Happy Easter market watchers. One of my favorite times of year with spring beginning, families getting together to celebrate He who has risen, final wheat topdressing underway and maturing and corn planters getting started.
This is the time of new beginnings and a fresh start to the year. This year is like no other with nearly 60 million Americans now fully vaccinated setting the stage for hope of a “normal” summer ahead. Restrictions on travel, in-person meetings and full access to restaurants are quickly being qualified by those carrying the “vaccinated” card. Yes, we’re back to carrying papers for access, but it is the times in which we live.
This week marked the end of the month and end of the first quarter of 2021. March 31 also was a big milestone in USDA reporting with the release of the annual Prospective Plantings and Grain Stocks reports. These highly anticipated reports typically bring fresh volatility to markets and this year was no exception. After a pre-report selloff, markets surged on the release with nearly all corn and soybean contracts locking limit up to finish the day leading to expanded limits on Thursday. This meant a $0.25 surge in corn and $0.70 surge in soybeans. Wheat contracts were up nearly $0.20+ on most contracts pulled higher by corn.
As crop conditions have improved from recent rains, wheat prices have slipped nearly $0.60 since breaking support levels in mid-March at the $6.20 area on July KC wheat. The latest status updates had Oklahoma at 61% Good-to-Excellent, down 1% from last week, while Kansas was up 5% to 50% G/E. Texas was 28% G/E as was Colorado, South Dakota at 31% good with no excellent, Nebraska at 38% and Montana at 54%. So while we’ve had rains in the Plains, wheat conditions are variable overall and a dryer outlook ahead. This has created a much-needed window to get fertilizer as well as herbicide applied.
The major surprise in Wednesday’s USDA reports were fewer acres of U.S. corn and soybeans versus expectations. While it was no doubt a tall order to fill with average trade guesses for corn acres at 93.208 million and beans at 89.996 million, the USDA pegged corn acreage at 91.144 million and beans at 87.600 million. All wheat class acres came in higher than expectations at 46.358 million versus 44.971 million. For winter wheat, the USDA pegged acreage at 33.078 million versus 31.811 million expected. Cotton acres were also higher at 12.036 million versus 11.905 million expected. Sorghum acres also were slightly higher.
However, the shock in corn and beans brought the bulls back to the markets after weeks of range-bound trade. March 1 U.S. grain stocks reported by the USDA were largely in line with average trade expectations, although tighter for corn and slightly above for wheat and beans. However, such stock levels are a reminder as to how tight the balance tables are and, therefore, increased sensitivity to acreage estimates and any potential weather issues during the growing season. In fact, our RJO analyst estimates corn carryover to be 200 million bushels below USDA’s forecasts due to higher exports and ethanol and feed use. Thursday’s overnight follow through move led to new highs in new crop corn and beans before profit taking recaptured some of those gains on Thursday before the holiday weekend with markets closed Friday in observance for Good Friday. For next week, the chart gaps have been filled, and I expect grain markets to again find strength, although we may see some pressure in the weeks ahead should planting weather be ideal as the Midwest begins getting corn in the ground.
Weekly wheat conditions and row crop planting progress will be restarting and help add perspective to markets. For producers with forward contracts, consider supplementing with call options to “protect” the upside. In row crops, we will likely see more convergence between front month and new crop contracts that also can be traded as a spread ahead of locking in new crop prices. In this environment, remember that it is never unwise to lock in a profit even if there are expectations of higher prices. Funds remain net long a healthy amount in corn and beans and those positions also can be liquidated quickly with the right trigger as we’ve seen from recent dips.
While I’m not saying that time has come, be mindful of risk management strategies and that there are tools to hedge the hedge. Give me a call to discuss these strategies. Remember that Enterprise Grain also is contracting sesame acres, which is a great summer crop option that is drought tolerant should we get in a hotter and dryer pattern. Fewer pests also bother sesame. Call Enterprise Grain for prices and to contract acres (580) 874-2286. We have improved sesame varieties with agronomy support that can help diversify your concentration risk if you’re planting a high percentage of beans or grain sorghum.
The cattle market took the crop report the hardest with higher feed costs abruptly ending the six-session feeder market rally. The live cattle contracts also were weaker on Thursday, but continue the bull channel. April live options expired with Thursday’s session. Cash fat cattle prices continue to firm with $118 traded this week. Expectations of the economy reopening for the spring and summer grilling season with travel permitted with vaccines has given renewed optimism to the meat complex with hog prices trending upward on tighter numbers. The week ended with an inside day on May feeder cattle, and a continued surge in corn could further pressure these contracts.
If you would like to lock in these futures levels through a Hedge-to-Arrive contract, while leaving the basis open and most importantly, not having to decide the delivery point and therefore, you have the ability to fully negotiate the basis with whatever delivery point you choose when you’re ready, give me a call as I have a new solution for producers to do exactly that. This is a very creative solution to lock in futures without having to pay margin calls, but also have the freedom to negotiate the basis with delivery points once you are ready. This is product is nationwide and not limited to our immediate area. 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.
Remember, I am on-site at the Enid Livestock Market on Thursday, sale day. 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 firstname.lastname@example.org. 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.