Profit taking in grains bring relief to cattle market: Sidwell Strategies Week-in-Review

Howdy market watchers!  The corn is planted, beans and milo are getting in the ground and sesame is about to get started as soil temps rise to needed levels.  Bring on the rain.  We will see what materializes, but there are chances of precip in the southern plains every day over the next week.  Deepening shades of yellow and red continue to spread on the drought monitor and so this is welcome news.  The situation in the high plains and out west are especially dire with extreme and exceptional drought covering many states from border to border.  

Winter wheat is in the filling period and moisture and some cooler temps are ideal.  Crop conditions improved slightly this past week with US winter wheat now 49 percent Good-to-Excellent, up 1 percent from last week.  In Oklahoma, the G/E ratings increased 5 percent from the week prior to 59 percent while Kansas declined 2 percent to 53 percent G/E and Texas up 6 percent to 30 percent G/E due to dry conditions.  

Field days are happening across wheat country with the Oklahoma State Dr. Raymond Sidwell Research Station in Lahoma hosting theirs on Friday.  While the wheat looks good although thinner in some areas than we’d like to see, stripe rust is prevalent and will spread with additional rain.  

The monthly USDA WASDE and Crop Production reports this Tuesday sparked selling in grains despite China’s multiple purchases of fairly sizeable new crop corn shipments.  New crop ending stocks for corn came in nearly 11 percent above average trade guesses while beans and wheat were also higher.  US hard red winter wheat production estimates also came in above average trade guesses.  Brazil corn was adjusted slightly lower, but less than expectations which also contributed to the long liquidation and profit taking.  Markets attempted bouncing back on Friday, but couldn’t manage to hold the gains into the close.  July KC wheat and December corn both closed below the 20 day moving averages while beans managed to hold above.  Improving US weather conditions, planting pressure for row crops and harvest pressure for winter wheat are among the factors.  News of a bridge closure along the Mississippi River that links Memphis and eastern Arkansas via Interstate 40 stoked further selling as over 700 barges were held up, 80 percent of which were said to be transporting corn.  However, the USDA did confirm tight and further tightening old crop ending stocks for corn that is likely to continue driving this market despite the correction.  

Inflation concerns also weighed on the broader market this week with equities under pressure although a risk on attitude renewed buying late week with the Dow closing back above 34,000.  While this week’s profit taking has long’s and producers jittery, I don’t expect the bull rally to be over.  With as much up as we’ve seen recently, we are sure to see greater volatility. Expanded limits across commodities also provide greater scope for managed money and algo trading to move the market.  Keep in mind as we approach wheat harvest in the southern plains that barring any major issues, we can expect some short-term pressure.  The July KC wheat chart put in an inside day on Friday and though we are nearly 85 cents off the recent highs, $6.60 is still a decent price.  Producers should also consider looking into next year with July 2022 KC wheat now at $6.50.  Selling wheat to minimize storage and interest charges can be an effective strategy and then utilize call options to stay in the market.  

With profit taking in grains, the cattle market saw some relief.  May feeder finished the week with an inside day above the 20 day moving average for the first time early to mid April.  Live cattle contracts sold off late week to finish right at the 20 and 100 day moving averages.  These chart patterns are going to be key going into next week.  Should grains remain under pressure, we can expect further support in the cattle market.  The reopening of the economy and summer demand should continue to drive this market, but packer “control” may meter the recovery.  However, we are friendly to Live cattle futures.  

As I have outlined before, hedging your hedge by adding upside potential on either board hedges or forward contracts can be an important strategy in protecting oneself in such volatile markets.  If you have on farm storage or looking for a way to lock in futures without choosing your delivery point until you can find the best basis bids, there are several risk management and marketing programs for wheat, corn, milo, soybeans and sesame to consider that will enhance your marketing efforts. This is a very creative solution to lock in futures without having to pay margin calls, but also have the freedom to negotiate basis with delivery points once you are ready.  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 strategies 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.  

Remember, I am on-site at the Enid Livestock Market on Thursday, sale day.  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