Evening Report | July 21, 2023

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Your Pro Farmer newsletter is now available... Russia pulled out of the Black Sea grain deal and immediately started air strikes on Ukraine’s Black Sea ports, which triggered supply concerns and fueled strong rallies in the corn and wheat markets. Soybeans surged amid forecasts calling for extreme heat and dryness during the final 10 days of July. Rallying markets are exciting but it’s imperative you don’t get caught watching without a plan. We have historical perspectives on summer corn and soybean rallies in “From the Bullpen” this week. Recent rains have helped improve the drought footprint and crop conditions a little, but the corn and soybean crops remain below average. The extended forecast suggests weather the remainder of the growing season will be generally favorable. On the ag policy front, there isn’t much confidence a new farm bill will get done by the Sept. 30 expiration of the current legislation – or by the end of this year. Economically, China continued to get downbeat data, but its central bank didn’t cut interest rates this month. While Chinese consumer confidence has rebounded a little from its 2022 low, there are no signs they are willing to spend their way out of the economic doldrums. We cover all these items and much more in this week’s newsletter, which you can access here.

World Weather: NWS August forecast may be too cool... In a special report, World Weather Inc. noted: “Thursday’s preliminary August outlook for the U.S. released by the U.S. National Weather Service may have been a little too cool in the Midwest. Cooling is expected during the month, but it is probably not going to be cool enough for a long enough period of time to bring average temperatures below normal in the western Corn and Soybean Belt for the entire month. The GFS and European Ensembles both keep the ridge of high pressure over the Rocky Mountains and the Great Plains during August. This orientation will bring opportunities for cooler air into the Midwest periodically, although the ridge axis will be close enough to the western Corn Belt periodically too keep temperatures a little warmer than usual – not cooler than usual. Both models suggest warmer than usual weather will occur more often than not especially in the western Midwest.”

Cattle Inventory Report: Cattle herd contracts more than expected... USDA estimated the U.S. cattle herd as of July 1 at 95.9 million head, down 2.7 million head (2.7%) from last year and 628,000 head less than the average pre-report estimate implied. That was a record low for the U.S. cattle herd dating back to the start of USDA’s data in 1990. Total cows and heifers calved stood at 38.8 million head, down 800,000 head (2.0%). All of that reduction was in beef cows, which fell to 29.4 million head. Dairy cows and heifers calved was unchanged at 9.4 million head. The 2023 calf crop is estimated at record low 33.8 million head, down 665,000 head (1.9%) from last year.

The smaller beef cow inventory along with a 100,000 head (2.4%) decline in beef replacement heifers signals the beef herd will continue to shrink.

Milk replacement heifers declined 100,000 head (2.7%) to 3.65 million head.

USDA estimated there were 13.1 million head of cattle in feedlots as of July 1, down 700,000 head (2.6%) from year-ago. With inventories of steers down 3.5%, other heifers down 5.2% and calves under 500 lbs. down 2.6%, feedlot inventories will continue to shrink.

Most of the categories were smaller than expected, which gives the report a bullish tone. But the underlying numbers are even more bullish and signal a run to new all-time highs in cattle futures will be coming.

Cattle on Feed Report: Marketings higher than expected... USDA estimated there were 11.204 million head of cattle in large feedlots (1,000-plus head) as of July 1, down 201,000 head (1.8%) from year-ago. June placements increased 2.7% from last year, while marketings declined 5.0%. As a result, the feedlot inventory didn’t drop quite as much as anticipated, but this still marked the 10^th consecutive month of year-over-year-declines.

Placements increased from year-ago levels in all of the weight categories except 8-weights (down 0.3%) and heavyweights (down 5.9%). Placements rose 6.4% in lightweights (under 600 lbs.), 1.9% in 6-weights, 2.7% in 7-weights and 5.7% in 9-weights. Kansas and Nebraska each increased placements 20,000 head during June, while “other states” rose 29,000 head. Placements declined 20,000 head in Texas and 5,000 head in Colorado.

The feedlot inventory consisted of 6.734 million steers, down 201,000 head (2.9%) and 4.47 million heifers, unchanged from year-ago.

While the placements number is negative, there’s nothing in this report that should cause sustained pressure on cattle futures, especially with the inventory data signaling beef supplies will continue to tighten.

Russia pushing plan to cut Ukraine out of global markets... Russian President Vladimir Putin suggested a plan where Qatar would foot the bill for Russia to send its grain to Turkey, which in turn would distribute it to “countries in need,” according to the Financial Times. This plan, however, has not yet been agreed upon by either Qatar or Turkey, or raised on a formal level. It is anticipated Russia will press for its proposal, which is similar to one it suggested last year, at the forthcoming summit with African leaders in St/ Petersburg and during Putin’s visit to Turkey in August.

This initiative from Russia may be unsettling for Kyiv and its western backers as it would solidify Russia's naval blockade of Ukraine's Black Sea ports, a significant economic channel for Ukraine.

Analysts say Russia’s motive for this indirect grain deal can be interpreted as an effort to display its power and to further pressure Kyiv, mostly by exporting grain from areas of Ukraine presently under Russian military control. They are packaging it as an altruistic move aimed at providing free grain for poorer countries to rally support globally and especially against western sanctions. However, there has been criticism and disappointment with the exit from the Black Sea agreement, particularly from African countries facing rising food costs since Russia’s invasion of Ukraine.

Financial Times says the situation presents a dilemma for certain African nations as they often seek assistance from both the U.S. and Russia for their economic and security issues.

Bill introduced on foreign ownership of U.S. farmland... Sens. Chuck Grassley (R-Iowa) and Tammy Baldwin (D-Wis.) introduced a new bipartisan bill, the Farmland Security Act of 2023, seeking to further boost transparency in foreign ownership of U.S. farmland. The legislation builds upon measures introduced by the same senators in the Farmland Security Act of 2022 and amendments to the 1978 Agricultural Foreign Investment Disclosure Act. This bill would require greater transparency for foreign purchases of U.S. ag land, impose stronger penalties for reporting non-compliance and mandate USDA to audit a minimum of 10% of foreign agricultural land ownership reports annually. The issue of foreign ownership is increasingly important as nearly half of U.S. ag land is owned by individuals aged 65 and over, and approximately 100 million acres are expected to change hands over the next decade due to retirement.

The measure necessitates a transition to a digital filing system and a public database on foreign ownership for researching ownership trends. It also requires the USDA to report on foreign investment impacts. The bill further emphasizes transparency, complete and accurate data collection, and greater understanding of foreign ownership.

The new legislation introduces stricter penalties for non-compliant foreign owners, or “shell companies,” by removing the current fee cap of 25% of land valuation, imposing a 100% land valuation fee for non-reporting shell companies unless corrected within 60 days of notification. It authorizes $2 million annually for administration as amended in the Agricultural Foreign Investment Disclosure Act.

Other stipulations include USDA research into foreign ownership of agricultural production capacity and foreign participation in U.S. agriculture, along with investigations into the use of “shell companies.” State and county-level staff would also be trained to identify non-reporting foreign-owned farmland.