Happy Independence Day market watchers. The new year is officially halfway through. This holiday weekend, we reflect and celebrate the freedom of a great democratic experiment.
Let us not forget that freedom isn’t free and requires sacrifice from some for the greater good of all. While we are far from perfect, we must continue to fight for our rights in the face of corruption and unequal representation. Though these challenges exist, it pales in comparison to the suppression by other regimes on its people and businesses. No better example of this exists, and becoming more public by the day, than the Chinese Communist Party that is celebrating its centennial this week. Freedom of speech and assembly are under threat, with all permits being denied for demonstrations in Hong Kong on the July 1 establishment day. Such a move paints yet more color of the adversary developing across the Pacific.
On this Independence Day of our country, let us all be united in the front to protect our way of life.
There were plenty of fireworks in the markets this past week with USDA’s much-anticipated planted acre update from March predictions, as well as grain stocks. The biggest surprises came in the way of acreage for corn and soybeans. Versus average trade guesses, the USDA came in lower for corn, beans, cotton and sorghum. USDA’s March expectations for planted corn acres was 91.144 million acres, while average trade guesses called for an increase to 93.787 million. The official June 30 number came in at 92.692 million acres. Soybean acres were basically in line with early expectations in March, but 1.4 million acres below trade estimates. Cotton acres were pegged at 11.719 million acres versus expectations at 11.856 million and March USDA estimates at just over 12 million acres. With elevated basis levels for sorghum, we were surprised to see lower acres this week at 6.490 million acres versus March guesses at 6.940 million and trade estimates at 7.134 million.
Acreage for wheat was the one category under-guessed. For all wheat classes, acres came in at 46.743 million versus March estimates of 46.358 million and average trade guesses at 45.940 million. Spring wheat acres came in 172,000 above trade guesses, which was a surprise given the extreme drought experienced in those areas with ratings, now the lowest in 40 years, especially given that the acreage increase was in North Dakota. Winter wheat acres were around 660,000 acres above trade guesses and March intentions.
Now to the stocks report. June 1 grain stocks in the U.S. came in below average trade guesses for corn, soybeans and wheat and well below last year. The combination of lower acres and stocks versus average trade guesses brought fresh longs into the market as corn surged to limit up of 40 cents, beans up 90 cents and wheat followed up 20+ cents to finish the month and the second quarter of 2021. This presented a good opportunity to price cash wheat as well as a reminder to protect the upside on bushels sold to capture moves such as the one this week. While the upside momentum was strong on Wednesday into Thursday, it was relatively short lived with profit taking following Thursday and Friday. This was somewhat expected going into a long weekend with markets closed Monday in observance of Sunday’s Independence Day. Lower acres and tighter stocks as well as news of frost in Brazil bring weather front and center going forward.
All eyes will be on heat and dryness developments in the corn belt. Sensitivity of this market to weather changes is the reason I advise producers to hedge-the-hedge for corn, beans and milo — protecting the downside while keeping upside open. The selloff to end the week presents an opportunity for producers to step in and cover sold bushels of wheat or locked in bushels of corn and beans. If corn futures hold the 50-day moving average this next week, we likely will move higher. If we break that level, we could be headed back down to the 100-day moving average where the market started the rally from this last week.
For KC wheat, September futures came down near the 200-day moving average that is likely to hold, especially if corn moves higher. Speaking of weather, there has indeed been plenty of rain in the Southern Plains with 7-10 inches falling across much of Oklahoma and parts of Kansas. Wheat still standing in the field will see lower test weights once harvested. Hopefully, that is the only effects of the recent week of continued downpours and we avoid sprouting in the head. Rain chances then return next Wednesday and Thursday.
The precipitation and overcast conditions have been great for summer crops. Mid-July is typically the cutoff date for planting double-crops.
With the sesame offering for Enterprise Grain providing free seed if the crop fails for any reason, this lowers the risk of going this direction should the fields still be wet by mid-July. Something to consider for taking advantage of this timely moisture after wheat.
Feeder cattle have enjoyed the relief of lower grains recently, while coming under pressure after the USDA reports were released. August feeders finished the week just above $157.000. I believe these prices on front-month feeder contracts should be protected. Live cattle futures have continued trading in an upward channel finishing the week with an inside day on the charts. Watch grains this next week for a potential breakout.
I offer both futures and options on the CME as well as Livestock Risk Protection through crop insurance. 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) 232-2272or 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.