Grain Markets Retreat as Ceasefire Sparks Broad Profit-Taking

Sharply lower crude prices on a temporary ceasefire agreement between the US and Iran spilled over into the grain and soy markets for a day of sharply lower trade across the board. Although the US forecast did not dramatically change to a cooler and wetter US early August forecast and China was announced as a buyer of roughly 10 MBU of beans this morning, the markets saw massive selling from the funds after the recent sharp rallies. The cattle market was again pummeled by a slightly bearish Cattle on Feed report and the announcement of one border crossing with Mexico will start allowing Mexican cattle imports in August. There were no major developments in the Russia/Ukraine war regarding any reduction of targeting ships and ports which had been supporting prices, but today’s general weakness finally pushed wheat lower. The market continues to trade any ceasefire news as a major market force, but since the last several agreements have failed miserably, there is no reason to believe a long-term solution is imminent. US weather in August, Chinese demand and war developments continue to be the market driving forces with the funds still providing most of eh volume on the most volatile days.

News and Notes:

• Another few days of excessive Corn Belt heat will give way to more normal temperatures for early August but a wide soaking slow moving rain system across the entire Corn Belt is not forecast. Europe continues to see its 1000-year drought and heatwave burn up their crops with widespread wildfires in parts of Europe. Their crops are past the point of no return, so it is just about fine-tuning yield losses to find out just how much Europe will need to import to meet their internal demand.
• Since November beans were the biggest loser in today’s kneejerk reaction trade, we included the daily chart to highlight the small gap that will probably be a target for the technical traders in the next few days. The funds have held a surprisingly large long position since the spring and today’s sharp break and profit taking has been a feature several times during this cycle.
• The weekly crop conditions were expected to fall but corn fell a significant 4% to 63% G/E while beans fell more than expected to 63%. The recent heat and inconsistent nature of this year’s growing conditions are keeping stress and yield concern on this years crops. A continuation of the hot/dry for the Plains and WCB will keep pressure on those states ratings and if heat returns and moves east, this years crop conditions in early August could be the lowest since COVID.
• The cattle market has had a tough last few weeks as prices have tumbled as packers started to contract daily kill and refused to bid up once significant per head processing losses were realized. Longer feed times for cattle have raised carcass weight to somewhat offset the lower slaughter, but the border re-opening may prove to be the straw that breaks the 5-plus-year cattle bulls market.
• Please listen to the latest FieldLink podcast discussing mid-season applications to improve yield potential and a market review of the July crop report and all the events moving the markets.

The big moves on a small amount of news shows the edge everyone is on with so many factors in play. Healthy rallies have healthy breaks and today qualifies. How much further and how long this correction may last will depend on the daily news flow, but breaks like today offer good hedge opportunities for end users and feeders as the general landscape remains more supportive with details being ironed out for the Chinese trade summit in Washington in September and less than ideal US weather for enough places that a repeat of last year’s record yield is off the table and with other key northern hemisphere weather problems in Europe, China and India, it is too early to say the world losing over 1 BBU of production is fairly priced in at these levels.