Corn futures make new contract highs overnight, while soybeans drift with pressure on soybean oil.
Grain Overview
Grain markets are starting the week mostly higher, while soybeans remain under pressure. Corn continues to find support from last week’s Pro Farmer Crop Tour, which projected a smaller crop and production potentially falling about 1 billion bushels short of expected demand. Keep in mind that Pro Farmer has statistically overestimated crop losses below trend, but still, the direction of lower yields is in play. Many are now thinking USDA will produce a yield in the September report in the 178-180 BPA range.
The US corn carryout is heading lower, as demand for corn will not come in as low as USDA has on its balance sheets. It’s a decades-long problem the USDA has had, coming in too low on demand at the beginning of the crop year, then needing to race later the following summer to correct it. The European drought and their need to source corn from world providers will include the US. Just 3 MMTs of US sales to Europe (roughly 100 Mil Bu) would put additional upward pressure on corn prices into the new year.
Soybeans have a different story. The tour estimated yield near 53 BPA, putting it close to USDA’s current outlook and taking some of the production concern out of the market. Soybean oil is adding additional pressure after the White House approved the small refinery waivers, raising concerns over biofuel demand. Crush margins have fallen sharply as a result, with nearby margins now slipping below new-crop levels. Weaker energy prices are adding to the pressure on soybean oil this morning, although soybean meal has managed to separate itself and trade on firmer footing.
Wheat finds support this morning as there is still no resolution to the Black Sea conflict. Russia is now looking to provide financial aid to its farmers through direct grain purchases and farm loan extensions. Meanwhile, Ukraine is helping purchase silo bags to aid farmers who lack enough storage. Winter wheat plantings in both Ukraine and Russia may come in below last year, causing further issues with production next year.
Overnight, corn achieved a technical objective in the 524-525<> range we’ve been projecting for a month, so consolidation from the recent strength may try to develop. Breaks in this market should be well supported by end users, as a structural bull market, both supply and demand driven, is in play. A potential 1.2 Bil Bu carryout would put corn in the $6.00 range in the first or second quarter.
Soybeans are reacting to a yield guess that keeps production prospects near 53 BPA, but China purchasing through year-end continues to put a bid under the market. Soybeans have developed resistance around the 1240 area multiple times this year. The fact that they continue to attack it means they will eventually go through. A Super El Niño will become the worry for the northern soybean-growing regions of Brazil in 30-40 days.
Wheat continues to get attacked by the selling vigilantes who want to hold prices at bay under the early-year highs. As we get into September, the lack of seaborne exports out of the Black Sea, with land movement unable to make up the difference, should put upward pressure on wheat valuations. Any announcement of wheat sales out of the US Gulf could create an upward price explosion as shorts scramble to exit, reminiscent of, but certainly not equal to, the March 2022 exit and the July 2010 price lift.
Cattle Overview
Cattle futures had another violent Friday, where bearish news was applied before the opening, with sharply lower prices creating chaos. Again, for the second Friday in a row, buying surfaced at key support for live cattle in the 214-216 range we have identified and 318-320 for October feeders. The market recovered throughout the session to what could be considered fair closes for both live and feeder cattle. The absorption of the Tyson plant closings, Mexican border opening today and prospects of some tariff free beef imports for 90 days is likely priced in the market at Friday’s lows.
Pres. Trump’s announcement of removing tariffs for 90 days on 300,000 MTs of beef trimmings to be mixed with hamburger created Friday’s chaos, similar to the Tyson closing news the prior week. Whether this announcement holds is uncertain, as senators and congressmen are being very vocal about how this does not make business sense for ranchers that he claims will rebuild the herd. If anything, it diminishes that prospect. The election ploy is obviously being seen, as within 90 days, beef prices for hamburger could pop higher again in stores heading into the holidays.
Last week’s cash feeder index was off $7.50 at $341, with August feeders going out Friday at 334.37. The spread is starting to narrow, with seven calendar days left for the index and futures to come together. Live cattle trade in the North was mostly at $225-227, off $1-$4, while Southern cattle trade also came in near $225-226, off $2-$3. Cattle slaughter increased to a four-week high of 523,000 head but still remained 33,000 head below last year.
Boxed beef had Choice gaining $10.39 and Select also higher by $10.08, with those gains now going to packers who have become profitable after applying leverage to the market over the past few weeks. Seasonally, the rise in boxed beef prices heading into Labor Day and new school-year bookings tends to peak around the opening of September.
Live cattle have now produced major support on repeated tests of the 214-216 range, which should prompt a recovery rally, although it will likely struggle at first. Friday’s Cattle on Feed report is considered friendly for the opening, but cattle not placed now will simply be placed later. Anticipate resistance on October cattle in the 221-223 range as the market regains its footing.
October feeder cattle have support on breaks into the 318-320 range, with resistance at 329-332. Major resistance remains at 339-340, which is not expected to be reached in the near term. On the continuation charts, the discounts continue to make it difficult for deferred feeders to rally through that 339-340 range.