Corn and soybeans sustained strength overnight ahead of the Pro Farmer Crop Tour. Wheat sees profit-taking.
Grain Overview
The grain trade opened firmer last night, with wheat prices pushing closer to the July highs before turning to profit-taking after stalling out. Meanwhile, corn and soybeans also found strength on excessive rainfall across Illinois and Indiana, while the drought conditions impacting the Western US remain in place. Crop condition data this afternoon should be steady or lower, which will add credence to a reduced crop size out there.
Wheat prices are trading lower this morning, giving back a portion of Friday’s sharp Black Sea-driven rally. At this point, the weakness looks more like profit-taking than a meaningful change in the underlying geopolitical situation. Paris wheat futures are lower on the prospects of the best rain this year allowing for better winter wheat plantings. This is a weak reason for wheat trading lower, as it has nothing to do with near term tight supplies.
Most importantly, there has been no breakthrough in Black Sea ceasefire talks. Russia’s latest position remains its rejection of a limited Black Sea truce, while Ukraine’s proposal to halt attacks on civilian shipping and port infrastructure remains on the table. There is also still no reliable confirmation that the major Russian grain terminals at Novorossiysk that halted operations following last week’s attacks have returned to normal grain loading.
For now, the Black Sea risk has not gone away. The market is simply taking some premium back out after Friday’s strong move. A confirmed restart of the major Russian grain terminals or movement toward an actual Black Sea ceasefire would be a more meaningful bearish development for wheat. Neither has been confirmed this morning.
The Pro Farmer Tour gets underway this week, and it is now anticipated that yield losses in the Western Corn Belt will be documented, with crops pushed to maturity and losing some of the potential that was available 40 days ago. Meanwhile, in the East, the tour will run into flooded corn and yellowing effects, with a crop that is not likely to have the record yield potential that was anticipated just over a month ago.
It’s always a precarious and scary market when strength occurs ahead of harvest. A situation like this typically finds price acceleration on new buying interest pressing into the three-day Labor Day weekend as the trade becomes extended. The carryout for corn is still on the decline, with more yield losses and certainly more demand that will likely press the corn carryout below 1.5 Bil Bu. The USDA did not accommodate the collapsing European corn crop and the portion of that buying interest we will receive. Soybean demand looks to find more Chinese buying interest, while yield prospects will determine whether production is equal to last year’s record crop or slightly less.
Cattle Overview
Live and feeder cattle futures were sharply lower on Friday after the news of the Tyson plant closings, but did recover to close above the July 27 lows for both October live cattle and September feeder cattle. An important technical observation is that heavy bearish news was absorbed.
Last week’s feeder index was off $8.86 at $348.50, while the negotiated fed cattle trade had northern cattle off $7-10 at $225-228, with the southern trade also at $228, losing $7 on the week. Fed cattle slaughter was at 517,000 head, 19,000 head less than a year ago, but it was at a 3-week high. The Choice boxed beef market did see a large jump of $10.94 on the week to $375.30, but Select drifted lower by $1.13 to $351.24.
The cattle market may back and fill Friday’s ranges, with significant support now having been revealed on spot October cattle at 215 and 328-330 for September feeders. Those levels will serve as support as the market chooses to recover from the recent multiple revelations of bearish news (stalling demand, decreasing exports, increasing imports, Mexican feeder cattle starting into the US August 24 at a slow rate, and Tyson’s cattle slaughter reorganization).
The cattle trade has always recovered sharply over the last year once bearish news was revealed, almost universally creating V-bottoms with sharp impulse rallies. A recovery will likely start to develop in the cattle trade, but possibly not with the enthusiasm revealed after July 27 or other marked dates on the charts when significant lows were put into place. October cattle closing back above 221, with September feeders over 340, would be the first sign of the cattle trade having confirmed a significant low.