USDA reports and Black Sea escalation spark grains

Howdy market watchers! 

The heat is on!  And that’s just about everywhere at the moment.  In fact, it has been reported as the hottest summer on record across many parts of Europe.  

It was also back-to-school this week with the semester seemingly starting earlier every year. The enthusiasm of my kids returning to new classrooms and new teachers and friends is contagious.  It is also welcome change by local businesses in non-tourist areas as customers return to the community.  

The next 6-10 and 8-14 day NOAA forecasts keep above normal temperatures across the entire US with limited chances of precipitation.  However, these extreme conditions can often result in pop-up storms.  

The meat complex is definitely anxious to see a pick-up in demand as the dog days of summer transition back to the daily grind.  We are just beginning to see beef prices bottom and turn higher seasonally through Labor Day and hopefully, things will trend at pace. 

The screwworm debacle continues although out of the media headlines in recent weeks.  The first US-Mexico border crossing at Douglas, Arizona, will reopen on Monday, August 24^th.  Depending on the risk assessment from this first reopening, APHIS will consider the crossings at Santa Teresa and Columbus, New Mexico, for live cattle, bison and horses.  

However, there was bigger news this week with rumored additional plant closings being made known on Thursday after the close with Tyson Foods shuttering a beef packing facility in Joslin, Illinois and case-ready plant in Eagle Mountain, Utah while seeking buyers for its Pasco, Washington, beef facility.  This will leave Tyson Foods with beef operations in Dakota City, Nebraska, Holcomb, Kansas and Amarillo, Texas.  The continued shortage of cattle numbers across the country have added significant financial pressure to large packing plants with rising overhead costs being spread out over fewer cattle throughput.  Tyson has been the first large packer for shareholders to declare ‘uncle’ and begin to rationalize capacity.  

The situation is inherent of overcapacity in an industry.  However, the beef case is unique in that it is limited supply versus demand that is squeezing the processors.  Such changes are disruptive to the industry and brings elevated volatility back to markets with fewer competitive buyers for the limited numbers softening prices.  Having said that, auction barn prices have remained elevated as demand exceeds supply overall and it takes time to feed cattle to reach slaughter-ready weights.  

It has been a tough week for cattle futures with swirling rumors causing liquidation in both feeders and fed cattle contracts. Early action on Friday morning was particularly concerning after the market was finally able to trade the confirmed news of the closures after the market closed on Thursday.  

Having said that, feeder and fed cattle futures closed well off lows on Friday and never reached limit down though close on several contract months.  Front-month August feeders managed to hold above the June 4^th low although it did make a low below July 27^th.  As I wrote before when we retested this level, the $336 area is the bottom of the $42 high-low range we’ve been trading since mid-March.  Friday’s low on August feeders was $336.450, but closed the day at $341.275, filling the chart gap from the much lower open.  While deferred month contracts did make new lows, they also closed well off the lows and in fact, were positive on the day relative to the open.  

Cash fed cattle were lower this week with highs mostly at $228 and some at $230 versus last week’s $235.  August live cattle futures closed Friday at $223.750 after making a new low at $220.350. The next USDA Cattle-on-Feed report will be released next Friday at 2 PM followed by Monday’s reopening of the border crossing.  

These headlines combined with higher grain prices could keep cattle futures under pressure until we see some harvest pressure in corn.  Profarmer’s highly anticipated row crop tour begins next week on August 17^th through August 20^th with daily yield updates as they traverse the corn belt.  

USDA corn conditions held steady at 61 percent Good-to-Excellent this week versus 72 percent G/E last year.  US soybean conditions slipped another percentage point to 62 percent G/E versus 68 percent last year.  

Wednesday’s monthly USDA Crop Production and WASDE reports leaned bullish with US corn yields dropped to 180.7 bushels per acre (bpa) from 183.0 bpa versus trade guesses of 182.3 bpa.  However, harvested acres increased, which increased total production to 16.013 billion bushels versus last month’s 16.0 billion bushels and trade guesses of 15.915 billion bushels and last year’s corn crop of 17.021 billion bushels.  US soybean yields were lowered to 52.7 bpa versus last month’s and last year’s 53.0 bpa and also below the trade estimates of 52.8 bpa. Harvested acres were also increased for soybeans that increased total production to 4.519 billion bushels, which was above trade guesses and last month’s forecast as well as last year’s crop.  

Given strong demand for corn, US corn ending stocks for 2026/27 came in lower than expected despite higher production.  This week’s ending stock estimate was 1.653 billion bushels for corn well below estimates of 1.724 billion bushels.  Old crop ending stocks were also revised lower. For soybeans, US ending stocks were revised higher for new crop as well as old crop.  New crop wheat ending stocks were revised lower to 717 million bushels versus last month’s 722 million bushels and last year’s 920 million bushels.  

This reduction was mainly attributable to lower production.  All wheat production was lowered to 1.531 million bushels versus last month’s 1.536 million bushels and last year’s 1.985 million bushels.  Hard red winter wheat, traded as Kansas City wheat futures, was lowered to 463 million bushels versus last month’s 471 million bushels and last year’s 804 million bushels.  The tighter US balance sheet for wheat has helped support wheat futures in recent weeks although the sharp escalation of the Black Sea conflict and port blockages is the leading bullish factor.  

The Russia-Ukraine war has begun to squarely focused on destroying one another’s export terminals as well as energy infrastructure.  All three of the Novorossiysk Black Sea terminals have now halted operations, which represents 75 percent of Russia’s capacity for that outlet.  In Thursday’s trade, an overnight spike from attacks was met with fast selling when the Ukraine proposed negotiations with Russia. By Friday morning, Russia had refused such discussions and the market surged, making highs above the brief, July 30^th highs and closing near that high.  On September KC wheat, $7.83 could be reachable.

Crude oil prices also rallied Friday with Iran tensions escalating and beginning to feel further from solvable.  

World ending stocks for corn, wheat and soybeans were slightly higher than expectations, but trade tensions and Black Sea export disruptions could continue to keep prices elevated given those supplies are not readily available.  

The feeling Friday was that wheat and corn, in particular, could continue to press higher unless we see a meaningful change in these factors driving the rally.  Remember, the bulls must continue to be fed with bullish information.  Managed funds are also beginning to shift longer in commodities as the US dollar weakens and more signs point towards another interest rate pause from the Fed on benign inflation readings despite being stubbornly above the 2.0 percent inflation target.  

A further surge in grain prices could add un-needed pressure to the livestock complex, but if we start seeing boxed beef prices climb and grains stall or hold even at these higher levels, I still think this cattle complex could find support at this lower edge of the range and rally.  

Sidwell Strategies is the one-stop shop to protect cattle with futures, puts, LRP or a combination of all, which is probably the best strategy overall.  If you’re ready to trade commodity markets, give me a call at (580) 232-2272 or stop by my office to get your account set up and discuss risk management and marketing solutions to pursue your objectives.  Self-trading accounts are also available.  It is never too late to start and there is no operation too small to get a risk management and marketing plan in place.  

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Brady Sidwell is a Series 3 Licensed Commodity Futures Broker and Principal of Sidwell Strategies.  Open your Trading Account with Sidwell Strategies at https://portal.stonex.com/prefill/index/BradySidwellU52F112P.  Contact us at (580) 232-2272 or at trade@sidwellstrategies.com.  

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