Morning Commentary

Sept corn down 3 ½ at $3.215

Nov beans down 11 ¾ at $8.88

The DOW is down

USD is stronger

Crude oil down $.16 at $41.44

Good morning,

Corn traders continue to debate very cooperative U.S. weather vs. what appears to be a more friendly and bullish landscape for commodities i.e. lower U.S. dollar, all-time highs in gold, a big rally in silver, copper, lumber, etc. Bulls want to argue that the Chinese have been buying and the overall macro landscape has finally improved on fear of future inflation and weakness in the greenback. Keep in mind, Chinese corn just traded to all-time highs and beyond levels seen back in January 2007. Bears simply point to the burdensome U.S. balance sheet fundamentals, weaker demand in ethanol, more U.S. acres, and now very real potential for record yield. The USDA’s weekly crop conditions report is confirming the +180 yield argument with the Good-to-Excellent rating jumping +13% from 69% to 72%.  The trend for Dec corn is negative. If we break $3.30, the market is vulnerable to a drop to $3.22.

Soybean traders, similar to corn, are debating improved and very cooperative U.S. weather vs. the improved macro landscape for commodities and continued Chinese buying interest. Keep in mind, we have seen ten consecutive days of the USDA reporting export sales, yesterday it was to both China and Mexico. Bears are quick to point to U.S. weather helping to producer perhaps a record yield. The USDA showed a +3% jump in weekly conditions from 69% to 72% rated Good-to-Excellent vs. just 54% last year.  The trend for Nov beans is neutral-positive.  Stable action outside $8.33-$8.97 is needed to provide fresh trending targets.  Closing under $8.8375 cautions for a correction.

Cattle prices failed to follow through yesterday after opening strong on a combination of optimism surrounding cattle on feed (COF), inventory (INV), and firming cash markets. Relative to the reports, COF was generally speaking a non-event. The pre-report estimates came very close to pegging the actual USDA data. The standout would be the placement number and weight of cattle being placed. The average guess for placements was 104% of last year and the actual estimate was reported as 102%, keeping in mind the range of guesses was 100-108%. There was a fairly large uptick in cattle under 600 lbs. placed is 112% of last year and 119% of their 5-year average. INV report was very vanilla at face value but seeing the end of the expansion cycle as evidenced by fewer beef cow numbers and stagnant heifer retention. The point that possibly received the most attention and scrutiny is the number of cattle outside of feedyards. The supply of these outside cattle was expected to be much larger than a year ago due to sluggish placements and seemingly many cattle being held out on grass. The USDA estimate of these cattle was reported to be only 300k hd above a year ago. Now, a few things to keep in mind are these reports have errors in them just like any other analyst or analysis including that of those in shock over the results themselves. Additionally, the government does routinely adjust data from historical reports after the fact. Finally, this report is technically representative of the entire industry as opposed to the cattle on feed report that represents data only from yards larger than 1000 head. This matters for a few reasons…take for example the cattle on feed number reported in COF was 11.3 million hd, while the INV reports it as 13.6 mil hd. Feedyards with more than 1000 hd made up 84% of the total cattle on feed for July 1 and this is slightly smaller than last year. As we expand the reach and utilize extrapolation, we certainly introduce more errors and smaller operators indeed have more diversity in terms of operation style. Long story short, we realize the number appears to be off. Maybe it’s wrong and maybe we are under-reporting placements (shocking I know). Either way, I think we have all seen more than a few instances where the government reports do not necessarily seem to track what we perceive as reality. Fundamentals continue to firm in most areas. Cash traded approximately 1.00/CWT higher on much larger volume out of southern yards. Open interest is moving higher and it is assumed the non-commercial trader is the aggressor. Some commercial hedgers are beginning to move into the market as nearby purchases are presenting the opportunity and some are finding it necessary to hedge against the unknown as we battle health crises and financial uncertainty. Beef markets are hovering in the 200.00/CWT area and are expected to do the same this week. Show lists for cattle to be sold this week was smaller yet remain robust. The massive build-up in formula numbers is being attenuated and the southern list seems to be normalizing in relationship to northern numbers. Keep the main thing, the main thing. Move towards things that work and away from things that do not. Trey Warnock – Amarillo Brokerage Company

The USDA confirms there will be a third round of the Farmers to Families Food Box Program.  Ag Secretary Sonny Perdue says the next round of purchases and distributions will start September 1st and wrap up by October 31st, and he says this round will spend the balance of the three-billion dollars authorized for the program. USDA again plans to purchase combination boxes of fresh produce, dairy products, fluid milk, and meat products for distribution to families. The second round of the food box program is already underway and concludes August 31st with a target of supplying 1.4 billion dollars’ worth of food to American families. (Source: Brownfield)

Farmland values held steady in the first half of 2020 in the corn belt states served by Farm Credit Services of America (FCSAmerica). Stable demand for farm ground and low interest rates helped to support values amid the broader economic disruption of the COVID-19 pandemic. “There still is liquidity in agriculture, and those who can afford it are looking for real estate,” says Tim Koch, executive vice president and chief credit officer at FCSAmerica. In Iowa and Wyoming, benchmark farmland values increased 0.3% in the first six months of 2020. Nebraska experienced a decline of -0.4%, while South Dakota saw a larger but still modest drop of -2.0%. Koch said overall declines in real estate values in Nebraska and South Dakota were at least partially influenced by broader declines in pastureland values of 4.0% and 4.7%, respectively. South Dakota also is seeing residual impact from last year’s flooding. On the whole, however, values continue to benefit from many of the same factors that have supported the market for the past few years, Koch said.


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