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Sidwell Strategies Week-in-Review CommodityBuzz: Cattle rally as retail beef makes new high


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Happy Mothers Day market watchers! I would like to thank all the moms out there, but one in particular, Brenda Sidwell, for putting up with me all these years. They keep us in line and on track through lifes ups and downs. Spending more time with family will no doubt be a positive outcome from the new normal that seems to be unfolding. As humanity, it is important to look for the silver lining, especially when times are tough. I am grateful to be in agriculture and rural Oklahoma and not still in China Speaking of, I think we can all agree that its time for China to start walking the talk. Despite stepped up orders as of late for pork and beans and a welcome buy this week of 686,000 tons of corn, China has plenty of purchase commitments yet to fulfill while continuing to make announcements on Brazilian bean buys. The American Farm Bureau Federation illustrated recently that expected purchases over the next few months will be muted through September requiring China to make huge purchases in the last quarter, nearly $22 billion, to reach the $36.5 billion commitment level. On Friday, Phase One promises were discussed by phone between top US and Chinese officials with the latter saying that obligations would be met. The proof will be in the purchases, but China has plenty of public relations work to do less meet its announced trade deal buying obligations. China knows this and its not just a bone to pick with the US. President Trump is pressing the agenda, but if anything can be proven on Chinas mishandling, the world may join this movement. Of course, there are plenty of politics at play with this being an election year, but there is more to this story than just happenstance. The question is, how much and when could China buy to start fulfilling its promises? The progress of this over the coming months will determine rather a Phase Two will be in the cards or not. While we continue to hear reports that the Chinese economy has been on the recovery since March, I believe the US economy has stronger underlying fundamentals than that of the export-oriented PRC. Im also expecting that we will see more basic manufacturing return to the US as localized sourcing solidifies as a norm in supply chain control. Beef is becoming the poster child for alternative sourcing. Local grocers are rationing consumer purchases as the monopolized slaughter industry in the US hard hit by plant COVID infections has continued to limit supply of product to retailers. President Trump this week asked the DOJ to inquire on the issue after many years of debate over price manipulation that has seen margins in the past months reach fresh record levels while producers receive less for their output and consumers pay record levels for retail beef as well as outright shortages. Beef prices reached a new record this week of $458.54 versus $236.20 on April 8th. Packers have started to bid up cattle with $110 seen this week seeing triple digits for the first time in weeks. National Beef announced setting a floor on formula priced cattle this next week at $115. However, this is not the price of negotiated cattle leaving the market unknowing of the market price. There is little doubt that the higher bids being shared by packers is in part due to their own PR work after massive COVID cases have slowed and shut down plants resulting in even higher margins reaching $645 plus per head. With food shortages staring to get the attention of elected officials, Washington is getting more involved. Proposals began circulating this week of a so-called Fed Cattle Set-Aside Program that would fund placing feedlot cattle on a maintenance diet for 75 days to prevent further slippage in the beef cattle industry. Such proposal was thought to be behind the early session limit up moves in front-month June Fat Cattle contracts on Friday that reached a high of $98.475 before settling below $95. With cash trading at a premium to the futures, we could see a firmer tone as long as cash holds up. Feeder cattle contracts also enjoyed strong sessions on Wednesday and Thursday while settling slightly lower to end the week. Both Feeder and Fat cattle contracts have however created gaps again on the chart that they will eventually fill. While optimism has indeed returned as the economy reopens packers up kill levels, be mindful that the supply chain is not current and we will likely see cattle to continue backing up as more cattle begin to move out of the country. Although not until the end of the month, cattle-on-feed estimates for May 1st are at 94.1 percent of last year while placements are thought to be as low as 71.8 and marketings at 74.6 percent. If youre continuing to hold cattle over the coming months, we believe these resistance levels are worth protecting even if for the short-term. Give me a call if youd like to learn more about dynamic strategies for this dynamic market. In the grain complex, weather and China purchases are re-emerging as key drivers. Firmer oil prices this week supported corn as increased gasoline demand saw ethanol stocks nominally decline. COVID-19 has impacted summer travels plans, but Im starting to expect air travel will be reduced, but driving will pick up to more local destinations. With managed money holding a healthy net short in corn given weaker demand fundamentals and higher expected acres that is already half seeded, there is little weather premium priced into this market as freezing temps blanket much of the Midwest this weekend and China buying picks up. Be watching for a potential breakout should the stars align. Call me if interested to consider this trade. Next Tuesdays USDA monthly USDA Crop Production and WASDE reports will shed more light on the carryover and trade expectations setting the tone for the demand side of the equation. Should we get a move in corn, I believe wheat could be supported with even tighter fundamentals. While wheat conditions improved slightly this week after expected declines, I believe conditions are less healthy than this last weeks report led on. More freeze damage is emerging around the state and in parts of Kansas while the drought is taking a toll. Watch hail threats this next week and consider protection as it will last until April 30, 2021. Hopefully, the rains this next week will materialize. Front-month July new crop KC wheat this week settled at $4.80 while Dec corn finished just above the support level of $3.35 and November beans above $8.55. Equity markets rallied this week despite unemployment claims for April reaching nearly 15 percent. While signs of optimism return as the economy attempts to reopen, I advise investors to be vigilant for a subdued summer and expectation of COVID cases returning in the fall. Perhaps well be better prepared, but the opportunities will evolve as companies are required to pivot to stay relevant. We have ideas to help you navigate this uncertain environment and trade volatility. Whether youre a producer looking for opportunities to hedge your price risk at higher prices or an investor looking to trade volatility, I help design and execute a strategy to participate in agriculture and energy markets. Give me a call (580) 232-2272 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. Remember, I am on-site at the Enid Livestock Market on Thursday, sale day. Wishing everyone a successful trading week ahead!

