Grains have stalled after Monday’s gains. Turnaround Tuesday is at hand.
Grain Overview
The grain trade started out firm overnight, with corn and wheat finding a bid while soybeans struggled. Fund selling pressure continued following the White House’s approval of all small refinery waivers, reducing expectations for renewable fuel demand. China also reacted overnight to the US Treasury’s hard economic sanctions on Iran, protesting the move and calling for a return to negotiations. This raises some concern that increased tensions with China could spill over into soybean purchases.
Wheat is under pressure this morning, with KC taking the bigger hit as traders pull some of the Black Sea premium out of the market. India lifting its wheat export ban is getting plenty of attention, but it doesn’t change much fundamentally. Indian wheat remains priced above the world market, meaning simply allowing exports doesn’t necessarily mean much wheat will actually move.
Weak US export inspections yesterday added to the pressure, while KC also had more profit to give back following its stronger Black Sea rally. Once some technical support levels gave way, additional selling followed. What’s interesting is that very little has actually improved in the Black Sea. Russian and Ukrainian grain movement remains disrupted, attacks on ports and commercial shipping continue, and Russia still hasn’t agreed to a ceasefire protecting grain vessels and infrastructure.
Profit-taking and liquidation remain the order of the day, with harvest rapidly approaching. Soybean yields still have a ways to go to prove themselves, as a near-perfect finish will be needed to produce a yield at or above 53 BPA. Yesterday’s crop condition ratings had corn down 3% in the GD/EX category, a bit more than expected, while soybeans were off 1%. These crop declines are seasonal for August, but soybean conditions remain well below last year’s record crop, suggesting yields are still being challenged despite the Pro Farmer Tour optimism on soybeans.
Corn remains the leader of the grain complex. The reality check that the national corn yield is likely in the 176-179 BPA range, along with new demand that will surface from Europe following its crop failure, should keep breaks in December corn well supported near the 5.00 level if challenged. It’s natural to expect some grain movement after the surge into early this week, suggesting a midweek correction and pricing will likely be done by Thursday.
We anticipate corn moving to much higher levels yet into the fall/winter. This has similarities to 1995, when each successive report simply added to the price-friendly tone. Corn is the rising tide of proteins that floats all ships. Ultimately, through spreads, stronger corn values should help push wheat and soybeans higher as well.
Cattle Overview
Yesterday’s friendly start in cattle futures from Friday’s lower placement number in the Cattle on Feed report ended very quickly. As we stated, cattle not placed currently are simply there to be placed later on. Renewed selling returned to the board as the trade pondered the 300,000 MTs of beef being allowed in for 90 days without tariffs. What’s interesting is there is still concern over where all this beef will come from and how the logistics could be accomplished in such a short time window.
Yesterday, the US border reopened to Mexican cattle at Douglas, Arizona, with this port of entry being a test run on how successfully NWS can be monitored on imports. It’s anticipated that no more than 700 head/day will be processed this week, meaning the headline is much greater than the immediate impact. It’s uncertain how many cattle will be allowed to cross during the next few weeks or months until another port is scheduled to reopen.
Yesterday’s boxed beef prices had Choice remaining steady at $385.69, while Select increased $3.70 to $365.02. This was done on 79 loads, of which 47 were Choice and 12 were Select. The rest was Trim and Ground Beef. Yesterday’s bearish tone was partially blamed on concerns by consumers over where this additional imported beef is coming from.
Pres. Trump is known for changing his mind on unpopular decisions, similar to last year’s reopening of the US border to Mexico and then quickly closing it again within days. Or promising to bomb a nation back to the Stone Age, just to change his mind over the weekend and say he’ll let peace have another chance. If this 90-day tariff reduction is redacted, it will likely occur either today or tomorrow. If not, then it will be interesting to see how much beef can actually make it into the country during such a short 90-day window.
Yesterday’s chart performance for both live and feeder cattle was bearish at the close. Important support numbers lie just below yesterday’s close, with Friday’s low of 213.50 in October cattle and 315.42 in October feeder cattle as targets to be overrun if the renewed buying interest that surfaced Friday fails to materialize this morning.
Packers are looking to buy negotiated cattle cheaper again this week. After all, they believe they have cheaper beef trimmings coming in to blend hamburger to cheaper levels. Live cattle have absorbed a tremendous amount of negative news into pricing. The question now is, are these depressed futures values, already well below the cash market, enough?