It’s not often that we see limit moves in opposite directions on succeeding days but that is precisely what happened to CME Group September wheat futures on Thursday and Friday in the wake of Russia’s wheat export ban. December and March futures also closed down the allowable limit of 60-cents per bushel on Friday but neither of those contracts saw full limit gains in Thursday’s trading.

Do you think things are a bit volatile? The Russian ban goes into effect on August 15 and, for now, will be in placeuntil the end of the year. Overnight trading saw nearby wheat futures drop back below $7/bushel by Monday morning. It should be noted that, while high, prices for the December contract are not even close to the contract life high of $10.30/bu set on the second day that the contract traded back in February 2008.

Corn futures mimicked wheat’s volatility on Thursday with prices trading in a 25-cent/bushel range during the day. But the Dec contract closed only 3 cents higher Thursday and that was followed by a 2 cent/bushel gain on Friday. The obvious upward pressure that wheat futures are exerting on corn are being offset by continued expectations of a large U.S. corn crop.

USDA will release its initial yield forecast based on objective field measurements in this Thursday’s Crop Production and World Agricultural Supply and Demand Estimates. Informa Economics raised its estimate of the 2010 corn crop last week to 13.448 billion bu., just over 200 million higher than its July estimate. Informa’s forecast average yield is 166.0 bu/acre.

But there are dissenting opinions. North American Risk Management’s latest estimate is for a yield of 162 bu./acre and Dr. Elwin Taylor of Iowa State says that this summer's excess moisture may push average yields near 160 bu./acre. Another variable to watch is harvested acres. USDA now has that pegged at 81.05 million — 92.2% of planted acres.

That percentage is the second highest (to 2007) on record. While harvested acres as a percent of planted acres has trended up over the years , the trend has flattened considerably and this year’s excess rains in many key growing areas lead us to believe a nearrecord percentage is unlikely. Higher world wheat prices — especially if they remain high relative to corn — will provide some help for U.S. livestock and poultry sectors in terms of world competitiveness. Its not that our costs are going to be low. It’s just that others’ costs may increase more.

The other story Thursday and Friday was the collapse of CME Lean Hogs futures.

The nearby August contract (which expires this Friday) lost $4.55/cwt. in two days. Oct and Dec lost $4.20 and $3.30/cwt., respectively. The selloff was sparked by a relatively small drop in USDA’s estimated pork cutout value from Tuesday’s high or $91.53/cwt. to $90.63 on Thursday and $90.05 on Friday. Last week’s average cutout value, which stood at $90.87 through Thursday’s trading, will almost certainly be the third highest on record, trailing only the weeks of August 15 and 22 in 2008 which saw cutout values at $93.75 and $91.15, respectively.

We are not surprised that Lean Hogs contracts have apparently made a top once more as early– to mid-August almost always marks the “last hurrah” of the summer hog rally. Over the past 5 years, the second week of August has marked the turning point into lower fall cash prices with the decline amounting to, on average, about $7/cwt. by early September and another $10 or so by mid-November when weekly hog slaughter usually hits its seasonal peak.

A “normal” seasonal drop would leave December cash prices in the upper-$60/cwt. carcass range — very likely still profitable for producers. That the recent cutout value and hog price rallies rivaled those of the summer of 2008, which were driven by extraordinary export demand, clearly points to the tightness of the current supply-demand relationship.

The Daily Livestock Report by Steve Meyer and Len Steiner

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