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.



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About the author


Brady Sidwell is the Founder and President of Sidwell Strategies, Enterprise Grain Company, Enterprise Grain Malt, Sidwell Solutions, Sidwell Seed, 81 Feed and Seed, Sidwell Transport, Arbitrage αlpha Solutions and co-founder of Enid Brewing Company. Mr. Sidwell is also a Limited Partner and member of the Advisory Board of Germin8 Ventures, a Food Tech Venture Capital firm based out of Chicago, and a founding partner of Ninja Ag, LLC, a precision agriculture technology business that creates variable-rate nutrient applications from corrected NDVI imagery. Mr. Sidwell was recently appointed to the Board of Directors of the Kansas City Federal Reserve Bank, Oklahoma City Branch.
 
Prior to his recent change in becoming an entrepreneurial business owner and commodity broker, Mr. Sidwell was Vice President of Global Strategy, Mergers & Acquisitions for the OSI Group, based out of its headquarters near Chicago. He first joined the company as VP of Corporate Strategy and Business Development for the Asia Pacific, Middle East and Africa (APMEA), based in Hong Kong. At OSI, Mr. Sidwell was responsible for spearheading global strategy and M&A.
 
Before joining OSI, Mr. Sidwell was Head of Food & Agribusiness Research and Advisory for Rabobank in North East Asia. He was responsible for cross-border F&A strategies for companies and investors across various sectors in the supply chain. While at Rabobank, Mr. Sidwell appeared regularly on Bloomberg, CNBC and Reuters TV to discuss the impacts of global and regional food & agriculture developments on Asian and global markets.
 
Prior to Rabobank, Mr. Sidwell worked on project teams at the U.S. Embassy offices of the U.S.D.A. in South Korea and Thailand. He holds a Bachelor of Science degree cum laude in Agricultural Economics with a focus on International Marketing from Oklahoma State University and a Master of Economics degree from the University of Hong Kong where he studied as a Rotary International Ambassadorial Scholar to China. Mr. Sidwell was raised on a family farming operation in Goltry, OK, where he lives with his wife Emily and their dog, Daisy. He is active in his community as a Rotarian, Ambucs member, Advisory Board and Investment Committee Member of the Cherokee Strip Community Foundation, Class 31 of Leadership Oklahoma and the Board of Governors of the Oklahoma State University Foundation.

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