The July WASDE and tropical storm (possibly hurricane) Barry were points of interest this week. Wheat and corn saw rallies, and there was positive movement in the livestock contracts as well as local cash markets.
WASDE
The July WASDE came out yesterday, July 12, and provided what amounted to bearish news for corn and bullish news for wheat, although movement in wheat contracts ended up carrying over into strength for corn.
Wheat use and exports were all up, while beginning stocks were revised down, leading to a 6.7% decline in ending stocks. Average farm price was also revised up one cent to $5.20. Corn yield remained at 166 bpa and acreage was unchanged from the June ‘Acreage’ report but revised up from the previous WASDE. Those signals led to an initial decline in the DEC Corn contract but price rebounded shortly after, following wheat up around $0.20/bu to close out the week. DEC Corn is resting on new technical support, the 18 day moving average and the center of the Bollinger Band, at approximately $4.48/bu.
The outlook for cotton is largely unchanged. Globally, India, Australia, and Chinese carryout are all increased adding to global supply. U.S. supply was increased over the June estimate, however Tropical Storm Barry might lead to a readjustment if it causes significant damage to cotton stands in the Southeast. Either way, expectations around price are not particularly positive with little change expected from current levels around $0.60/lb. Most of the cotton in Texas (which accounts for approximately 52% of U.S. planted acres) is from 2-3 weeks behind, and a majority of the state’s cotton was rated very poor to fair in Monday’s ‘Crop Progress‘ report.
Cattle
Feeder steers and heifer price at local sales was up over the previous sale anywhere from 2-10 higher. The chart below shows average price in Tulia, Dalhart, and Amarillo for Medium and Large No. 1 Steers as of July 12. Local price increases week over week were likely a result of increases in contract value over the week, with nearby feeders and live climbing on Tuesday and Monday, respectively.
The forecast for increasingly hot and dry weather, creates a two-fold signal for a change in direction next week. First, excessively hot conditions tend to decrease demand and second, feeders are trying to move animals more quickly to avoid decreasing gains from heat stress, meaning they accept lower price on the live side. Technical indicators (in this case the stochastics and moving averages) are also showing that the nearby feeder and live contracts are overbought, signaling the possibility of a corrective downward move next week. Support is in the neighborhood of $132/cwt.
Barry
All eyes are on Louisiana as Tropical Storm (potentially Hurricane) Barry moves closer to shore. New Orleans has already been inundated with rain over the last few days and the pumping/levee system is working optimally at this point according to the New Orleans mayor.
With the potential for up to 25″ inches of rain reported in the lower Louisiana area, there is a chance that those flood prevention systems will not hold. This has significant implications for movement of commodities up and down the Mississippi river. Trade has already been challenged this year from excessive rainfall in the upper Midwest; now the port of New Orleans may be facing a temporary closure backing up the movement of corn and soybeans down the river and out.
In addition to causing lock-ups in transportation, Barry has the potential to move the needle on cotton production. While approximately 52% of the planted cotton acreage is in Texas, another 15% is in the path of the storm. Mississippi in particular is forecast to receive anywhere from 3-12″ of rain throughout the state over the next few days. Mississippi planted acreage accounts for approximately 5% of the U.S. cotton acres.
Finally, the path of Barry has the potential to provide some moisture into the Midwest. Forecasts over the next few weeks had been for drying conditions on the updated ENSO-neutral status.
Macro Markets
There were several significant milestones in the stock market this week, all tied to Fed Chair Jerome Powell’s capital hill testimony. During the hearings, Powell provided strong indications that the Federal Reserve would cut interest rates at its July 30-31 meeting. This, along with a cool-down of hostilities between China and the U.S., led to the S&P hitting 3,000 and the DOW breaking 27,000 for the first time ever.
Important Dates:
July 15 – Crop Progress, NASS
July 16 – Season Average Price Forecast, ERS
July 19 – July 1 Cattle Inventory, NASS
July 19 – Cattle on Feed, NASS
July 30-31, Meeting of the Federal Reserve
In the News:
WSJ – Deflation Stalks Chinese Industry Again
ABC – Tropical Storm Barry could bring 2 feet of rain, disastrous flooding to Louisiana
NYT – Fed Chair Powell Signals Rate Cut as Economic Risks Loom
Feedstuffs – Cotton byproduct may fit in feedlot diets