Morning Commentary

Dec corn up 6 ½  at $3.515

Nov beans up 7 ¾ at $9.135

The DOW is up

USD is weaker

Crude oil up $.34 at $42.96

Good morning,

Corn bulls are happy to see the USDA slash the national weekly crop-condition rating by -5% down to 64% now rated GD/EX. Obviously, the big drag came from the crop rating in Iowa being lowered by -9% to now just 50% rated GD/EX vs. 65% last year. Coupled with the heat, the demand for gold, and we have the makings of a bull market. The trend for Dec corn is positive. A close over 346.5 is bullish for a run towards 360. Closing under 335.5 alerts for a correction. Based on the trade count, funds are thought to be short 118,000 corn.

The impact to crop production from the derecho wind event earlier this month has drawn a wide range of estimates. Kent Beadle with CHS Hedging narrowed his focus to 22 counties in Iowa that he believes sustained the most damage to develop an extreme, moderate, and conservative projection. “I did that after talking with my associates that are working in (Iowa), clients we have working in the state, and then also with growers who have had wind damage in the past and what the yield results were.” His most extreme assessment in those 22 counties was a loss of about 410 million bushels of corn. “With my more conservative estimate in about the 225 million-bushel loss. And not surprisingly, the middle-of-the-road estimate was in the mid 300 million-bushel loss.” Beadle tells Brownfield while the damage is significant, his conservative estimate would essentially displace the increase in yield seen in USDA’s latest supply and demand report.(Brownfield Ag)

Soybean  traders, similar to corn, are trying to figure out U.S. yield and total production. The USDA dropped the weekly crop condition rating -3% this week down to 69% rated GD/EX. Interestingly, both Michigan and South Dakota conditions were lowered by -10% in each state. The Iowa crop was lowered -6% and now stands at 56% rated GD/EX vs. 62% last year. The trend for Nov beans is positive. Stable action over 912.25 encourages a run to 924.75. Closing below 898.75 warns of a correction. Based on the trade count, funds are thought to be long 60,000 beans.

Cattle markets continue to trend higher in both the cash and futures markets. The overall feel of the market remains very quiet in light of the firmer action. Friday’s Cattle on Feed report was released and somewhat surprisingly showed a July placement number 111% above last year and still record numbers of cattle on feed. The southern feeding regions continue to hold a massive number of cattle on feed with the north being on the smaller side of historical levels. The weight classes of cattle being placed did see an uptick of lighter calves but the majority remains heavier yearling types that will keep the market front end loaded to an extent. Moving on to cash markets, this past week saw another jump in total volume traded as well as price. The national average live steer brought 106.66/CWT versus 105.11/CWT last week and 169.31/CWT dressed versus 168.00/CWT. Basis has improved against the AUG20 LC contract and with today’s break we would assume we could return the basis to a positive number this week. Spot beef markets added another 11.00/CWT last week and are starting off on a firm tone this week. Interestingly, the main drivers of the beef cutout are higher quality middle meats in the face of food service disruptions. Comprehensive beef report was released today and printed a 7.20/CWT rise in price with a 4% increase in total volume and 29% jump in forward sales. Export sales have underperformed in the short term after seeing incredible movement through early August. Futures markets have trended nicely higher thus far and are experiencing some technical weakness as of late. This technical momentum combined with fear that cash is potentially reaching a near term top has some feeling anxious about the cash markets near term direction. As we write, there are reports of a few thousand cattle trading in the south at 105.00/CWT. There are, as always, many headwinds and factors that can support both the bull and bear thesis. There is no doubt the broader supply story is seemingly negative. Also, the strong demand picture setup by domestic consumption, exports and packing profitability is for sure compelling. Maintaining a healthy perspective based in reality will be important in navigating the market going forward. Wise business decisions and acknowledging risk is imperative. Otherwise, we could end up like Dwight Yoakam…guitars, Cadillacs, hillbilly music; is the only thing that keeps me hanging on. Trey Warnock – Amarillo Brokerage Company

USDA’s Cold Storage report showed total red meat supplies in freezers were up +1% from the previous month but down -15% from last year. Total pounds of beef in freezers were up +3% from the previous month but down -3% from last year. Frozen pork supplies were down slightly from the previous month and down -25% from last year. Stocks of pork bellies were down -21% from last month and down -20% from last year. Total frozen poultry supplies on July 31, 2020 were up +4% from the previous month but down slightly from a year ago. Total stocks of chicken were up +1% from the previous month and up +3% from last year. Total pounds of turkey in freezers were up +10% from last month but down -6% from July 31, 2019.

Loopholes remain, but the USDA is tightening its crop subsidy rules by limiting who can collect a payment for managing a farm, historically one of its most porous definitions. The new regulation requires people to perform at least 500 hours of management or at least 25% of the management work required annually to merit a subsidy check, which some call “a very major advancement.” Previously, the USDA standard was active personal management that was crucial to the profitability of the farming operation. Crop subsidy recipients can collect up to $125,000 apiece, with spouses automatically eligible for payments. Iowa Sen. Chuck Grassley, who says farm supports should be directed to working farmers and family-size farming operations, fought for a limit of one “manager” per farm in the 2018 farm law.


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