Grain and hog markets were lower on Tuesday, with cattle futures mixed.
Grains Position Before Report
Grain markets ended lower on Tuesday with risk off technical selling ahead of the August WASDE and crop production report.
Rich Nelson with Allendale says there are plenty of questions regarding USDA’s numbers especially after last August’s yield and acreage shock.
USDA Methodology
Nelson says what USDA posts for yields is based on the crop as of Aug.1 and at the end of the July weather scenario the market was suggesting corn yields were slightly below trend.
“About 182 on corn and soybean yields we would have suggested at trend 53. However based on what I’m going to argue is a strong benefit for August weather. We would suggest we’re back up to corn yields, maybe 1% over trend. Soybean yields likely 2% to 3% over trend as well here.”
He says that is not based on crop conditions, solely weather data.
“So we track 26 different locations across the Midwest. And our main modeling for yield determination is with weather data. Though I do monitor crop ratings, I personally do not like to use them myself.”
What’s Priced In?
So with average trade guesses on yield at 182.4 bu. per acre on corn and 52.9 bu. per acre on soybeans, is that already priced into the market? Or what would it take in the report to create a market reaction?
Nelson says, “So I do think actually current prices on the corn side, we’re probably are trading in this case, maybe 184, 184.5 yield. So I am arguing that corn prices do have above trend yield factored in. Soybean prices at this point, this is determined by about a 2% yield increase over trend. So a 54.5, 54.8. So I would suggest current prices are trading themselves separate from USDA, higher than trend here.”
FSA Certified Acres
USDA will also incorporate the FSA certified acres into the balance sheets for the August WASDE.
Last year that resulted an over 2 million acre swing out of soybeans acres and into corn. So the trade has been leery of these number but Nelson says there is no way of knowing what those numbers will look like this year.
“And in most cases, we generally have a good grasp of these acreage changes going into these type of reports. In this case, after last year’s very surprising changes. Remember last year, they added 2.1 to corn acres. For soybeans, they took off 2.5 million. So after last year’s big surprises, I’m not quite sure anybody feels a high degree of confidence right now,” he explains.
Weather Since Aug. 1
Going into the report there has been some rain received in key areas of the Corn Belt. So has that improved the crop since the surveys were taken and will the East balance out the dry areas of the West?
“You know, we certainly will have some moderate yield concerns here from North Dakota down through Kansas. We’re not going to argue with that. There are some yield concerns there. However, in our point of view, based on the fact that when you model the weather across the entire Midwest, not just the western areas of the western Corn Belt, August has been quite beneficial.”
So Nelson thinks the crop has added to the yield in the last 10 days.
Corn, Soybean Technicals
December corn futures held above the 50-day moving average on Tuesday and for Nelson more importantly the 50% retracement mark of our entire recent summer rally.
He says, “So on that end, we haven’t broken it yet, but we are certainly flirting with it.”
November soybeans are displaying a much tougher chart pattern.
“We’ve broken all retracement levels, 51% or 50% of that prior rally, as well as 61.8%. So next stop for corn and soybeans, we do have some open intraday gaps just under our feet right here,” Nelson adds.
Wheat Falls on Possible Black Sea Deal
Wheat futures were sharply lower chasing war headlines with rumors Ukraine and Russia were in talks to to get export vessels through the Black Sea area.
However, Nelson says there was no official confirmation. “It’s something we’re talking about here, and certainly based on the prior war discussion here from just a few years ago. You would assume that both countries would try to work maybe for some common cause on this issue.”
He points out even with the export disruptions in the Black Sea the U.S. has not seen any sales develop.
“In fact, sales in recent weeks, 30% below the five year average pace. So a little concerned about the fact that. Even with positive news, we never really saw any U.S. sales here,” which he says has been disappointing.
Focus Moving Foward
After the USDA reports what will the market focus revert to?
Nelson says the strengthening El Nino will be one bullish factor among others.
“So once we get into September, we’ll have a focus on how much fertilizer Brazil will be using for the coming planting season of soybeans and then corn. As it stands right now, trade estimates range anywhere from 7% to 15% lower quantity applied as far as likely scenarios. On top of that, then once you get into October, November, the peak of El Nino, we’ll have a separate discussion regarding palm oil production.
Keep in mind, the most latest numbers for July, 1% below last year as far as production.”
He says the last factor is U.S. biofuel policy which many questioning if USDA has the right usage number for soybean oil plugged in especially with the RVO levels for biomass-based diesel in 2026 and 2027 nearly 60% over last year.
When combined with record crush pace and China back in the export market that could boost soybean prices.
“USDA currently has about 17.8 billion pounds of soybean oil usage lined up for this discussion. Our numbers modeled out are about 19
billion. So really, once you throw everything into the pot, so to speak, and you kind of mix things around, we are coming up with a supportive scenario once we get into the fourth quarter and first quarter up ahead here as well.”
That demand could eventually lower ending stocks on soybeans below 300 million bu. which he says should take November soybeans back up to about $12.30 but that won’t show up in Wednesday’s report. Nelson also pegs corn ending stocks around 1.725 billion bu. similar to trade guesses.
Live Cattle Hit Chart Resistance
Live cattle futures opened higher on Tuesday but nearby contracts ran into chart resistance, despite last week’s $2 higher cash.
What’s it going to take to get through those levels?
Nelson says it will be dependent on Labor Day beef procurement. “The past eight days, we’ve added about $9 to wholesale beef, which is positive. We have some questions on how much left is still ahead, though. Normal procurement goes until maybe peak around the 12th through the 24th. So in the next week and a half, we’ll probably peak this wholesale beef rally out. The question is what price we’ll peak out at. So I would suggest there’s a little concern right now in the grand scheme of things here.”
Lean Hogs Fail
Lean hog futures were higher the last two sessions on short covering but could not get through the next layer of chart resistance and failed.
Nelson says the lack of traction is a interesting. “We have seen the slaughter numbers cut in the past three to four weeks. Packers are doing downtime maintenance time here at this low time of year. We have seen this seasonal break in wholesale pork limited only $3 so far in recent days. So, it’s a positive issue for the short term we’re not quite sure that this is a long-term positive story though.”
He says on the seasonal side lean hog futures typically break futures until Aug. 24. So he thinks that will restart the down trend in the next few days.
The funds had been exiting their massive short position but could they reverse that?
Nelson says they will be watching that closely because the last major selloff by the funds lasted 14 straight weeks.
