Howdy market watchers. Just as the drought monitor started to color the entire western half of our great state, rain! With the Oklahoma Mesonet showing Thursday and Friday totals near 2.5 inches in Lahoma and Cherokee and up to 5 inches in the Jet-Nash area on Friday alone, it was just the kind of soaking replenishment needed for soybeans, sesame, milo and ahead of wheat planting in the coming weeks.
It sure feels like we just finished wheat harvest only to soon be planting it again. And with that, it’s time to be reserving seed wheat bushels. Be sure to give us a call for a selection of WestBred and OGI/OSU seed wheat varieties, including white wheat options.
Volatility in agriculture and other markets this week focused solely on politics playing out in the ongoing U.S.-China trade dispute turned currency war and subsequent concerns of a global economic slowdown. Beginning with Beijing’s devaluation of the RMB on Monday to the lowest level in a decade and instruction to Chinese companies to halt U.S. ag purchases, followed by the U.S. Department of Treasury’s designation on Wednesday of China as a “currency manipulator,” the first time since 1994, it was a wild week across all markets including equities, bonds, metals, energies and ags. President Trump also tweeted that a third MFP round would be considered if the time was necessary for negotiations.
Although nearly unchanged on the week, from peak to trough, the Dow fluctuated nearly 1,500 points. Gold prices surged to a six-year high above $1,500 as investors ran to safe haven assets amid concerns of an intensifying trade war among the world’s super powers that could lead to a slowing global economy. Agriculture commodities, while impacted from China’s backing away from “significant” commodity purchases, was largely rangebound this past week ahead of Monday’s next USDA WASDE and Crop Production reports. This year’s August report is even more anticipated given the surprise of where the USDA last pegged corn acres and yields after the slowest planting season in history. The average trade guesses this time round have corn yields at 164.9 bpa vs. 166 bpa in July and planted acres at 88 million vs. 91.7 million last and harvested acres at 80.05 million vs. 83.6 million. Private surveys this week suggest 25% of corn producers are electing Prevent Plant with the acre number yet unknown and some analysts estimating this to be as much as 10+ million acres. This August report will also include more information than usual, such as a re-do of June’s farmer survey and for the first time ever, FSA acreage certification information.
Average expectations for soybeans are for a planted acre increase from 80 million to 81 million, harvested acre slight increase from 79.3 to 79.9 million and yield decrease from 48.5 bpa to 47.6 bpa. The wide range of trade estimates is just a reflection of how varying opinions are out there on crop progress and conditions. This last Monday, good-to-excellent ratings in corn slipped one percent to 57 percent while soybeans held steady at 54 percent. The demand side of the equation also will be in question, particularly how much will the USDA reduce bean exports (to China) with many calling for a 7-8 million metric ton reduction. The only thing that seems certain is that volatility will be elevated immediately after the numbers are announced. Stay tuned for full coverage after the report. Our clients will receive text message updates of the numbers and we will be posting the results on our Facebook page shortly thereafter where you can find our past articles and recordings of our weekly radio show with Alan Clepper on KGWA AM 960 every Friday morning at 6:30 a.m.
The wheat market this week traded largely in sympathy with corn, although unable to hold daily highs, settling Friday at $4.17 on September futures. The KC/CHI wheat spread widened even further this week hitting an all-time low of -85.5 on Friday to settle at -80.0. While this spread trade continues to impress, it will eventually snap back. For reference, a year ago, the KC futures were a 20-cent premium to the Chicago, a swing of $1. With France, now 98% harvested, and other Western European countries raising wheat production forecasts this week despite recent droughts and Egypt’s tender going mostly to Russia as well as Ukraine and Romania, there wasn’t much in the way of bullish news for the wheat market except for U.S. exports coming in at the top end of expectations.
Completion of the winter wheat harvest in the U.S. came in 2% behind expectations and 10% behind last year at 82%. Harvest is underway for spring wheat, with good-to-excellent ratings the same as last week at 73%, but 1% ahead of trade guesses. We continue to position clients selling physical wheat on the upside with call option strategies in December and March.
While the end of the year often sees wheat prices soften and the current bear channel pattern, the question on corn this year creates somewhat of a different prospect to trade. If corn prices take off again, wheat prices should benefit as should the prospects of more wheat being substituted into feedlots. A headwind for grains, however, is news of expanding acreage in South America, with a Brazilian poll estimating corn area could expand by 3.5% next year to a record 44.3 million acres. Declines in France’s corn crop for the sixth consecutive week will lend support in the near-term with 60% rated good-to-excellent from the peak at 82% in late June.
The cattle market also has been stuck in a trading range recently finding support on dips, but unable to break out above the $142 level on most feeder contracts. We actually got a buy signal on feeders this Thursday only to fail on Friday with August settling just below $139. Cash prices above futures has suggested that futures may fill the gap, but the uncertainty over grains has traders hesitant to be too bold ahead of Monday’s grain reports. The impact of the African swine fever in China continues to become more widely reported with Rabobank this week saying they believe half of China’s pigs, the country has half the world’s pigs, could have been eliminated. U.S. pork exports to China have continued to surge, although likely will slow after this week’s political retaliation. The extent of frozen pork in Chinese storage remains an unknown, but the impact will go far beyond just this year and even next. Reports this week show cases found in Slovakia, in addition to the continued spreading of the disease across Bulgaria with 30 outbreaks so far. All this could bode well for beef prices later this year and early next depending on how the spread of ASF evolves and pork prices.
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.