Takeaway

The presenter argues that both the cattle and grain markets are experiencing extreme volatility from a unique confluence of major news events. The key takeaway for producers is to use current price levels in corn and soybeans to market their crops and lock in profits, given the market is in a much better state than was projected earlier in the year.

What the presenter said

• The market is being hit with an incredible amount of market-moving news in a short period, comparable only to the BSE event in 2003. [00:54]
• The US cattle herd has been small for a long time and is now at a 75-year low, a fact that has gone mainstream. [02:48, 03:08]
• Rebuilding the herd is a long process, complicated by drought limiting grass availability and record-high fat cattle prices incentivizing sending heifers to feedlots rather than retaining them for breeding. [04:03, 04:38, 04:44]
• A huge amount of speculative money has flowed into the cattle market, helping push futures to all-time highs. [06:01]
• While beef demand has been strong, the consumer is constrained, leading to a "hamburger economy" where cheaper grinds are favored over more expensive muscle cuts. [09:13, 09:17]
• The Pro Farmer Crop Tour confirmed yield issues from July's heat and dryness, but the presenter was surprised by how much ear counts were down, particularly in the eastern Corn Belt, South Dakota, and Nebraska. [10:26, 10:49]
• The speaker notes that satellite imagery doesn't capture these yield-reducing details, highlighting the importance of "ground truthing." [13:09]
• Soybean yields are very difficult to estimate in August and early September. [16:59]
• The biggest unknown for grains is how far speculative funds will extend their current record-long positions. [19:52]

Trade ideas

• Instrument: Corn and Soybean futures (specifically 2027 December corn, November soybeans).
• Direction: Neutral.
• Thesis: The presenter suggests farmers should know their own field conditions and what they have already sold, and use current price levels to take profitable opportunities. This is framed as a marketing decision, especially considering earlier projections that they would be underwater.
• Horizon: Unspecified.
• Conviction: Medium.

Levels and data cited

• Price Levels:
  • Corn: $5
  • Soybeans: $12, $13
• Data Cited:
  • Pro Farmer Crop Tour: Found "less than stellar" crop yields, with corn ear counts down significantly and grain length reduced. Soybean pod counts were also "down pretty significantly."
  • USDA: Reports the cattle herd size is at a 75-year low and recent fat cattle prices were at a record high. The August USDA survey for crop estimates relies mainly on farmer surveys and satellite imagery, with objective field data coming from September onwards.
  • Futures market: Showed speculative length in cattle recently reached all-time highs, and speculative length in grains is at record levels. Corn and soybean meal prices also hit recent contract highs.

Risks and what would invalidate this

• Geopolitical issues, particularly the Russia-Ukraine conflict and events in the Middle East, could impact global grain movement.
• El Niño weather patterns are an ongoing risk to crop production.
• High costs of production, especially fertilizer and diesel, affect farm profitability.
• A consumer shift deeper into a "hamburger economy" could negatively impact cattle prices for premium cuts.
• The market remains exposed to high volatility due to the large amount of speculative money in futures.
• Initial crop yield predictions based on satellite imagery can be inaccurate and require validation from ground truthing.