Row crops lead overnight strength, wheat softens.

A light turnaround Tuesday tried to develop in the overnight trade, as wheat futures sagged while French milling wheat corrected recent sharp strength. Low test weights that are not reaching milling standards have likely helped forge a bottom in the French milling wheat contract and likely US wheat values. Soybeans and corn had crop ratings that mainly came steady with last week, and there is warm and dry weather for the Midwest arriving after this weekend for Canada and the central US row crops. Meanwhile, row crops continue to short cover this morning on concerning heat.

Yesterday’s sharp rally for corn and soybeans was thought to be heavy short covering from the funds. However, the open interest rose by 4,101 contracts for corn and wheat climbed by 1,745 contracts. Soybean’s open interest did fall 3,843 contracts. The sharp price increase amid a record specular short position should produce a sharper fall in open interest. This means the funds are still caught with the position that is giving equity back, and any further hint of troubles, along with the thought of the August crop report seeing a decline of 1 million acres for both corn and soybeans each, puts this short position at risk. We anticipate further strength for technical reasons, allowing the remaining old crop inventory to be exited.

NASS dropped corn good/excellent ratings by 1% while keeping soybean ratings unchanged at 68%. The spring wheat crop was kept unchanged at 77% good/excellent. We now have 61% of the corn crop pollinating, with 17% of the crop in the dough stage. 29% of the soybean crop is setting pods, with 89% of the spring wheat crop heading and 71% when we harvest the crop.

Grain prices are at a point that is seeing North American grain supplies possibly retreating from lofty expectations over a week ago of 184 BPA on corn and 53.5 BPA on beans with adverse hot and dry weather across Canada during July and now the US becoming engulfed in the similar weather pattern for late July into early August. The large managed money net short, which is considered a record, is vulnerable to liquidation ahead of the August WASDE report. Black Sea and European crop losses add to the importance for the need for US corn/soybean yield supplies to be bountiful. This is creating a short covering rally that started Monday and could persist as the yield uncertainty continues to build.

The US forecast for the Midwest offers a crop-threatening heat wave into early August. An amplified high-pressure Ridge pushes eastward and produces extreme heat across the Plains and the W Midwest during the last is July and opening days of August. With a lack of rain coming, heat will quickly drop soil moisture, leaving increasing stress on crops. Due to the reproductive cycle of bloom and podding, soybeans are the crop of August, but the last 20-25% of the US corn crop will be pollinating, and 10-15% of yield determination during the fill stage will occur. The duration of the Midwest heat/dryness will be closely watched.

Weather models agree on the forecast for the next two weeks, which adds confidence to solutions. A warm period of hot weather with below-normal rainfall is ahead into August 7. The coming heat will affect the Canadian prairies, the Plains, and the West Midwest, where the hottest rise weather will be forecasted relative to normal. Corn and soybean conditions will continue to decline over the next two weeks as soil moisture becomes short to very short. The jet stream is displaced to the north, adding stability to the West Central US high-pressure Ridge.

Live and feeder cattle futures opened firm on Monday and closed higher. The COF report from last Friday focused on the smaller placement numbers and opened firm but closed well off session highs. Negotiated fed cattle trade is not anticipated until Thursday with a steady to lower outlook again. Last week, the Packers bought 71,749 heads on a negotiated basis, with 54,696 for their 1-14 day delivery and the remaining 17,053 head for 15-30 day delivery. Dressed steer prices for the week were mixed. Forward contract prices were down $4 for the week with negotiated sales being $3 lower, and the average formula price was down $1. Negotiated grid prices gained $3 to a record $315. Sales for all transactions ranged from $15-30 higher than a year ago.

The cash market has topped, with futures trading at a significant discount to the cash market. It appears the board is fearing another counter-seasonal fourth-quarter correction like last year. August live cattle closing below $182 would be the first trigger that could set technical sellers into play. A close under $180 would be a dramatic sign of something worse at play.