Volatility. We’re talking about a lot of unexpected change this week, from the Tyson plant fire causing declines in the cattle market, to an unforeseen WASDE outcome.
USDA Reporting, Corn, Wheat, and Soybeans
The results of the August WASDE surprised the markets on Monday. Many pre-report discussions had corn acreage and yield down significantly. USDA resurveyed acres in several Midwestern and Great Plains states and included satellite imagery to produce an estimate of planted acres. The corn acreage from the July WASDE to the August WASDE did not end up declining as significantly as pre-report estimates assumed they would, and the market responded. CBOT DEC Corn fell 24.4 cents/bu (-5.85%) following the report release on Monday and did not stop declining through Thursday, reaching a bottom (so far) of $3.706/bu. The big number was an overall increase in ending stocks from 2,010 million bushels to 2,181 million bushels an 8.5% increase. It is apparent now that some of those acres that were planted to corn were lost in soybeans, as their acreage was down further than pre-report estimates expected.
Wheat prices also lost ground from a revision of increased yields from 50 to 51.6 BPA and an increase in ending stocks of 1.4%. KC HRW SEP Wheat fell 24.8 cents/bu Monday, likely pulled down with corn. Wednesday saw a slight reversal in the KC HRW SEP Wheat contract and by 10 am on Friday the price had picked up just over 7 cents to reach $3.90/bu. Trade data for the week (sales and shipments) overall were positive, providing a strengthening fundamental signal, but increasing the share exported would support price going into the fall.
August WASDE Balance Sheet for four Texas High Plains Crops
Tyson Fire, Cattle and Beef Markets
Volatility was also present in the cattle and beef markets this week caused by a fire at a Tyson processing plant near Holcomb, KS. The plant accounted for an estimated 6% of the daily fed cattle packing capacity according to the August 12 edition of the Daily Livestock Report. This fire has provided an example of the significance of the inelastic nature of beef processing capacity. As beef processors have an incentive to operate at full capacity, when a plant goes down there is not a lot of ‘slack’ left in the total processing space. The short-term solution is to increase the days per week that other plants process, i.e. adding Saturday production or extending already existing hours on Saturday. However, in the medium-term processing capacity has decreased by an amount approaching 6%, and while the price of beef has risen in response to this shock, it has not risen enough for other processors to build in new capacity.
What we have is situation where somewhere approaching 6% of the demand for fed cattle has disappeared while supply has remained equal, and somewhere approaching 6% of the supply of beef has disappeared while demand has remained equal. As a response, both Live Cattle and Feeder Cattle contracts opened and remained limit down on Monday. Most of the contracts closed at or close to limit down on Tuesday, with CME OCT Feeder Cattle turning to gain strength and rise above Monday’s open by Friday, but still well below Friday’s close.
Select Cattle Futures Contracts Change from Last Friday to This Friday
On the other side of the market, boxed beef prices skyrocketed on jitters around perceived lack of future supply. Choice boxed beef opened the week at $236.12/cwt. The choice weekly average cutout value for the week closing August 19 was $216.04/cwt. The choice weekly average cutout value for the current week as of 11 am and the morning report was $225.96/cwt, a 4.6% increase for the weekly average. The response to the supply decrease is tapering off as cattle are reshuffled among other processing plants adding days.
Upcoming Dates
August 19 – Crop Progress, NASS
August 23 – Cattle on Feed, NASS
August 21 – Deaf Smith County Agricultural Outlook – Wheat, Cotton, Livestock Outlook – Hereford, TX
August 21 – Briscoe County Agricultural Outlook – Wheat, Cotton, Corn, Livestock Outlook – Silverton, TX
August 27 – Randall County Crops Tour – Economic Issues of Hemp Production – Canyon, TX
In the News
BEEF – Tyson fire disrupts markets, supply chain
Farm Futures – African swine fever spreads further into Eastern Europe