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Market Briefs | August 12, 2022

USDA’s semi-annual Cattle Inventory report confirmed what many have known for weeks. The severe drought plaguing the U.S. Plains and West, along with high grain prices, has resulted in herd liquidation. This is the third consecutive year the July 1 inventory report has shown a smaller herd than the year before. In 2022, the herd was 98% of the 2021 herd, pegged at 98.8 million head, down 2 million head from last year. This is the first year since 2015 that the herd is below 100 million head. The beef cow herd was pegged at 97.7% of the year ago total at 30.35 million head. That is the smallest beef cow herd since 2014. Heifers retained for beef cow replacement were estimated to be only 96.5% of a year earlier. At 4.15 million head, it’s the lowest total since USDA began reporting the count in 1998. Feeder cattle supplies are also smaller than a year ago, with supplies out of feedlots pegged at 35.7 million head, down 2.7% from last year. The dairy cow herd was 99.5% of last year’s total. And finally, USDA predicted the 2022 calf crop will be down 1.4% from last year at 34.6 million head, the smallest since 2015. The report has provided some support for futures, but overhead resistance is capping the market for now. The crop conditions report for the week ending August 7 says 10% of Arkansas’ pastures are in good condition. None are in excellent condition. 61% are in poor to very poor condition. Technically futures are trending higher. The October contract is testing resistance at $145.50.

Hog futures are trending higher, supported by tight hog supplies and strong domestic pork demand. Wholesale pork prices remain strong, but export demand is weak, limiting the upside potential of the market for the time being. The composite pork cutout set a new high for the year last week before turning lower. Packer margins are poor but expected to improve as supplies usually increase into the fall. The October contract set a new contract high this week at $101.65.

Rice futures are technically still trending higher, despite moving a bit lower after finding resistance at $17.30 in the September contract. Key support is at $16. Concern about the drought impacting the domestic crop is providing support. A lack of rain in India and floods in Bangladesh have impacted the crops there, too. Export demand is weak, however. USDA reported net sales of only 4,000 metric tons for old crop and new crop combined last week. Shipments of 25,300 metric tons were down 33% from the 4-week average. 74% of the crop is rated good to excellent. However, as the cost of production continues to soar, Texas A&M economist Joe Outlaw projects many rice farmers will face negative net cash farm income in 2022.

Soybean futures have been on a wild ride in recent weeks. After November set a new seven-month low last month, the market rallied and we put nearly $2 back on the market in just a few days. Trading volume has been light and that contributes to big moves in the market. Weather continues to be a critical factor in the markets. USDA’s weekly crop progress report rated 59% of the crop good to excellent. The recent high of $14.89 will be resistance for November, with support near $13.

The corn market is also focused on weather. 63% of the crop remains in good to excellent condition and beneficial rains in the Midwest have eased crop worries for now. Exports for the week ended August 4 came in at 15.1 million bushels, near the bottom of the range of trade guesses. There is clearly defined support at $5.60 and resistance at $6.60. It is likely prices will be confined to that trading range in the near-term.

Cotton futures have seen modest strength as the Texas crop continues to deteriorate due to drought. 48% of the cotton there is now rated poor to very poor. Dryland acres have been abandoned at this point, and some irrigated acres have as well as last week’s rains came too late to make much difference for many. Poor export demand continues to keep a lid on the market, though. The recent low of 82.5 cents is providing support for December futures as the market works higher. The close above $100 indicates additional upside potential.