Happy early Thanksgiving to you and your families market watchers. That’s right, the holiday season is just about here.
Did you know that the largest fresh-cut Christmas tree in the world is standing tall in downtown Enid, Oklahoma, and will “light up the plains” next Friday night after turkey day?
With a shortened holiday trading week next week and an abbreviated session on Friday with noon closes for agriculture markets, expect liquidity to decline on or before Wednesday. Note that Friday also is expiration day for December wheat and corn options. In-the-money options will exercise into December futures contracts after Friday. First Notice Day for December futures is Nov. 30 meaning that long futures will need to be rolled to March prior to then or risk delivery. That also means that spot cash bids will roll to the March futures, likely by Nov. 24 and so basis bids will adjust accordingly.
March KC wheat futures are only 4 cents above December and only one penny behind May, meaning there is basically no incentive to carry wheat given strong demand at present. December KC and Chicago wheat futures put in new recent highs on Thursday morning before closing negative on the day. This market is consolidating as the U.S. dollar has remained firm and U.S. exports within expectations, but overall unimpressive. However, north African import demand remains firm with global stocks continuing to tighten as EU export projections were lowered this week. Dry weather in the U.S. has continued to stress some areas ahead of dormancy and continued planting, although good-to-excellent conditions did improve slightly this week by 1% above last year and above expectations to 46%.
Inflationary concerns continue to bring more outside money into agriculture commodities with wheat being the benefactor as of late. The passage of the “Build Back Better” infrastructure spending plan will only add to such inflationary concerns. We foresee this continuing in the coming weeks until the Federal Reserve takes the much-anticipated action of tapering, as well as the announcement of the new Fed chair, which is expected next week before Thanksgiving.
I do believe we will have to see the corn market push higher for the wheat market to extend its gains. While I believe there is potential for this wheat market to break above the $9.00 level and even reach the $9.20-$9.50 area, it is unlikely to take place all at one time, so be cautious of greater volatility up here. July 2022 KC wheat closed the week at $8.25½ after a high of $8.38. The corn market also has consolidated this week, failing to make a new high. December corn futures finished the week at $5.70¾.
Soybean futures performed the best of the grain complex this week with the January contract reaching $12.89 ¼ before finishing the week at $12.63¼. This puts November 2022 new crop soybeans at $12.50¼. There looks to be potential for this January market to reach $13.00, but that also will serve as a strong resistance level. It is widely expected that soybean acres will be higher next year due to elevated fertilizer prices and the nitrogen fixation capability of soybeans resulting in lower nitrogen needs versus corn. However, I also believe that the Chinese are underbought on soybeans as they were expecting this market to weaken after the last USDA report. As a result, we likely are to see stepped up buying by the world’s largest importer that we already witnessed this past week. Malaysian palm oil prices also rebounded this week demonstrating more tightness in the export market. Basis bids by processors in the U.S. have really strengthened as of late reflecting product demand.
U.S. soybean harvest is now 94% complete, as of last Monday, with corn at 91%.
The 4% drop in oil prices this week reached a six-week low on renewed COVID concerns and continued calls by the Biden administration to take action to alleviate higher gas prices. Crude oil prices broke the 50-day moving average on Friday to close the week near the $76-level not seen since Oct. 7. If we drop below $74.50, we likely will sell off to the 100-day moving average at $73.30. A continued selloff in oil will, however, not bode well for the corn market as ethanol demand will likely back off. Therefore, watch this energy complex for cues on the grain market.
Natural gas prices continue to show inverse correlation with oil prices. As crude has slipped, natural gas has rebounded, holding the 100-day moving average. Colder weather should see natural gas prices move higher and continue providing underlying support to fertilizer into the new year.
Once grain markets eased from Thursday highs, the cattle market finally caught some relief. Feeder cattle contracts traded above the Oct. 27 highs and closed above the 100-day moving average for March contracts and after. November feeder cattle futures and options expired Thursday just below $156.00. With cash fat cattle trading at $134 this past week, Live cattle futures also pushed to highs not printed since early September. Friday’s monthly USDA cattle-on-feed report released at 2 p.m. after the close was relatively uneventful. Nov. 1 on-feed numbers were right in line with expectations at 99.8%. October placements were slightly higher than expected at 102.4% versus 102.2% expected. This number was thought to be somewhat higher given last month’s much lower placement number at 97.1% was thought to be overdone. October marketings were lower than expected at 95.5% versus 96.3% expected. The marketing number was really the biggest surprise, but I don’t see that wrecking this recent market strength. While protecting downside is also prudent, I do think producers should look to keep the upside open through the end of spring. I think we could see see a $180 print on feeders in the new year.
Livestock Risk Protection (LRP), which I also offer through insurance, in addition to puts and hedges, is a product to closely consider this year. It is basically a subsidized put option, but there are other differences as well including the ability to pay the premium after the coverage expires instead of upfront. 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 risk management and marketing solutions 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. Come see me every Thursday sale day at the Enid Livestock Market and let’s talk markets. Wishing everyone a successful trading week.