Howdy market watchers. Wow, it was indeed a week for the wheat market. I think it’s safe to say that any spare acres out there are going to find a wheat drill crossing them soon as the market clearly says that we need more.
December KC wheat futures closed the week at $7.74 compared to $5.90 last year, a 31% increase, and $5.09 in 2019. December spring wheat pushed through the $10.00 mark to close the week at $10.13, while Chicago wheat finished at $7.56. Drought conditions in major exporting countries that have seen restrictions placed on exports from Russia, as well as the need for greater buffer stocks in key importing countries and further support from inflationary concerns, are driving commodity prices higher. These are the highest levels we’ve seen since 2014.
As I said this August while on the road with Sidwell Insurance, next stop, $8.00. The USDA called the U.S. winter wheat crop 70% planted as of last Sunday. With rains coming to the Russian winter wheat belt, accounting for around 70% of total production, SovEcon analysts increased wheat production forecasts to 80.7 million metric tons versus this year’s 75.5 MMT. Ukraine’s winter wheat planting is progressing well with planting progress at 75%. Winter wheat represents around 95% of total wheat production in the Ukraine, and planted area is expected to increase by 9.5%.
It’s not just the wheat market that’s on the move. Oats have seen the biggest move, up more than 80% so far this year. Soft commodities also have seen significant moves with cotton up nearly 50% in 2021, coffee up nearly 60% and sugar up more than 20%.
Energy commodities have really been on a tear with crude oil up 80% this year and natural gas, which only starting moving higher this summer, up 85%. That doesn’t only translate to higher costs at the pump and at home for cooling and heating, but also fuels rising food costs through fertilizer and transportation. The vast majority of what we and animals eat is fed with nitrogen to accelerate growth. Natural gas is needed to make nitrogen. Higher natural gas translates to higher nitrogen costs and in turn higher grain prices needed to incentivize producers to plant crops that are more nitrogen intensive.
This is one reason why soybeans have had difficulty reversing the downward slide as they are nitrogen fixing from the air and thus, require less to produce especially versus corn. The lower nitrogen intensity needed for sesame also should see this summer crop regain acres next year. Nitrogen prices took another leg higher this past week with urea now around $800 per ton, anhydrous near $1,000 per ton and UAN near $500 per ton. As these prices continue to rise so too are breakeven yields and prices at which next year’s crop have to be sold to be profitable.
At these extremes, yield and price risk protection become even more important. Despite higher fertilizer prices, now is not the time to cut back on feeding your crop. If you’re considering fertilizing less, it’d be better to sit this year out. While that may sound overly black and white, yield loss from factors that you can control must be controlled if there is any hope of making money in this environment.
The weaker U.S. dollar over the last two weeks of trade has added underlying support to commodities. The U.S. dollar index ended the week with an inside day on the charts suggesting Monday’s action likely will see follow through in that direction. Should the U.S. dollar continue to weaken, this should provide further confidence to the commodity bulls. There was plenty of optimism in equity markets to finish the week with another new record trade for the Dow Jones Industrial Average as well as the S&P 500 Index. Solid corporate earnings and investors focus continuing on the U.S. economy have led to a three-week winning streak.
While political poker continues to be played in Washington, it seems likely that additional stimulus, though likely smaller than Biden prefers, will eventually pass. This will only add additional spending in the economy that ultimately ends up in the market. Jobless claims for the week ending Oct. 16 were supportive with 10,000 fewer people looking for work versus estimates. Prices however continue to rise with supply chain delays, rising fuel prices, worker shortages and rising wages, advised by companies.
Higher energy prices have also supported corn as demand for ethanol has increased. December corn closed the week at $5.38, above the 50-day moving average. A close above $5.40 could see a push to $5.46 to the next resistance level. Friday was an inside day for December corn, so next week’s move could see follow through in that direction. Nervousness over Mexico’s executive order issued last year that would ban GMO corn for human consumption were finally put to rest this week in Iowa with the Mexican ag minister telling Secretary Vilsack that corn imports from the U.S. would continue given they are further processed. Mexico is one of the largest buyers of U.S. corn.
November soybean options expired Friday. First notice day for November soybean futures is Friday, Oct. 29. Delivery points will be rolling cash bids to the January futures by Thursday at the latest. Keep this in mind when you’re checking basis bids. The U.S. soybean crop was 60% harvested as of last Sunday while corn was 52% harvested.
Friday marked the monthly release of USDA’s cattle-on-feed report. In anticipation of a bearish report from higher placements forecast at 101.4% over last year, the feeder cattle market sold off pre-report Friday with November feeders breaking through the 200-day moving average. In the report released at 2 p.m. after the market close, the placement number actually came in lower than expected and lower than last year at 97.1%. This should lead to some support next week with a swing of 4.3% fewer placements than expected. October on-feed numbers also came in lower than expected at 98.6% versus 99.4%. However, marketings did come in lower than expected, but only slightly, at 96.9% versus 97.5%.
Winter wheat planted over the past couple weeks before the rains is looking good given warmer temps recently. This has improved confidence of producers with 500-600 weight cattle bringing more than $900 per head. As with crop inputs and harvest prices, buying cattle at these levels need protected. I believe there will be a strong market in the spring given fewer cattle, but there will also be plenty of volatility in the markets and you don’t want to get caught selling at the wrong time. Now is the time to figure out a game plan as you’re buying cattle. Livestock Risk Protection (LRP), which I also offer through insurance, in addition to puts and hedges, is a product to closely consider this year. It is basically a subsidized put option, but there are other differences as well.
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 risk management and marketing solutions to pursue your objectives. Self-trading accounts also are 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.
Come see me every Thursday sale day at the Enid Livestock Market and let’s talk markets. Wishing everyone a successful trading week.