Another Iranian peace claim plummets oil overnight, but this time, drags grains with it.
Grain Overview
Crude oil prices broke sharply again overnight for the second day in a row, dragging grain values lower in its wake, which is unlike yesterday. Iran announced they would open the Strait of Hormuz within seven days if the US would end its blockade. The algo reader traders went into overdrive selling everything, but the problem is, Iran had also set forth many other conditions. One of them is that Pres. Trump could not force his will on them. I guess we will have to wait and see how long this gets to fly until Pres. Trump rejects it. Pres. Trump is at the UN visiting with many world leaders, and obviously the two wars are the major topics.
Turkey is again out trying to broker a Black Sea grain resolution, with President Zelenskyy always open to ceasefire talks (as long as he can keep bombing Russian refineries). Overnight, Moscow announced it would hold grain export duties at zero through year-end. Ask yourself, if the Kremlin cannot physically export more than 60% of their wheat, does the duty even matter? If domestic producers are discounted $30 to $60 below port values, will they keep planting?
The latest private estimates point to a 15% to 20% yield decline, depending on weather over the next two months, rising to 25% under an extreme scenario. Meanwhile, market consensus largely ignores Ukraine, where reported production numbers remain suspect. Both setups point to a substantially tighter balance sheet heading into 2027.
Russia also stated yesterday they are adapting Baltic & Arctic coal & fertilizer export terminals to load grain in light of the Black Sea disruption. The use of converted port facilities will significantly increase Russia’s grain export potential. The headline is great; the reality is that getting it there is difficult. Also, it’s at the expense of fertilizer and coal exports. Just another restriction on fertilizer to the world for next year’s crop availability.
Yesterday’s surge in grain prices is obviously today’s sell. After all, it is Turnaround Tuesday, and corn and soybeans did not make new monthly highs. The strength of the renewed vigor in corn values yesterday will be found if it can maintain closes now above 535. November soybeans had news of a processor paying over $14.00 for beans in desperation yesterday; that will relax quickly as he gets his order filled. Soybeans are at headline risk, as flash sales need to be renewed soon for more beans to China. $13.00 is critical to hold. Wheat remains the whipping child of the grain trade and the one that gets spread against, with Chicago wheat needing to hold 710-711, the previous two hammer-time lows.
Cattle Overview
Cattle went into explosive action right from the opening yesterday. When it gapped up, there is always the effort from the trade trying to rectify the gap. Once that gap continued to hold, further gains were added later in the session. Keep in mind that we fully know we have tariff-free beef trimmings coming in through November, yet packers had to reach out over the weekend and pay 225-226 to fill their needs. And it looks like they are still short-bought and will need to put some numbers together again this week. This is setting the case where their ability to seasonally steal cattle this time of year is out of their grip, and the October board was ridiculously undervalued.
Feeders will be coming out of Santa Teresa, New Mexico, this Thursday, but that news is falling on deaf ears, as even January feeder cattle gave the appearance it wanted to run limit up yesterday. As I said over the weekend, given the recent heavy selloff in cattle during June/July, the value of these Mexican calves that could reach 60,000 head/month by November seems to be a bit overdone. Our projection of a cattle low on August 26, when live and feeder cattle approached our Elliott Wave targets, seems to be in the rearview mirror. The problem is that one’s always clean; it’s the windshield that always needs a good cleaning.
Yesterday’s boxed beef prices were also on the upside, with Choice picking up $4.41 in the afternoon data, with Select higher by $2.51. It was only 58 loads, but 40 of those loads were Choice. There’s no doubt feedlots will be pricing their cattle this week at steady or better numbers, and the packers have to figure out a way to stop the renewed optimism this time of year. Last week’s whisper that Pres. Trump would possibly put some kind of an export quota or outright ban on beef exports was false. But one has to wonder if they might not float that again this week for help. We shall see.
Live cattle December have pushed up against continuation chart resistance near 223, with trendline resistance on its own chart at 223.50. Meanwhile, November feeder cattle have gap resistance on the continuation chart at 229-230, which also marks the 78% Fibonacci retracement of last week’s high on its standalone chart. A pause at these prescribed levels would not be a surprise on either live or feeder cattle.