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Sidwell Strategies Week-in-Review CommodityBuzz: USDA report bearish wheat, supportive for corn and beans


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Howdy market watchers! Weve passed the middle of May and the economy is finally starting to reopen to a new normal, well sort of. I am thankful to be a business owner in a smaller community in Oklahoma as the road to recovery is going to be much tougher in more populated cities around the country. I encourage everyone to get out and support local businesses in your community wherever you are as they need you now more than ever. Yes, the brewery is open! Venture out and experience places that you havent made time for before and of course, be safe doing so. The health of our economy continues to wane from the effects of COVID-19 as jobless claims just this week totaled nearly 3 million, bringing coronavirus tally to 36.5 million. Comments from Fed Chair Powell on Wednesday warning of extended economic weakness and the need for Congress to act with additional fiscal support weighed on markets. News of the House passing another $3 trillion stimulus package on Friday saw political rhetoric picking up as the Senate said it would be dead-on-arrival until determining the effectiveness of past stimulus. Expect more volatility ahead in equities and likely weakness through the summer. The week of rains we were expecting in northcentral and western parts of our great state fell well short of that forecast with all the moisture falling east and south. The Lahoma Mesonet only reported half an inch in the past 7-days while Alva received 6 tenths. Fairview managed to reach the one-inch mark although also had some hail as I understand. The color on the drought monitor continues to spread from the panhandle through western and northern parts of the state. Western Kansas is also extremely dry with severe to extreme drought now covering 15 percent of the sunflower state. As the wheat reaches the filling stage, we could use some precip. Cooler temps are also important and it looks like were going to stay below 80 for this next week with rain chances returning next weekend. The wheat market sure didnt hold any weather premium this week dropping nearly 30 cents by Wednesdays close. We were expecting the 200-day moving average at $4.73 in KC wheat touched in Mondays session to show more support. With Tuesdays USDA monthly WASDE and Crop Production report coming in bearish for wheat with world ending stocks reaching new record highs, the market was on the fast track to $4.50. By Fridays close, the market managed to stabilize settling the week at $4.52 after touching lows of $4.47 on Thursday. While the US wheat crop is expected to be smaller this year than last, overall production was above average the trade estimates across all classes. However, hard red winter wheat numbers actually came in 6 million bushels lower than the trade expected and exactly 100 million bushels less than last year. I suspect this may help continue to narrow the KC-Chicago wheat spread that remains at a minus $0.46 while typically being positive. For those without new crop protection, watch how we open this week and if we get a close below this $4.50-level, we could be heading back to the mid-March lows at $4.30 unless we see China step in again and buy wheat. It is indeed time for China to start walking the talk and make good on Phase 1 commitments to purchase US agriculture commodities. Should we see this start happening down at these levels as we did again in soybeans this week, it would help buoy all commodities from these oversold levels. There is no doubt that President Trump is going to continue to step up the rhetoric and pressure on China as the election nears. One of the other factors weighing on wheat is its premium to corn. Until we start seeing movement in corn or weather issues or further export restrictions from Russia or Ukraine in wheat, we may see gains in wheat capped by these levels of corn futures. On Friday, APK-Inform released that Ukraines wheat exports could decline nearly 20 percent this next year due to lower production. Parts of Russia also remain dry and have capped exports and lowered production estimates. Germanys wheat acres are down 7 percent this year while French winter wheat conditions were lowered 2 percent as were overall US wheat conditions to 53 percent Good-to-Excellent versus 64 percent last year. While were hearing of more freeze damage showing up in Oklahoma, there is a lot of wheat that looks pretty solid with talk of 60-70 bushel yields. Planting progress for corn continues to advance at 67 percent complete though slightly behind expectations at 71 percent. While weather is cooperating in most places, there is still corn in the field from last year in the Dakotas and we may see prevent plant again this year although not near as widespread as last season. This weeks USDA report was actually supportive for US corn while bearish on the world stage. US ending stocks came in at 3.3 billion, nearly 100 million bushels below expectations. Old crop ending stocks were also lower than expected. On a global level, ending stocks came in above expectations. Despite this news, the corn market managed to continue trading in the 10-cent range between $3.30 and $3.40. The fact that we havent made a new low with plantings accelerating and bearish global data gives us hope that we may have seen the lows put in on corn. IEG Vantage, formerly Informa, on Friday released their estimates for corn and bean acres lowering corn by 2.8 million acres below USDAs 96.99 million while increasing bean acres 2.4 million above USDAs 83.51 million acres. December new crop corn closed the week at $3.31. In the soybean market, Tuesdays USDA report was considered supportive with US production, US 2020/21 ending stocks and global ending stocks coming in below trade estimates. We need to continue closing above the $8.44 level on November beans to continue moving higher. It was another volatile week in the cattle markets as high priced retail beef is beginning to curb demand while slaughter facilities are slow to ramp up production while continuing to make record profit margins. Fed cattle cash bids have been improving reaching up to the $117 level. The big news this week was the Senate bill introduced by Senator Grassley that would mandate larger packers to purchase 50 percent of throughput on a spot cash bid with 14-day delivery terms. With the four largest packers, two of which are Brazilian owned, controlling 80 percent of the market with only a small percentage of the cattle negotiated on the spot market, there effectively is no market. This is why were seeing record retail beef prices despite an abundance of cattle selling at low levels. We will see how far this proposed legislation makes it through Congress, but I do feel that were finally gaining some material momentum for the rules to be changed. May feeder cattle futures and options expire Thursday and settled Friday just below $125. August feeder futures finished the week just above $131. We need to hold these levels or risk going lower. Feeders are still overpriced relative to the Live cattle contracts and so watch this spread. The next USDA monthly cattle-on-feed report will be released next Friday after the close. Estimates are for another significant drop in placements as large numbers of cattle, nearly 700,000 head, are being held outside the feedlots. On-feed is expected at 94.1 percent of last year with placements at 71.8 percent and marketings at 74.6 percent. Give me a call at (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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