iran centered on commercial shipping through the Strait of Hormuz, which remains the focal point of tensions in the region. Talks reportedly focused on routing vessel traffic through Omani waters versus Iranian territorial waters. Oman described the meetings as constructive, while Iran maintained there has been no change in shipping conditions and reiterated its control over the Strait.
Iran also stated it has no interest in additional negotiations following President Trump’s decision to pause military strikes, but warned it would respond if US attacks resume. Washington continues to leave the door open for diplomacy while emphasizing that all options remain available. For now, both sides appear willing to avoid further escalation as long as the current pause remains in place.
From a market standpoint, little has changed. Commercial traffic through the Strait of Hormuz remains extremely limited, with fewer than 10 vessels per day reportedly making the transit. Shipping through the Bab el-Mandeb Strait also remains well below normal, while continued Houthi attacks on Saudi energy infrastructure underscore that risks to Middle East oil supplies remain elevated.
The situation in Ukraine also remains largely unchanged, as shipping movement has almost come to a halt. Wheat futures traded lower overnight in sympathy with the row crops, but when French milling wheat opened down more than €3.00 per tonne this morning, that immediately marked the morning low, and it has since recovered to unchanged. That has brought support back into the wheat market since the sun came up in the Western Hemisphere.
Stifling heat over the weekend impacted the Western Midwest, with temperatures climbing above 100°. Row crops across the western Corn Belt have certainly struggled and moved backward, but temperatures are expected to moderate later this week, giving the market hope that moisture may also return. Ridge-riding storms across the Great Lakes and Eastern Midwest are expected to produce rainfall of 0.25 to 1.25 inches. The Plains and Western Midwest, however, are expected to receive less rainfall while remaining warmer. Forecasts continue to call for near- to above-normal temperatures and near- to below-normal rainfall across the western Corn Belt.
War-driven volatility continues to create chaos across the markets, but the Strait of Hormuz remains heavily restricted, keeping crude oil and fertilizer shipments moving at only a fraction of normal levels. Brazil still needs to build fertilizer inventories ahead of planting. Keep in mind that soybeans in Brazil require far less fertilizer than corn and wheat. Yet the market continues to collapse on even the slightest hint of improvement, while oil supplies continue grinding closer to a point where there could be clear winners and losers. Wheat disruptions out of the Black Sea will become a much more significant issue over the next three to four weeks if Ukraine and Russia fail to find an off-ramp to the current hostilities.
Cattle Overview
Friday’s Cattle on Feed report and Cattle Inventory report were overshadowed when the USDA, late Friday afternoon, announced it would reopen the US border to Mexican feeder cattle beginning August 24. The announcement stated that imports would initially resume through the Douglas, AZ, port of entry, where all cattle will be subject to USDA inspection, with the reopening contingent upon Mexico continuing to meet milestones under its joint US/Mexico New World screwworm (NWS) eradication plan. No dates have been announced for additional ports to reopen, as the process will be closely monitored to ensure the US cattle herd remains protected. The Douglas, AZ, port of entry is the farthest north crossing for Mexican feeder cattle and is considered unlikely to have any evidence of NWS.
It’s likely that news of this development leaked over the past 30 days, allowing the January feeder cattle contract to decline into the 315 area last week, creating roughly a $35 discount to the cash index and reflecting expectations for a larger flow of feeder cattle later this fall. Even though a bearish opening is anticipated, the 310-315 price range is the value we had been discussing as a downside objective for deferred feeder cattle. The question is whether the market takes the spot September feeder cattle contract down toward those same valuations.
The reopening of the border is not going to change the near-term beef supply situation, even though boxed beef values have been crumbling, as they typically do seasonally. Today’s trade will be interesting. A sharply lower opening is expected, but whether the market challenges limit-down and can stay there will be an important indication of whether most of this news has already been priced into the marketplace.
October live cattle have significant support in the 210-215 range, while spot September feeder cattle have a double bottom at the June low near 333. That level cannot be violated today because it is beyond the daily limit move. Deferred January feeder cattle, however, could trade into the upper end of the 310-315 valuation range if they were to open limit down.