Positive Crop Ratings Impact Grain Markets; Tightening Cattle Supplies Continue

Positive indicators from the second week of August have applied pressure on the grains market, with improving drought conditions favoring the Corn Belt and hampering the northern Plains. Early in the week, the grain market exhibited mixed reactions, as escalating tensions between Ukraine and Russia boosted wheat prices, while improved weather forecasts led to steady corn prices and declining soybean prices.

However, the week showed a decline in the wheat market after an early surge, due to increased geopolitical tensions. In contrast, corn faced pressure from anticipated negative reports and improved weather conditions.

Recent economic data indicated a 3.3% Consumer Price Index (CPI) rise, hinting at potential inflation in specific economic sectors. Predictions for the 2023 corn production in Argentina anticipate a rebound to approximately 56 million metric tons, a substantial increase from this year’s 22 million metric tons. Simultaneously, soybean production is expected to surge from 28 million metric tons to 48 million.

Last week’s Drought Monitor Map reported improved conditions in the Corn Belt, with 49% of the U.S. corn crop and 43% of the soybean crop affected by drought. Unfortunately, the hard red spring wheat experienced an 8% increase in drought-affected areas.

In contrast, the third week of August began with mixed results, mainly influenced by the escalating war between Russia and Ukraine, with Russia firing warning shots in the Black Sea. However, the grains market took a hit following a positive Crop Progress report, revealing better-than-expected crop ratings. This resulted in significant declines in wheat and corn prices, while soybean prices remained comparatively stable.

On the cattle front, the second week of August witnessed a decline in prices, primarily attributed to profit-taking and hedge fund selling. Limited cattle supplies and expectations of further supply tightening will likely keep selling pressures in check. Year-to-date cattle imports have risen by 11%, with significant imports from Mexico and a decline from Canada. Market analysts now await the Pro Farmer Crop Tour’s insights, offering a closer look at crop potential.

In conclusion, while the grains market remains sensitive to various external factors, the cattle market continues to grapple with tightening supplies.