It’s October market watchers, and it finally feels like fall. The front that brought good soaking rains to our great state over the past several days also lowered temps into a comfortable 60s and 70s range. After one of the hottest Septembers on record through to the end with Monday highs above 90 degrees, we sure haven’t heard anyone complaining. Now let’s hope it lasts and starts to feel like wheat planting weather complete with spider webs, but void of army worms.
With the USDA Grain Stocks and Small Grains Summary report released at 11 a.m. coinciding with the end of the month and end of the quarter, grain bulls were hoping for supportive news despite a hefty net short with grain stocks reports being all but bullish in recent months. However, it was exactly that for corn and soybeans with Sept. 1 stocks for both coming in below average trade guesses. For corn, that number was 2.114 billion bushels versus trade estimates at 2.418 billion bushels and compared to 2.445 billion bushels worth of ending stocks in USDA’s August WASDE report. For soybeans, Sept. 1 stocks came in at 913 million bushels versus average estimates of 981 million bushels and compared to 1.005 billion bushels in the August WASDE. These stock numbers for corn and beans both came in below the low end of expectations, which was considered a surprise and fueled the rally.
The other surprise for corn was the USDA’s increase of feed demand, which doubled last year’s numbers and likely to see increases in next Thursday’s monthly USDA WASDE report as well. Short covering by managed funds ensued and continued through Tuesday for corn with the December contract filling the chart gap at $3.92 ¾ we’ve been talking about since it was created on Aug. 12 after the USDA WASDE sent markets plummeting. December corn closed Friday down 3¾ cents at $3.84¾ despite President Trump’s announcement via the EPA on changes to the ethanol policy.
Such changes, though lacking in detail at this stage, are intended to “enhance” ethanol and biodiesel blending to offset the highly criticized waivers to small refineries. At its core, the Renewable Fuel Standard calls for 15 billion gallons of corn ethanol that is currently 4 billion gallons short of that mandate after the 85 oil refinery waivers granted under the Trump administration. Thus, the “supplemental legislation” will seek to restore that shortfall, although it’s unknown as yet as to how much and when.
The equivalent use reduction from the waivers is said to total 1.4 billion bushels of corn and 825 million bushels of soybeans. This is something we will be following as it plays politics with the rest of the distractions in Washington with impeachment inquiries and mudslinging in full force as the election cycle gets underway.
If you’re looking for savings, it may be an opportune time to cut your cable.
The soybean market managed to better hold its ground after the two-day 36 cent rally that took November beans to the $9.20 mark. By Friday, the new crop contract reached a weekly high of $9.21 ¼, not seen since July 22, before settling back to $9.16¼. With Chinese purchases supporting soybean futures and more to likely come ahead of talks renewing in Washington on Oct. 10, perhaps we will retest the $9.40 level. While Trump says progress could be made at these talks, we advise producers with limited level of coverage on 2019 soybeans to consider protecting rallies as we’ve seen this tape before. If wrong, markets go higher and your beans are worth more, if not, you’ll be wishing you had protected more, but glad you got something in place. If your beans are going to be later, considering protecting them off the January futures with option expiration on Dec. 27 versus Oct. 25 off the November futures.
We save the wheat market for last as movements this week have been driven more by corn and the overall market sentiment than wheat itself. The Sept. 1 stocks report was considered neutral with levels coming in at 2.385 billion bushels versus the average guess of 2.319 billion bushels. Production for all classes of wheat came in at 1.962 billion bushels versus average estimates at 1.970 billion bushels compared to 1.980 billion bushels last month. Winter wheat came in below expectations at 1.304 billion bushels versus 1.329 billion bushels for the average trade guess. French wheat filled the Egyptian tender this week and at cheaper levels vis-à-vis last week’s orders. While U.S. wheat exports remain uninspiring, we did announce the largest single sale to China since 2016 this week with 130,000 tons of white wheat reported for 2019-20.
The Ukraine this week was set to announce its annual grain export allowance, but ended up not instituting a “cap” and instead using a month-by-month monitoring approach to evaluate domestic supply needs. This seems to indicate potential limits, but it’s too early to tell, although we don’t foresee any shortage given this year’s crop and quality. I maintain the position that if you’re selling physical wheat at these levels, consider repositioning with call options to have the opportunity to gain on a rally.
The cattle market this week traded both sides with pull backs early in the week after a two-week winning streak and higher grain prices to start the week. October feeder cattle settled Friday at $141.975, while March 2020 feeders finished at $137.100. While markets remain relatively firm, we believe a correction is due. October live options expired Friday. December live cattle was the only meat contract that closed positive on Friday settling at $110.775 after making highs above $111.000, not seen since the Tyson Kansas facility fire on Aug. 9.
Packers continue to make record profit levels and should continue to keep the industry current. With volatility in the stock market returning on renewed concerns of slower growth despite an even tighter labor market announced this week driving wages, we need a strong U.S. consumer to keep buying beef and export markets to get caught back up in the face of a resilient U.S. dollar value.
We hope U.S.-China talks this next week will result in pork and possibly even beef purchases as that country’s staple pork supply continues to dwindle from the effects of the African swine flu. My former employer Rabobank now estimates that the Chinese hog herd has declined by 50% since the start of the year and is expected to reach 55 percent of the previous year’s numbers by the end of 2019. They need the pork, but high inventory levels in China have allowed them to prolong the supplies needed until a trade deal can be further reached. However, it’s a matter of when not if for massive imports of pork by the People’s Republic that is celebrating its 70th anniversary this week.
Give me a call (580) 232-2772 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.
And finally, be sure to tune in to KGWA AM960 every Friday morning from 6:30-7 a.m. to catch our Weekly CommodityBuzz on the airwaves with Alan Clepper where we discuss latest trends influencing our industry, marketing strategy ideas and commentary. Wishing everyone a successful trading week ahead.
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.