USDA Chops Crop Sizes

In a surprise move on Wednesday morning, the USDA revised this year's soybean and corn crop sizes sharply lower. Nationwide, the USDA is currently projecting a soybean yield of 40.5 bushels per acre and a corn yield of 146 bu. / ac, a sharp slide from last month's estimations of 42.3 and 154.1 respectively. The primary reason for these changes has been ongoing drought in the Midwest, which has caused prices to rally sharply. This fall's crop hit new high prices again this week, with November soybeans rallying to $15.75 per bushel and December corn popping to $7.49. Over the last six weeks, soybeans have climbed $3.30 per bushel (+26%), while corn has exploded $2.40 (+42%).

Despite the sharply upward grain prices, some market watchers warn that a soaking rain, government intervention or a change in demand could turn the market around just as quickly as it went up. As of midday Friday no drought-relieving rains were in sight; soybeans for November delivery were worth $15.50, and corn for December delivery was worth $7.36.

Cattle Stumble

High grain prices are hurting livestock producers, who must feed their animals grain every day in order to keep them alive. With corn near $8 per bushel and soybean meal at record highs, the cost of feeding cattle is getting more expensive every week. As a result, many livestock producers are being forced to liquidate their herds, selling the animals rather than paying to continue feeding them. Due to the increasing threat of liquidation, live cattle prices have been dropping on fears of rising supplies. During the month of July, live cattle prices have fallen four cents per pound (-3.3%) to $1.16.

Ranchers in some drought-stricken areas were offered relief this week when the USDA announced that it would open previously protected areas to livestock grazing, allowing producers to offset grain feed costs by using pastureland instead. This move came in conjunction with low-interest-rate emergency loans in order to alleviate financial pressure on producers. Despite these efforts, many cattle producers are concerned that high feed costs and lower beef prices could hit them on both ends, putting them into the same position as grain farmers hoping for rain.