Putin comments send grain prices sharply lower.
Grain Overview
It was inevitable, after what has been a sizable press to the upside with corn hitting psychological 5.50, Chicago wheat near 8.00, and a beans contracts registering beans in the teens, a sizable break in price was in the making. The story that triggered it occurred at the typical 3:00 a.m. CT time in the early morning hours, as Pres. Putin, speaking at the Eastern Economic Forum in Russia, made a comment that the restarting of peace talks would be helpful and was supported by China and the US. This comment put wheat into a sharp correction, with corn and soybeans following suit.
Comments with open interest so high create this volatility, as I stated in yesterday’s newsletter. Large open interest does not mean a top is in place, it just means higher volatility on headline swings. (A.k.a., take a look at crude oil.) Putin also went on to reiterate that any talks include Russia holding the Donbas and Crimea. This has been the part that has Ukraine at a stalemate, as they want the lands back. It’s been this impasse that Zelensky has used to keep himself in power and avoid elections as he maintains martial law in Ukraine. He never lets go of this point, despite those two regions being 98% Russian speaking. So as the saying goes, talk is cheap, but the talk certainly cheapens grain prices on comments, allowing end-users the opportunity to come in on sharp price breaks.
On the supply side of the equation, intense heat has started to settle across the Corn Belt but will start to moderate in the East as the weekend approaches. Spotty rains accompany the heat but are not providing widespread relief. This is not the end of the growing season that the Western states need. More analysts are lowering crop yields, with several guesses on corn hovering in that 177-179 BPA range. We have a corn crop that’s coming in below our demand base, which means the carryout continues to rapidly decline toward 1.2 Bil Bu.
Crop yields for beans are also on the decline, with yield guesses arriving below 52 BPA. Allendale’s guess yesterday at 52.6 BPA may be wishful thinking. Soybean demand is now running into a declining crop size because of the less-than-perfect finish in the Western Corn Belt areas, with the risk that the carryout on beans is now in the 230-250 Mil Bu range. This is a typical range that produces beans in the teens.
A price break was inevitable, and now it’s a matter of where the solid bid from end-users develops. Whether a simple price break is accomplished on this news from Putin, or a more complicated grinding break takes place because of contesting comments on peace (likely the latter) will now be the order of business. A first-of-the-month high found its way in on September 2 (by default only a penny or pennies higher than the first day of the month) and now the market will produce a cleansing process. The September 11 WASDE/Crop Production report is only eight calendar days out and will also create a new major influence on price perceptions.
Dec corn in the short term may look to revisit the 520-525 price range. Chicago wheat has already come close to its 38% retracement of its August move at 738. It may choose to be “wheat” and do a 50% correction that could spike 720 on headline comments. Meanwhile, soybeans may remain stout, with the 1280-1285 range being strong support at the 25% retracement mark, while the breakout on continuation support at 1255 is major.
Cattle Overview
Light negotiated cash cattle trade is trying to get underway this week, with activity in the 219-220 range being seen late yesterday, but headlines continued to overwhelm any hint of friendly trade. Despite yesterday’s sharply higher start, the “Paw of the Bear” maintained pressure throughout the session, getting live cattle contracts to challenge last week’s lows as boxed beef values continued to soften, biting into the packers’ renewed profits.
The two new headlines that dominate on the negative side are that USDA Ag Sec. Rollins suggested a beef labeling announcement should be made by the end of this week (helping improve consumer confidence on beef safety). The packers will not like this, and the trade fears they will leverage this against prices paid for cattle. There is also a hint that JBS may limit production at its Greeley, Colorado plant and possibly another plant due to the importation of 300,000 MTs of beef, of which likely much of it will be theirs out of Brazil. Renewed stories are circulating that one of the primary owners of JBS was at the White House one day before the announcement of beef importation was made. A subsidiary of theirs, Pilgrim’s Pride, had donated $5 million to the Trump election campaign. This puts a fishy smell on beef.
Afternoon boxed beef supplies had Choice lower by $0.97 and Select giving up $6.87 on 95 loads. Of that, 56 loads were Choice, 11.5 Select, with 20 loads of ground beef and the rest trimmings.
There were bids of 219 yesterday in Kansas, with no southern trade noted. Meanwhile, light cash cattle trade developed in Nebraska and Iowa at steady money for the dressed trade at $345.
Yesterday’s board action was simply described as bearish, with a double bottom on the charts waiting to see if major support is held or extremely challenged with a “dump and pump” break (price lows run through with a sharp recovery afterwards).
Downward price movement has become extended, with price targets on our charts for spot October yet to be filled at 207.50-208.00, with the continuation feeder cattle chart support numbers at 303-306 (which possibly is the November contract satisfying, but October is still on the continuation chart.)