The Black Sea troubles come back into focus.
Grain Overview
Grain prices are firm this morning, with wheat futures leading the gains. Overnight strength had Kansas City wheat up as much as $0.20, and then, like clockwork, as the Euronext wheat contract opened on MATIF at 4:00 a.m. CDT, profit-taking developed and prices relaxed into the early US morning hours.
The Black Sea will be the focus this week (but will not overshadow Wednesday’s NASS report) as the situation continues to deteriorate. The last USDA grain report slashed Ukrainian corn and wheat export estimates by more than 35%, shifting that volume into ending stocks. APK indicates Ukraine’s roughly 60 MMT of total grain storage capacity could reach full capacity by early November. If that materializes, wheat is underpriced, and US corn demand should increase as South American offers rise during the September/October window.
At least 13 people were killed and 39 others wounded in a Ukrainian drone attack on a Russian city roughly 600 miles east of Moscow, according to its mayor, signaling a further escalation of Ukraine’s campaign of airstrikes deep inside Russia. This is building support for Putin as the Russian people grow tired of seeing the war brought to them deep inside their own country. Pres. Trump is sending Secretary of State Marco Rubio and his son-in-law Jared Kushner, who for all intents and purposes have failed to make much progress in Iranian negotiations, to Kyiv and Moscow in hopes of working out some form of truce. But Putin is becoming more emboldened, believing he can gain the upper hand quickly by mobilizing more troops that the Russian people may now be more willing to support.
We are now well into August, and the sheer amount of grain that needs to move in the Black Sea can no longer simply be delayed. Both buyers and sellers have been cautious, and cash prices in Europe and the Black Sea region have been slow to react. The big unknown is the six-week window from mid-August through late September, when buyers will be forced to make decisions. Farmers in the Black Sea region are trapped. Governments can provide money to carry grain, but consider what happens to planting intentions for winter wheat and other winter crops across Europe and Eurasia if prices do not rally.
Today is also day #2 of the Goldman Roll, bringing additional volume into the market. Managed money traders have been active recently, so seeing elevated rolling activity is not surprising. Rains moved through the Corn Belt over the weekend and continue this morning, although the actual benefit is being debated. While some areas are reporting rainfall totals above 4 inches, much of this moisture may be arriving too late to materially help portions of the corn crop. There is a flash drought now developed again on the Kansas corn crop. North and South Dakota continue to struggle.
The monthly WASDE report is scheduled for release this Wednesday, and current expectations are that the average US corn yield will be lowered. Most analysts have reduced their US corn yield estimates by 1 to 3 BPA, although a handful continue to believe yields could come in higher. Very few changes have been made to projected soybean yields, which is not unusual at this stage. The wildcard is the FSA acreage inclusion. Presently trade expectations have soybean acres up a bit while corn acres are 500,000 acres either side of the June 30 number.
Cattle Overview
Last week, live cattle lost $2.00 Friday-to-Friday, while feeder cattle gained more than $1.50 on strength in the feeder index, which pushed back above $357. Live cash cattle trading up to $235 was not impressive enough for the August contract to maintain that strength. The concern remains that cash trade will soften toward the end of the month, while open interest from index funds continues to plummet. In the spring, funds were long more than 130,000 live cattle contracts. As of last Tuesday, they were down to roughly 66,000, effectively cutting their ownership of live cattle in half. Continually rising imports, softer exports, and extremely heavy cattle are creating a death by a thousand cuts for the bull market that had been built around the tight supply story.
Last week’s slaughter is estimated at 509,000 head, 3,000 fewer than the previous week and 27,000 below a year ago. Despite the potential heat-related death loss reported in feedlots, Friday’s Choice boxed beef gained only $0.50 to $364.36, while Select gained $2.59 to $352.37. Movement totaled 60 loads (37.86 loads of Choice, 6.32 loads of Select, 7.75 loads of Trim, and 8.01 loads of Ground Beef).
This week, packers will have more cattle available to them with the August contract coming into play, making the cash trade somewhat of a gamble as to where the week’s weighted average ultimately lands. For now, the August contract is betting on softer cash.
Support on October live cattle is key at last week’s low in the 222.50-223.00 range if the market is going to get another decent recovery rolling. Resistance is now a strong, known level at 230.
Meanwhile, September feeder cattle anchored strong support near 340 on Thursday and Friday’s break. August feeder cattle are trading at just over a $7.00 discount to the cash index, which they will eventually have to converge with over the next three weeks. If the cash feeder index remains stout this week, look for September feeders to mount another attempt at the major 348-350 resistance zone. Clearing that area on a closing basis opens the door for a push toward 354, which would represent roughly a 50% recovery of the summer decline. Support is 340, 348 and Major at 334.