Grain prices slump on hedge pressure, with no new headline excitement.
Grain Overview
Corn, soybeans, and wheat all saw pressure in overnight trade as a lack of bullish news following the September WASDE report is limiting buying interest. The weekly crop report showed the US harvest is advancing, and new-crop inventory is becoming available.
The ag sector struggled yesterday after President Trump made a social media post that Ukraine and Russia had agreed to stop attacking each other’s energy facilities. The grain trade recovered modestly as the statements could not be verified by either Ukraine or Russia. Despite the talk of peace, the attacks continued, with Ukraine reportedly hitting Russia’s Syzran oil refinery again overnight. Russia also launched another large drone attack against Ukraine overnight. With the lack of response from the wheat trade, it appears to be playing the long game on hopes that something comes together in potential talks in October. There are two big wheat tenders coming up from Algeria and Pakistan that will help set the price for what the replacement cost of Black Sea wheat has become, with Saudi Arabia not far behind.
Aside from the geopolitical developments, the soybean trade has a couple of important reports to digest today. CONAB will release its latest Brazilian production outlook, with most of the attention falling on soybeans. Private estimates remain widely scattered, with many near 180 MMT while USDA is holding at 186 MMT. More important than the headline production number may be Brazil’s export forecast, especially with Brazilian supplies tightening and China recently stepping up purchases of US soybeans.
NOPA will also release its August soybean crush report today. The trade is looking for crush at 211.55 million bushels, down slightly from July but still about 11.5% above last year. Soybean oil stocks are expected near 1.257 billion pounds. A strong crush number would be another reminder that domestic soybean demand remains very healthy.
More of the same weather forecasts, with excessive rain looking to travel across the Midwest, with Iowa, Minnesota, Wisconsin and northern Illinois picking up rains over the next 5-6 days. Mud is going to delay a lot of harvest initially in some of these areas. And, of course, we look to the South, with the Plains and Delta continuing under excessive heat that has been record warm for the first half of September. Yield reductions will continue as the crop is pushed into maturity.
The grain trade will find the direction of least resistance with seasonal hedge pressure being applied daily as the trade awaits new input. Chinese flash sales of beans are becoming the norm, but sales of over 500,000 MT will get the market’s attention. Also, a flash sale of corn to China is not guaranteed, but could occur heading into the September 24 US-China discussions or because of them.
Wheat needs to see end users starting to reach for supplies, as the trade is wrapping itself up inside the white flag, hoping all will be made well in the weeks to come. The problem is, Putin will never give up the Donbas or Crimea, and the war will continue into winter. Grain prices are sagging currently, but there is an uptrend that will continue in October and November.
Cattle Overview
Yesterday’s explosive cattle trade, triggered after last week’s late cash trade at $225-226 in the South and the feeder index jumping over $10.00, was the death knell for the bearish mentality that played out through July and August. The first major leg down from the cattle topping phase that goes back to the second quarter has ended. Packers will fight to maintain their profitable margins and will try to limit what they pay for cattle as long as boxed beef remains lackluster.
Yesterday’s boxed beef was not exciting, with Choice off $0.63 at $375.31, while Select picked up $1.42 at $354.55. Movement was fair at 97 loads, with just over 62 loads of Choice, 7 loads of Select, 13.5 loads of trim and the balance ground beef. Monday slaughter was estimated at 106,000 head and was 3,000 head less than a year ago.
With the 300,000 MT of beef trimmings yet to see the first batches arrive, it put the pinch to the news that front-ran the idea. There may be some trimmings that arrive in the next 30 days, but the break to just under 310 on the October futures undervalued domestic beef supplies. In the short term, the board is getting extended, with yesterday’s highs recovering over 62% of its August losses.
October feeder cattle enjoyed a strong day with gains of over $5.00, with the September feeder cattle contract, which expires in two weeks, maintaining its newfound premium to the cash index and still parked $2.00 above yesterday morning’s posted number. On the continuation chart, October feeder cattle have major resistance at 343-344.