Evening Report | July 23, 2021

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Your Pro Farmer newsletter is now available… Status-quo weather is likely for the Corn Belt through next week, with dryness persisting for the northwest Corn Belt and Northern Plains but favorable conditions continuing for most other areas of the Corn Belt. News Page 4 takes a closer look at state-by-state crop ratings and soil moisture. Also of note this week, cold storage data signals strong demand continues for beef. And an infrastructure vote could come next week. Find more on these topics, the Member-favorite crop comments and market-by-market analysis in this week’s newsletter. Access it here.

 

Barge rates signal big grain shipments… The three-month barge rate on the Illinois River is screaming higher, indicating an expected surge in grain shipments. An industry source tells us, “Although there are plenty of covered barges, river elevators really feel the need to lock in rates. This is typically a sign of forward export sales. What we don’t know is if the forward sales are part of a huge program or a high percentage of exports are already forward sold. This throws cold water on the large cancellations theory.”

 

Food prices still rising, especially at restaurants… The U.S. Consumer Price Index (CPI) climbed 0.9 points from May to June, with the gauge of economy-wide inflation now up 5.4% from year-ago, USDA’s Economic Research Service (ERS) reports. The CPI for all food rose 0.7 points from May to June (before seasonal adjustment), with food prices now up 2.4% from June 2020 levels.

The food-away-from-home CPI rose 0.7 points during June, with restaurant prices now up 4.2% from year-ago, ERS says. It reports the food-at-home CPI also climbed 0.7 points from May to June to stand 0.9% above year-ago levels. Halfway into 2021, food-at-home prices have climbed an average of 1.6% from year-ago and food-away-from-home prices have jumped an average of 2.8%. All-food prices have climbed an average of 2.1% through June. ERS details that the fresh fruits category has seen the largest relative price increase at 5.0%, while fresh vegetables have climbed the least at 0.4%.

In 2021, ERS expects food-at-home prices to increase between 2.0% and 3.0%, and food-away-from-home prices to rise between 3.0% and 4.0%. In 2022, the agency expects food-at-home prices to increase between 1.5% and 2.5% and food-away-from-home prices to increase between 3.0% and 4.0%. These forecasts are in line with ERS’s outlook last month.

For comparison, food-at-home prices climbed 3.5% in 2020 and food-away-from-home prices rose 3.4%, which handily topped the 20-year average for a 2.0% increase in grocery store items and a 2.8% rise in restaurant purchases.

 

Median U.S. home price has never been higher… In June, the median existing-home price rose to $363,300, up 23.4% from a year earlier, a record high that reflects continued strong demand. While the housing-market boom is easing slightly, 5.86 million existing homes were sold in June, up 23% from the year prior. The rising prices are prompting homeowners to list their homes with many selling above their asking price, and quickly. The typical home sold in June was on the market for 17 days, holding at a record low.

 

Cattle on Feed Report: Neutral/mildly friendly compared with expectations… USDA estimates there were 11.29 million head of cattle in large feedlots (1,000-plus head) as of July 1, down 148,000 head (1.3%) versus year-ago and just 34,000 head less than the average pre-report estimate implied. The number of calves placed into feedlots last month fell 7.1% from last year and 4.9% from two years ago. June marketings rose 2.7% compared with last year and 3.6% from two years ago.

Cattle on Feed

USDA

(% of year-ago)

Avg. Trade Estimate

(% of year-ago)

On Feed on July 1

98.7

99.0

Placements in June

92.9

95.9

Marketings in June

102.7

102.1

 

Placements fell sharply in the two lightest categories relative to year-ago, with lightweights (under 600 lbs.) down 19.8% and 6-weights down 16.1%. Placements also dropped 1.9% for 8-weights and 2.5% for 9-weights. Feedlots placed 4.2% more 7-weight calves and 5.9% more heavyweight cattle (1,000-plus lbs.) compared with year-ago. Of the top four cattle finishing states, only Kansas placed more animals on feed in June than last year.

The number of steers on feed as of July 1 totaled 6.975 million head, down 0.8% versus last year. The number of heifers in feedlots was 4.315 million head, down 2.0% from July 2020.

 

Supportive cattle inventory report… In its biannual Cattle Report issued today, USDA estimated the July 1 U.S. cattle population at 100.9 million head, down 1.3 million head, or 1.3%, from year-ago The average of pre-report estimates at 99.5% of last year meant the industry was expecting a figure around 101.7 million head. Given the sizable disparity between the numbers, we should probably expect a modestly positive market reaction Monday morning, although cattle futures often react more significantly to the concurrently released Cattle on Feed report. Ultimately, the report is generally of more interest to analysts looking farther forward than to the market. The overall herd reduction continued the downtrend begun in early 2019 and implied the liquidation has accelerated in early 2021.

The midyear cow herd was stated at 40.9 million head, down 500,000 from last July, with that decline easily topping the 200,000-head annual losses seen over the past two years. Again, this indicates the herd liquidation phase the industry has accelerated, which in turn suggests the reductions will continue for another year or two. The drop in the total cow herd partially disguised cutbacks in the beef sector, where the cow population fell 650,000 head, or 2.0%, to 31.4 million head; the dairy cow population rose 150,000 to 9.5 million head.

