It’s June market watchers. Oh, how the year is flying by.
And yet, we’re still waiting for the green of winter wheat to golden. Though ripen it did this last week after the rains. Just a week plus of hot, dry weather would accelerate maturity quickly, but we have yet to see that in the forecast at least not until the middle of next week with three rainy days in between starting Sunday. Continued rains this close to maturity can be cause for concern, but we are shy of the point for test weights to be impacted from central Oklahoma north, although those south of I-40 may be in a different situation.
The grain markets were range bound this week after recovering off last week’s lows. July KC futures finished the week with an inside day on the chart at $6.36½, essentially right at the 50-day moving average that has so far served as near-term resistance. The recovery in corn and surge in Minneapolis wheat helped KC wheat contracts end the week on a firmer tone but be cautious of harvest pressure and the 200-day moving average below, tested just seven sessions ago, now at $5.93. With a hot and dry forecast in the U.S. Midwest through at least June 17, despite weather models not all agreeing, there is a bullish tilt for corn and beans that saw new crop contracts break above the recent range on Friday.
December corn closed the week at $5.91½, up 25 cents in Friday’s trading session, and November soybeans at $14.35½, up 32 cents. With weather premium returning and solid export demand for corn intact, next week’s USDA monthly WASDE and Crop Production reports will provide the next potential catalyst determining near term direction for these markets that have been somewhat aimless as of late with fund long liquidation.
Although trade estimates have not yet been released, the impressive continuation of export and ethanol demand for corn amid already tight balance tables could see the best support for the corn market. Soybean crush and exports have been slowing that may ease such concerns and a prolonged rally in the bean complex. With this being the first report after the Wheat Quality Council’s record Kansas wheat tour results, we could see the USDA raise wheat crop estimates and ease any concerns for the wheat balance sheet despite continued feeding. Estimates on the U.S. spring wheat situation will be watched closely as potential added fuel to the fire with ratings now the second lowest ever since records began.
Internationally, we will be watching what the USDA does to Russian wheat crop estimates with official estimates by the Ministry of Agriculture on Thursday holding estimates at 81.0 million metric tons versus USDA’s estimates of 85.0 MMT this year and 85.4 MMT last year. Export estimates from Russia’s Ag Minister are 37.0 MMT, which are below USDA’s latest forecast of 40.0 MMT.
With markets closed last Monday in observance of Memorial Day, the USDA crop progress and conditions ratings were released on Tuesday. Spring wheat planting came in at 97%, 1% slower than expectations, but 10% ahead of last year. Good-to-excellent ratings were at 43% versus 45% expected and 45% last year. Continued dryness could see this market push further after surpassing the May 7 high in late Friday trading to close the week above $8.12 after making a high at $8.19¼.
Winter wheat ratings came in as expected at 48% G/E versus 51% last year. Corn planting is nearly complete and ahead of last year at 95% versus 92% last year. This week was the year’s first corn conditions rating with 76% seen G/E versus 70% expected and compared to 74% last year. Soybean plantings were 84% complete, 3% behind expectations, but ahead of last year’s 74% and 67% average.
If you’re in the process of deciding on double-crop options, particularly soybeans versus sesame, it is important to compare the break-even prices and yields given the surge in input costs in recent months. While soybean prices are indeed excitable, the risk of hot, dry weather in the coming months and higher input costs may surprise one at the attractiveness of sesame in comparison. While there is of course no magic bullet, erratic weather and market volatility also makes a good case for diversifying your risk and not assuming that these soybean prices will just stay here or move higher and weather conditions will be accommodative and sesame contracts provide a fixed price and thrive in summer heat and is drought tolerant.
To the numbers. If you can achieve a cash price of $13.50 per bushel, you’ll have to raise 20-bushel soybeans just to breakeven. The cash price for new crop soybeans at Enterprise Grain in Kremlin was $13.75 as of Friday’s close. Therefore, if you forward contracted with us at that level and were able to raise 20-bushel soybeans, your profit would be 25 cents per bushel. Note, however, that if you raise less than a 20-bushel yield, you will need to sell your crop for more than $13.50 in order to just breakeven. Now let’s look at sesame. If you achieve 43 cents per pound after discounts for sesame, you only need to raise 490 pounds to breakeven. If you raise 700 pounds per acre, you only need 30 cents per pound to breakeven.
Despite the early ice storm last year that reduced yields of sesame, producers still were ahead due to lower input costs versus soybeans and even corn with where prices were at the time of respective harvests. If you are interested in contracting sesame acres in Oklahoma or Southern Kansas, call Enterprise Grain at (580) 874-2286. We are aggressively contracting double-crop acres and have delivery points at Enterprise Grain in Kremlin and Goltry, as well as at CHS in Kingfisher or Omega. If you are further away and interested in contracting our Equinom sesame program, give us a call. We are also interested in recruiting additional elevator partners to bring delivery points nearer to you.
Shifting to the cattle markets, a major disaster was narrowly avoided this week after Monday’s cyber-attack on Brazil’s JBS, the largest global animal protein supplier. Shutting down processing plants globally until Wednesday, it was actually somewhat of a surprise how quickly this issue was handled. When markets reopened on Tuesday morning, feeder and live cattle futures nose-dived only to recover well off the lows before Tuesday’s close. With weaker grains and firm beef demand, the cattle market managed a strong rally on Wednesday into Thursday before giving back some of those gains on Friday as corn surged. USDA’s grain reports will set the tone for these markets into the coming weeks.
I offer both futures and options on the CME as well as Livestock Risk Protection through crop insurance. As I’ve reminded before, if you are looking for a way to lock in grain futures while keeping delivery points open until you can find the best basis bids, there are several risk management and marketing programs for wheat, corn, milo and soybeans to consider that will enhance your marketing efforts. This is a very creative solution to lock in futures without having to pay margin calls, but also maintaining the freedom to negotiate basis with delivery points once you are ready. If you’re ready to trade commodity markets, give me a call at (580) 232-2272 or stop by my office to get your account set up and discuss strategies to pursue your objectives. Self-trading accounts are also available. It is never too late to start and there is no operation too small to get a risk management and marketing plan in place.
Wishing everyone a successful trading week.
Sidwell is a Series 3 licensed commodity futures broker and principal of Sidwell Strategies. He can be reached at (580) 232-2272 or at email@example.com. Futures and options trading involves the risk of loss and may not be suitable for all investors. Review full disclaimer at http://www.sidwellstrategies.com/disclaimer.