Grains rebound on demand hopes

Howdy market watchers!  The feeling of fall is finally here and it’s never felt so good! 

We have also been blessed with more timely rains this last week though they brought more than enough severe weather at an odd time of the year.  Everything has really greened up especially the winter wheat that has been planted. This next week is really prime time for grain-only wheat seeding.  Soil conditions are now ideal after the plague of drought.  The US drought monitor map is starting to lighten its colors, but plenty of dryer than normal conditions remain across the country. 

The USDA reports released this week did indeed move the market as I wrote about in last week’s commodity column ahead of the release.  The surprise in Tuesday’s numbers was the increase in US corn yields while average trade guesses expected a decrease.  The USDA pegged US corn yields at 176.5 bpa, 0.2 bpa above previous estimates while the average trade forecast was for a 0.4 bpa cut below previous. With harvested acres held unchanged, this increased overall US production above 15 billion bushels that was 54 million bushels above expectations.  

Although most of the report day’s selloff took place pre-report, there was follow through in Wednesday’s session that resulted in two-day losses of over 21 cents.  December corn however did hold the $5.00-level and staged a two-day rally to close the week at $5.25 ¾, down only about 5 cents on the week.  

With the USDA closed Monday for Columbus Day, weekly reports released on that day were delayed.  Harvest progress was reported on Tuesday and showed US corn 41 percent complete, 10 percent ahead of the 5-year average while conditions improved 1 percent.  US soybeans were reported at 49 percent harvested, 9 percent ahead of average. US bean conditions increased by 1 percent.  

Double-crop soybeans continue to be harvested in the southern plains in areas dry enough to get into the field.  Yield on double-crop beans are all over the map with most disappointing after hot and dry conditions did not provide much of a chance to finish despite a good start. USDA’s reports pegged US soybean yields at 51.5 bpa, 0.5 bpa above average trade guesses and 0.9 bpa higher than the agency’s previous forecast.  Harvested acres were held the same that resulted in production increasing 74 million bushels above previous versus trade expectations for an increase of just 43 million bushels.  This increase in production was paired with average farm gate price forecasts declining $0.55 per bushel to $12.35.  November soybean futures have been in a downtrend early June this year, peaking at $14.80.  

While the market based and turned higher this week, this trend has a lot of work to do to be reversed.  The $12.50, followed by $12.87, the crossover of the 50- and 100-day moving averages, are ones to watch.  Note that November soybean options expire or exercise to futures on October 22nd. 

US ending stocks for 2021/2022 were higher than trade expectations as well as last year while what was lower than last year, but slightly higher than expectations.  South America’s corn and soybean production was largely unchanged while world ending stocks for corn and soybeans were also adjusted higher while wheat was again lower.  China’s corn and soybean imports were unchanged by the USDA, but there was welcomed supportive news out this week to get the market re-excited about P.R.C. demand prospects.  With China being on holiday last week, the return of large soybean export sales this week welcomed their return.  

Reuters reported Friday that declining corn prices in China is resulting in a switch back to corn in feed rations from wheat that got as high as 40 percent. There was also news out this week that China has increased it’s minimum purchase price for wheat to incentivize farmers to plant wheat this fall.  Reading between the lines, it sounds like China is short of wheat for human consumption and is going to do what is necessary to ensure food grade wheat does not become animal feed just because the price differential relative to local corn drives substitution.  

It was reported this week that Iran may need record wheat imports this year following the worst drought in 50 years.  Egypt announced a tender for wheat purchases this week, but then cancelled it.  Russia was the lowest initial bid followed by Romania and the Ukraine.  Russia is typically the primary supplier to Iran.  However, SovEcon’s latest estimates of the Russian wheat crop are 10 million metric tonnes below last year due to drought conditions.  

If conditions do not change and import needs increase due to shortages as well as advance buying of buffer stocks due to shipping delays that are plaguing all industries.  The Biden Administration this week has finally taken action on this.  As many have rightly pointed out on social media this week, American-made products will not be delayed by ships waiting to get unloaded.  And as I’m always pushing, #buylocal!  

July 2022 KC wheat closed the week at $7.45 ¾.  A close above $7.50-area is going to be needed for this market to see continuation, but it is possible.  The recent high was at $7.52.  The US winter wheat crop is above 60 percent planted, in line with the average. Despite improving conditions at least in the US, demand is returning.  Front-month December KC futures need to break through and hold above $7.60, which is a triple top in this market.  Keep that in mind for wheat in storage.  

After a key reversal last week in the cattle market, this week was range bound trade below the 100-day moving average for both Feeder and Live cattle futures. Friday was an inside day on November Feeder futures, which means Monday’s action will likely see follow through in that direction.  While we will see volatility up and down in this market, I do believe there is opportunity for this market to move higher and to new highs over the coming months into the new year barring any major economic disruption.  

Beef cow slaughter is 10 percent higher than last year while heifer slaughter is 5 percent higher than 2020.  With the current export demand and domestic demand likely to pick back up into the holidays and colder weather, I think we will begin to see more bullish numbers manifest in the Cattle-on-Feed reports, the next of which is out next Friday. 

For producers, these bullish sentiments are not meant to dissuade downside protection.  However, I would advise keeping the upside open by utilizing put options, LRP or buying calls if you’re hedging with futures.  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 are also 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! 
 

Brady Sidwell is a Series 3 Licensed Commodity Futures Broker and Principal of Sidwell Strategies.  He can be reached at (580) 232-2272 or at brady@sidwellstrategies.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