USDA analysts predicted the 2021 U.S. calf crop will total 35.1 million head, down just 35,500 (0.1%) from last year’s total. That topped the average industry estimate near 35 million by 100,000. Given the limited reduction in overall cow numbers stated in the January Cattle report, the slight reduction wasn’t terribly shocking.

Producers indicated they were holding back 8.40 million heifers (4.30 million beef and 4.10 million dairy) to join the cow herd in the coming months. The beef heifer retention figure fell short of industry estimates averaging 4.35 million head, so it suggests producers are trimming herds somewhat more aggressively than previously thought. However, that moderate surprise was offset by the dairy heifer retention figure, since it rose by 100,000 and completely offset the beef reduction.

Another figure the industry watches for clues about the longer-term trend in the overall cattle population is the “bulls 500 pounds and over” figure. It came in at 2.100 million head, unchanged from last year. Traders were expecting a slight drop to around 2.075 million head.

Given the results for the ‘steers 500 pounds and over’ and ‘other heifers’ categories at 14.5 million (down 200,000 annually and 7.6 million head (down 200,000), respectively, as well as the U.S. Cattle on Feed total at 13.4 million (down 200,000 from last year as well), these numbers imply the number of feeder cattle outside feedlots fell to 8.7 million head from 8.9 million in July 2020. This seems moderately supportive of feeder cattle futures, but don’t be surprised if Monday’s corn market action doesn’t overshadow this report in the minds of feeder cattle traders.

Ultimately, it’s clear the liquidation phase of the domestic beef cattle cycle accelerated during the past year, but its impact was at least partially offset by the growth in the dairy sector. The supportive results of the data may amplify the modestly bullish numbers posted in the Cattle on Feed report.

Cattle Inventory

USDA
(Percent of year-ago)

Average Estimate
(Percent of year-ago)

All cattle/calves (July 1)

98.7

99.5

Cow/heifers that have calved

98.8

99.3

  Beef cows

98.0

98.9

  Dairy cows

101.6

101.0

Heifers 500 lbs.+

98.8

99.6

Beef heifer replacements

97.7

99.0

Dairy heifer replacements

102.5

100.1

Other heifers

97.4

99.8

Steers 500 lbs.+

98.6

99.6

Bulls 500 lbs.+

100.0

98.8

All calves 500 lbs. and under

98.6

99.5

Calf crop

99.9

99.6

 

 

Odds grow for Senate next week clearing first of two infrastructure measures... At least 11 Republicans say they will vote for the $579 billion (new funding) physical infrastructure deal ($1.2 trillion total) after agreeing to pay for it in part by delaying a costly Trump-era Medicare regulation, but they don’t expect to announce details until at least Monday. Any deal could still face resistance from Democrats on both sides of the Capitol, making the prospects uncertain as a bipartisan group of 22 senators work out the final sticking points. Lawmakers are also still debating how to pay for the spending increases.

 

High-level U.S. official visiting China… Hints of a summit between President Joe Biden and Chinese President Xi Jinping could come this weekend when the State Department’s No. 2 official, Wendy Sherman, travels to China for the first face-to-face meeting of senior officials in more than three months. Sherman’s two-day visit is in part an attempt to manage the difficult relationship and may pave the way for higher level interactions, including a possible Biden/Xi summit during the meeting of the Group of 20 leading economies in October.

 

Former Representative Finkenauer seeking Grassley’s Iowa Senate seat... Abby Finkenauer announced Thursday that she’ll run in 2022 for the U.S. Senate in Iowa, a seat currently held by seven-term incumbent Sen. Chuck Grassley (R).” Axios notes that Grassley, who “has not yet said whether he will run for re-election,” has “won more than 60% of the vote in each of his last six Senate races.” The Associated Press says Finkenauer, “despite losing her House seat in 2020 after one term, remains a youthful prospect in the Iowa Democratic Party, which has struggled to produce a new generation for statewide office.”

 

Biden hits Cuba with more sanctions... The Biden administration on Thursday announced a new round of sanctions against the besieged Cuban government for its violent crackdown on demonstrators, blacklisting the defense minister and a paramilitary police force. The sanctions targeted specific members of the island’s authoritarian government who were deemed responsible for the repression of protesters demanding more freedom, food and healthcare. Hundreds have been beaten or arrested, human rights activists say. The measures come as President Biden faces mounting criticism from hard-liners in both political parties in Congress seeking stronger retaliation against Cuban President Miguel Díaz-Canel and his associates.

In a statement, Biden warned that the move was “just the beginning” and that the United States “will continue to sanction individuals responsible for oppression of the Cuban people.” Cuban Foreign Minister Bruno Rodriguez called the sanctions “unfounded and slanderous” and urged the United States to reflect on its own “systematic repression and police brutality.”

 

Market Watch… Our Market Watch table features monthly and quarterly price outlooks along with weekly prices for a variety of ag markets. Check it out.

 

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