It’s Friday, grains are near monthly highs, and September grain options expire. This makes for a volatility watch.
Grain Overview
Grain futures are seeing some pressure this morning as traders take profits following a strong week of gains. Corn and soybeans are also approaching overbought territory, which has slowed fresh buying heading into the weekend. Fundamentals remain supportive, and continued uncertainty surrounding crop size and global supplies is keeping some risk premium in the market.
September grain options expire today, which could create additional selling from in-the-money positions that traders don’t want converted into futures. September corn futures have a strategic number at $4.79 on the continuation charts. They tapped it yesterday and held near it, but today will be another challenge.
Much of this week’s strength has come from the Pro Farmer Crop Tour, where corn yield potential and soybean pod counts have generally fallen below last year’s results across the areas surveyed. Minnesota turned out to have the best yield potential, but its corn yield of 199 BPA was still off almost 2% from last year’s record, although it stands almost 9% above the five-year average. Soybean pod counts were record-large and up 1% from last year. They will release their official numbers at 1:30 today, but like USDA data, their yield will be leakier than an old combine sieve. The average trade guess puts their corn yield near 178 BPA.
Interior basis levels remain mostly firm despite a modest increase in old-crop farmer selling. Demand cooled somewhat as futures rallied, although weakness in the US dollar helped offset some of that pressure. End users are still having to pay up to encourage grain movement, providing additional evidence that the cash market remains stronger than futures alone might suggest.
There is no ignoring that soybeans are near summer contract highs, with multiple price failures having occurred in the 1240 range. Corn is also elevated, and the trade has been enlightened that the yield problem is more than regional. Still, markets can falter and wobble at these levels, self-triggering corrections. But breaks in the market are not considered tops in what has now become a supply/demand-led bull market. End users will be waiting in the wings, hoping for breaks to bid into.
Wheat is a disaster in the waiting (despite the vigilante selling find every morning), as end users are one by one peeling away from Black Sea-sourced wheat and seeking guaranteed delivery from other origins. The European corn crop is a failure, with more acres going to silage. Europe will surface as a large corn buyer this coming season, and the US will get a piece of that action.
Bottom line, corn has further upside potential, followed by soybeans and bean oil, with wheat having a potentially explosive outlook into September if no intervention occurs in the widespread Black Sea fighting and damage continues. Roughly 30% of world wheat exports come from that region, and it’s typically the cheapest wheat available, with a large portion of those exports normally moving from August through November.
Cattle Overview
It was another cattle trade yesterday of severely testing recent support values, as the cattle trade digests the loss of Tyson packing plants, which was slightly offset by the positive vote at the Fort Morgan packing plant that comes back online the first full week of September. The start of Mexican feeder cattle imports, although very slowly, occurs next week and will be monitored closely for successful progress and to make sure no infected animals are brought into the US.
Today’s trade will focus on the Cattle on Feed report released this afternoon after the markets close. On-feed is expected at about 102.5% of a year ago, with placements at 93.5% and marketings at 92.6%. The estimate ranges are tighter than in recent months, giving us a little more confidence in the averages.
Lower cash cattle trade continues, but volume remains light, with the bulk of the trade likely occurring this afternoon. So far, the North has seen dressed sales in the $355-356 range, off $9-10 from last week’s weighted average. Live sales in the North were put at $225. The South continues to pass on bids of $225, with packers continuing to secure more contract cattle. Cattle purchased so far this week are set for delivery the week of September 7.
Yesterday afternoon’s boxed beef close had Choice off $5.06 at $389.93, with Select giving up $0.43 at $363.74. Movement occurred on 110 loads (88.85 loads of Choice, 14.17 loads of Select, no Trim, and 6.86 loads of Ground Beef).
October live cattle, the continuation-chart contract, continue to hold the July 27 low on a closing basis and are trying to forge a bottom. It appears 215-216 continues to be a major support value. What is needed next is a close above 221 to break the daily bearish hammer. Major resistance, though, will come in at 225 initially on rallies.
October feeder cattle succeeded in holding the 320-321 range into the close but are staring down pessimism from the breaking live cattle cash trade, the Mexican border opening, and rising feed values. Upside resistance is initially in the 330-331 range, with major resistance at 339-341.