Bullish Corn versus Bullish Cattle-on-Feed fight for dominance

Howdy market watchers! 

The best kind of rain is when you need it urgently and least expect it!  That was the case this week in the Southern Plains with a couple surprise and meaningful showers amid 100+ degree temperatures that have hung around for weeks. However, it is August after all and so should we expect different?  Having said that, the intense and relentless heat this year has felt more intense than other August heatwaves and the number of cattle perishing in the feedyards should be enough proof of such.  

The US drought monitor continues getting deeper and darker red in many areas, particularly those areas where winter wheat will soon be planted in hopes of wheat pasture for cattle.  

While the next month looks set to remain warmer than normal, the 3-month stretch from October to December turns wetter than normal for the Southern Plains with temperatures in line with normal conditions.  

This is the El Nino playing out that we keep hearing about.  This is good news for fall planted crops as we get later in the year.  That is a welcome forecast for those with intentions to plant winter wheat, especially as the price moves higher with the July 2027 KC wheat futures making a new high at $7.96 ¼ on Thursday and closing the week at $7.86.  

While fertilizer prices are pushing higher and diesel prices double what they were last year, there is money to be made at these levels. The question I’ve been getting from all of my clients this week is will it last?  The current rally in wheat and corn is counter seasonal, but the ongoing conflicts in the Black Sea and the Hormuz Strait are also atypical, to say the least.  KC wheat is at a double-top around where we were on July 24^th.  The breakout higher above the double top in December corn futures on Friday should continue to support the wheat market if it continues higher.  

Profarmer’s annual crop tour national yield estimates released Friday afternoon added bullish sentiment to the rally with corn yields being pegged at 173.2 bushels per acre (bpa) and production at 15.344 billion bushels versus USDA’s most recent 180.7 bpa and total production of 16.013 billion bushels.  With strong US corn exports and a large, 205,000 metric ton sale to an unknown destination on Friday, there is likely room for this corn market to trade higher.  Severe flooding in many areas of the I-states could also eliminate an unknown number of corn acres, which will not be truly realized until harvest.  

The $5.20 area on December corn could be the next target after Friday’s close at $5.08 ¼.  While corn will support the grain complex, the wheat market is very dependent on continued Black Sea tensions that are blocking exports.  The grain is there, but the ports are damaged and offline.  In fact, one would think with the major grain ports in the Black Sea offline, that wheat prices would be higher.  The extent of the damage is undetermined, but any “deal” to reopen the ports and halt attacks could bring about a quick headwind for the wheat complex.  

For soybeans, the dynamics are slightly different.  While China has been continually buying US soybeans ahead of President Xi’s visit to the US starting September 24^th, the fundamentals vary.  

Profarmer’s crop tour pegged US soybean yields at 53.3 bpa and total production at 4.572 billion bushels versus USDA’s recent 52.7 bpa and total production of 4.519 billion bushels.  Soybeans are made in August and parts of the Midwest have received rain with more on the way.  However, the soybeans in the Southern Plains have been baking in the intense heat and hopefully we will get some cooler temperatures for pods to fill.  

US corn and soybean crop conditions slipped one percentage point this last week from the week prior and providing underlying support to price action.  

The Kansas City Fed’s Jackson Hole Symposium starts next week and the market will be anticipating comments from Fed Chair Warsh who has says much less than the market would like.  In fact, there has been discussion of reducing the number of FOMC meetings each year as well as pre- and post-meeting commentary.  With expectations for an interest rate hike this week subsiding based on weaker data and the US fiscal situation, the US dollar plunged as alternative safe haven assets were sought.  A weaker US dollar supports the commodity complex, which we particularly saw in metals, but also supported grains and energy.  

Higher grains are and have been a headwind for the livestock complex and have continued to pressure cattle lower.  Just as there are a number of bullish factors supporting grains, there have been numerous, back-to-back factors pressuring cattle lower.  

That all came to a head on Thursday when it looked like enough was enough with a purge lower followed by a strong close. However, there just had to be one more insult with President Trump’s social media post on Friday morning that said a deal was made to waive the out-of-quota tariffs on ground beef for 90-days to allow 300,000 metric tons to be imported to the US to lower beef prices. Link to story by CNBC: Trump to allow ground beef import without tariff

The market did not take that kindly and purged lower on the Friday open creating a large chart gap.  This was also the session before the US-Mexico border is scheduled to reopen on Monday.  However, such additional negativity began to simmer with cattle markets fighting well off the lows and fed cattle cash trade restarting at $223, then $225 and finally reaching $226 on Friday.  

Rumors began to swirl that a case of the new world screw worm near the scheduled border opening could result in the opening being postponed.  At the time of this writing, we have not heard such and probably won’t until Monday.  Such decision would likely give a healthy boost to the cattle market that lost $60.70 on March feeders from the June 25^th high to Friday’s low.  January feeder futures touched $300.00 exactly before closing the session above $307.00.  

This was all before the release of the USDA Cattle-on-Feed report at 2 PM, after the close. While lower placements were expected, July placements came in even lower than expected at 89.0 percent versus last year with expectations at 93.5 percent.  August 1^st on-feed came in at 102.2 percent versus 102.5 percent expected.  Marketings were right in line with expectations at 92.5 percent.  

Higher corn prices can be a headwind, but there are a number of factors lining up for a rebound in the cattle complex.  I realize there is a lot of nervousness out there as this recent selloff has been fairly fast and relentless.  However, the fundamentals remain intact and the best news of all is that boxed beef prices are surging higher.  

The news of the Tyson plant closures were a shock to the market, but Cargill Fort Morgan (Teamsters members approve contract, end three-month lockout at Colorado beef plant) will soon reopen and we should find some stability return to this market.  I would advise to see if we can, in fact, bounce out of this area and get back to the key moving averages and back to the bottom of the trading range soon.  Stay tuned for news over the weekend and early Monday regarding the reopening of the Mexican border.  

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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