Howdy market watchers. What a week. The bulls continue to roam wild in the grain markets, while feeder cattle broke the 100-day moving average and pressed lower as the week progressed in the face of higher feed prices and dry conditions.
Fund buying in anticipation of production cuts in Friday’s USDA reports drove beans, wheat and corn to new recent highs and multi-year highs in the case of soybeans and wheat not seen since March and September 2018, respectively, on the continuation charts. As U.S. farmers rush to get wheat dusted in before limited moisture traces evaporate in the southern plains, others are busy getting late corn picked, beans started and sesame sprayed in hopes of accelerating the harvest window. At this stage of the moisture game, it is unlikely that many of these soybean and sesame acres will get back to wheat. However, being the first half of October, it still is relatively early with the crop insurance deadline for Pasture, Rangeland and Forage (PRF) to plant not until Nov. 15 in the great state of Oklahoma. The deadline to report acres for annual forage for growing season one, which is likely to trigger in many counties, is Oct. 15, so if you’re chasing those dollars, it’s time to get ‘er done. In case I didn’t get all that right, be sure to call Brenda and Bambi at Sidwell Insurance (800) 299-2408 to ensure you are qualifying for every dollar for which you’re eligible.
As we know, it’s not just dryness in the U.S. wheat belt that’s driving this market. SovEcon reported Friday that Russia could lose 10-15% of the 2021 winter wheat crop area due to drought in the Black Sea region. Should the lack of moisture continue through the end of the month, these percentages could grow. NOAA’s 30- and 90-day outlooks across the U.S. southern plains continue to show below-average precipitation probability and above-average temperatures. With such news, it may not seem surprising that the wheat market is on the rise, and finally the KC futures are narrowing the gap with Chicago wheat. Despite this market remaining firm, these are price levels to be selling physical wheat in storage and locking in or at least protecting new crop prices that are near or above breakeven levels. July KC wheat this week peaked at $5.69 ¾ before settling the week at $5.54 ¾. There’s no doubt that the bullish undertone in beans and corn also have lent spillover support to the wheat market.
Despite these factors, there is no shortage of wheat with world wheat stocks up 22 million tons over last year. USDA’s WASDE report Friday reported increases in Russia and EU wheat crops, an increase in Russia wheat carryover from last year, huge gains in Indian wheat stocks, while holding Australia steady and reducing the Argentine, Canadian and Ukrainian wheat output. Russia wheat export prices have been on the rise recently, but the weaker U.S. dollar may not be enough to compensate for higher U.S. wheat futures and rising production estimates elsewhere competing for the export business. Thursday’s reversal was starting to show signs of this market topping. There are a number of ways to protect new crop prices, so give me a call to discuss the strategy that best suits your operation.
Friday’s Commitment of Traders report highlighting positions as of Tuesday showed managed funds continuing to add longs in all wheat contracts, beans and most dramatically corn with a weekly change of 27,646 contracts though still well away from record levels. Soybeans are within 15,500 of reaching the record net long position. Longs in soybean oil actually reduced this week, while those in meal only increase longs by 4,068 contracts showing slowing momentum. While talking derivatives, we were surprised in Friday’s USDA report that soybean crush numbers were kept unchanged given margins of more than $1.00 per bushel in the upper Midwest. We expect this demand factor to be raised in future reports. There were a few other surprises in Friday’s reports as well.
Perhaps the biggest surprise from Friday’s WASDE and Crop Production reports was 2020-21 soybean ending stocks that came in at 290 million bushels versus average trade guesses of 352 million and last month’s estimates of 460 million bushels. Production-wise, soybean, corn and cotton production were all down 1% from last year. Soybean yields were 51.9 bpa versus average expectations of 51.5 bpa, but unchanged from last month. Corn yields came in at 178.4 bpa versus expectations of 177.7 bpa and 178.5 bpa last month. While yield was higher than expectations, lower acres were the reason for lower production. Another surprise was China corn imports being kept unchanged at 7.0 million tons, as well as production meaning no material impact from the storms. That runs counter this week to the USDA attaché in Beijing who estimated this week that China corn imports could surge up to 20 million tons in Tariff Rate Quotas (TRQs). The market will be watching this development closely, as such a change in exports would result in a net decline in ending stocks and tighter stocks-to-use ratio that is nearing 13%. December corn closed the week at $3.95, up 8 cents on the day. November soybeans finished the week at $10.65 ½, up 15.5 cents on the day.
The cattle market, specially the feeder cattle contracts, were the net loser on the week. November feeders lost nearly $4.50 per cwt this week with an even wider range to finish at $135.525 while March 2021 lost $4.00 per cwt to finish at $133.550. As we discussed in last week’s article, once that 100-day moving average was violated in the close, this thing likely was to fall apart. Live cattle held up better this week with cash bids remaining firm reaching $108-109 highs later in the week. December fat cattle futures continue to chop sideways, but in an upward sloping pattern. Christmas cattle closed the week at $112.60. Funds remain net long the live cattle market, though they reduced that position by 3,908 contracts in the week reported Friday. The concern now for feeders are dry conditions and producers holding off on stocking up on further head until more confidence is established that fall forage is going to be there. At our 81 Feed and Seed stores, we’ve had more customers calling in to change starter rations to grower rations with the expectation of having to dry lot calves for awhile. That is the current situation as it stands and until the weather forecast changes, markets and funds are going to continue to trade the stress.
The U.S. presidential election is 22 days away and there is no telling what’s going to happen next with these two candidates and Congress still arguing over more stimulus. Farmers are thankful for the next round of CFAP that should start flowing soon as I discussed with Congressman Frank Lucas in Enid this week. Monday is Columbus Day, but markets will remain open. I also will be a year older on Monday, so forgive me in advance if I’m a little slower come the opening bell. 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 the Enid Livestock Market on Thursday, sale day. If you’re needing seed wheat of any variety, be sure to call Sidwell Seed at (580) 874-2286. We have a wide variety of bulk and bagged seed including WestBred, Limagrain CoAXium, OGI/OSU, Agri-Pro and KWA with multiple pick up points in Kremlin, Goltry and in bags at 81 Feed and Seed in Enid and Medford with advance notice. 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.