Howdy market watchers. There is one more trading day left in August, but the month looks to be finishing with a bang.
November soybeans surged over 50 cents this week, while December KC wheat jumped 33 cents and December corn bounced nearly 20 cents gapping higher on the chart between the Monday and Tuesday sessions. Strong export demand helped by a weakening U.S. dollar, declining U.S. crop conditions amid concerns that incoming rain may be too late for beans and lower corn production all assisted the sharp bullish breakout. While beans looked to be losing momentum during Friday’s session with profit taking expected across grains, the reality was none such the case. Early weakness was met by a strong resurgence settling the week at $9.50½. With the close above the previous day’s high, we expect more up next week. $9.60 is next in the cards, followed by January’s $9.80 highs, where there is a strong, multi-month resistance level on the chart.
Threats of Hurricane Laura also supported markets with heavy rains in southern states. Since the USDA’s Aug. 12 reports that revealed higher yields, November beans have moved 85 cents. What a difference a couple weeks can make. USDA’s next WASDE and Crop Production report is scheduled for Sept. 11. The U.S.-China Phase 1 deal was reaffirmed this week on a call including USTR Lighthizer, U.S. Treasury Secretary Mnuchin and Chinese Vice Premier Liu He. The call was said to have been constructive, and we should see continued Chinese buying of U.S. ag products at least until next year’s South America crop becomes available. As I covered in last week’s article, this buying is driven by economics versus China’s willingness to comply with Phase 1 commitments. China was a major buyer of U.S. corn this week, bringing total purchases to 8.0 million metric tonnes versus the previous record annual total of 5.1 million metric tonnes. Commitments for U.S. new crop corn are the second highest on record. Total 2020-21 commitments by China for U.S. beans are now the highest on record at 824 million bushels versus last year’s new crop sales at this time of 206 million bushels.
Export strength, combined with slipping crop conditions, likely will provide underlying support. USDA reported last week’s corn crop conditions dropped below the five-year average and are the third lowest in late August over the past seven years. The issue is more widespread than initially thought with every major corn producing state except North Dakota and Kentucky reporting lower good-to-excellent ratings in the most recent release. Iowa alone dropped another 9% to 50% G/E. Soybean conditions also declined, with G/E ratings down 3% this past week to 69%. However, the U.S. soybean crop is still seen as the third best of the last 11 years for late August. Talking with local producers in Oklahoma, much of the bean crop looks phenomenal, towering high, but in need of rain. Worms also have been prolific this year with all the recent rain.
As discussed at the Enterprise Grain Sesame Field Day this week, leaf roller/web worms are spreading in sesame fields. Be sure to check yours and be ready to spray as soon as possible. Check out the Enterprise Grain Facebook page for updates on our next Sesame Field Day on Sept. 15 in Helena and near Garber.
The tone of next week’s price action will stem a lot from Monday afternoon’s crop ratings update. December new crop corn faces resistance at the $3.60 level with the 200-day moving average looming just above at $3.62 ½. A break above this level would suggest we’re moving higher. However, until this happens and with overbought stochastics, this may be a short-term sell with a gap to fill from earlier this week below starting at $3.48. Managed funds have continued to cover shorts in corn, although still remain net short while adding to net longs in beans.
The wheat market has been riding the wave. Funds have covered short positions, but like corn, remain net short the market. Thursday’s break above the 100-day moving average and surpassing the July 9 high at $4.74¾ on December KC futures was encouraging. Friday’s low was right at that 100-day MA closing in line with the previous day’s close at $4.72¼, the highest close since June 10. Friday’s bar on the charts was, however, an inside day suggesting a break higher or lower. The 200-day moving average sits right above at $4.81¾. After this run, I would be surprised if we get much above that 200-day MA unless fresh news comes to bear. Argentine dryness continues to be a significant concern for the wheat crop. The Buenos Aires Grain Exchange estimated that more than a quarter of the country’s wheat areas are threatened with yield losses between 25% and 50%. There also have been declines in Germany’s wheat production and the EU overall. Note that Monday is first notice day for September futures, so crop bids have rolled to the December futures as the front-month meaning basis will change accordingly. Although we’ve not yet planted next year’s crop, it is never too early to be thinking about marketing that far out. July 2021 futures this week reached and exceeded the $5.00 mark, filling the June 10-11 chart gap and trading through the 200-day MA, but failed to close above it. Be watching this over the coming week and consider action when prices get above your breakeven.
Other markets also were buoyed this week by comments out of Fed Chair Powell at the first-ever virtual Jackson Hole summit about modifying the approach to the 2% inflation target now to be an “average” target. The Dow reached late February highs extending the impressive bull channel and nearly filling the gap on the chart from Feb. 21.
That has not been the case with cattle recently. Up until mid-August, feeder cattle futures were mirroring equities. However, the gap lower on Monday set the tone for the week with the break below where the 50 and 200-day moving averages cross. The trades below $140.00 are cause for concern that this market could yet move lower.
August feeder futures and options cash settled Thursday at $141.975. Beef prices are topping as the Labor Day buying surge has peaked. Cash trade was up to $105.50 this week. Continued surge in grains means higher feed prices and put add pressure to cattle prices. Give me a call at (580) 232-2272 or stop by our office to get your account set up and discuss strategies to protect your exposure to these markets. 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 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 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.