Sidwell

Howdy market watchers. Today, my son Henry Raymond is 3 months young. What a joy he has been during these perilous times. As he becomes more aware of the world around him, he becomes even more fun to interact with. Yet, it is interesting to think of the world in which he will grow up and how the continued stimulus into the economy will be unwound.

As expected, the nearly $2 trillion stimulus package was passed by the Senate this week and then back to the House and then to President Joe Biden’s desk. We heard that $1,400 checks could hit accounts as early as this weekend. The distribution of COVID-19 shots is catching up with demand and optimism is returning to retailers and restauranteurs.

Equities made new all-time highs this week, excluding tech stocks, with fresh stimulus and hope of reopening spawned new buying. It is widely expected that a majority of stimulus checks will end up in the market as the Reddit revolution and booming bourses attract retail investors.

With heavy rains forecast across the southern U.S. plains, wheat prices came under pressure breaking from Monday’s high at the 20-day moving average, then closing below the 50-day moving average on Wednesday and coming within 6 cents of the 100-day moving average by Friday on the July new crop contract. The trade will be monitoring rain totals over the weekend versus expectations for the direction in the week ahead. Should we break $6.00 on the front-month May contract, we could be headed lower. Friday’s low reached $6.00 ½. Russian and Ukrainian wheat crops were reported this week to be in good shape, while export sales were unimpressive as were export prices reported in the latest tender. USDA’s monthly WASDE and Crop Production reports this past Tuesday were uneventful and lacked new information to feed the bulls. This week’s CFTC report released Friday, which reports fund positions as of every Tuesday, showed longs trimmed in Chicago and KC wheat while extended longs were reported in corn, beans and MN wheat.

Mixed South American reports and export demand did little to sustain the recent rally in row crops. However, I do expect a firmer undertone to return ahead of the USDA Prospective Plantings report at the end of the month. The USDA increased the Brazilian bean crop, Australian and Russian wheat, while decreasing Argentine soybeans and Mexico corn. U.S. corn, soybean and wheat balance tables all were left unchanged. U.S. ending stocks also were left unchanged from USDA’s prior month estimates while being above expectations. Wheat ending stocks were unchanged as expected. World ending stocks for corn and beans were increased above the prior month and above expectations. World wheat ending stocks were decreased versus prior estimates and below expectations, which added some support to the falling wheat market. Should trade news this next week be quiet, we may see weaker grain markets until fresh news returns.

Having said that, I do not believe the grain rally is over yet with wheat being of the greatest concern. Emergence of freeze damage in wheat with the recent heat and now rains may add some support to wheat, but only to the extent that the damage is widespread, which is unlikely. There has been a lot of debate in recent weeks about choosing ARC or PLC for wheat base acres that is due to the FSA on Monday. Previously, we shared comments that PLC may be the way to go given prices and conditions. However, it still is early, conditions will change and you have to take into account the condition of your own wheat crop as well as your county yield. Most influence on the marketing year average price that would be paid under PLC is tracked between June and December 2021 and not the current price. Based on the current outlook, neither PLC nor ARC would trigger, but again it’s still early. Lack of rainfall or a late freeze could result in ARC triggering. Even though prices have been upward trending in recent months, it, of course, doesn’t mean they will hold or continue the upward trend post-harvest when there is more weight on setting the program price. For the ARC-County to trigger a payment, the 2021 MYA price multiplied by the 2021 county yield will have to be 86% or less of your county benchmark revenue, which is county benchmark yield multiplied by the benchmark price for the commodity. Please remember, ARC-County payment cannot be more than 10% of the county benchmark. Remember, you can elect a different option by farm number by crop, so if you are unsure of which why to go, you may consider enrolling some farm numbers in ARC-County and some in PLC. At this point, there is no right answer, but we hope this helps to better understand the options. Let me know if you’d like examples for your specific county before making a decision.

Feeder cattle exploded on Friday with April, May and back months surging on demand optimism from a reopening economy and stimulus relief. Weaker grains also have helped pause the headwind, but is likely temporary. May feeders closed nearly $2.00 higher at 148.375 while front-month March feeders were up $1.10 on Friday to settle at $136.35. The surge in feeders was also driven by October Fats up $1.175 or 1.00% on Friday to settle at $123.70. Watch action early this next week as despite new recent highs, this market is toppy at these levels and could get overextended soon.

December cotton futures rebounded Thursday after an early week selloff. Demand optimism will indeed support this market, but we’re seeing lower lows and lower highs in the recent reversal from the broader bull market. Acre competition will play into this in the coming weeks, but protection of new crop around the 85-cent area looks worthwhile in the current chart action. 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 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 also are 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 brady@sidwellstrategies.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.

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