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Sidwell Strategies Week-in-Review CommodityBuzz: Corn and beans surge on China, funds and USDA


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Howdy market watchers! We concluded this week with a solemn reminder of the events that transpired on the morning of September 11th nineteen years ago. America and the world changed that day and we take a moment to remember all those that perished while going about their daily routines and the brave men and women first responders who made the ultimate sacrifice saving others. While it remains an all too vivid memory, it is still hard to imagine that those events actually happened. They did and yet we overcame and rebuilt just as we will do in a post-COVID world. However, there is no doubt that things will be forever changed. The fall temperatures were a welcome change this week as was the rain. This really sets us up for winter wheat planting to commence although remain vigilant of army worms. While temperatures are going to warm back up some, we look to be in for a colder, wetter winter with La Nina officially announced by NOAA this last week. Friday was crop report day with the monthly USDA WASDE and Crop Production reports released at 11 AM. While next months report is typically more consequential than the September report, there was plenty of market movement in the grains leading up to the release with it being all about beans after. Corn looked to make its highs of the day before the report at $3.62 and did right up until the close when it made a final surge to $3.62 , a new high not seen since mid-March. December corn settled the week at $3.68 . Much of the driver leading in to the report was talk that China could buy up to 30 million tonnes of corn, over 11.5 percent of its estimated production this year, due to flooding issues in the south, dryness in the northern grain belt and an already tight balance sheet as demand continues to surge driving prices higher. China has already stepped up buying of US grain sorghum as an alternative that has jumped basis levels $1.15 over corn basis. China is also expected to absorb local supplies of wheat and rice for feed needs, but it seems inevitable that cheaper corn imports will also be used to a greater degree that the 7.0 million tonne import quota. However, in Fridays reports, the USDA did not reduce Chinese corn production nor did they increase imports. The trade remains skeptical of this and we could see revisions in the October reports allowing more time for action to catch up with recent rumors. China bean imports were also left unchanged while wheat imports were raised by 1.0 million tonnes. Bottomline, the balance between China demand strength on one hand and US harvest pressure and yield on the other will determine the next direction of these markets, all of which are currently overbought. The latest estimates of US corn and bean yields were indeed lower than the August numbers, but were right in line with expectations. In fact, USDAs yield numbers came in slightly higher than average trade guesses. Harvested corn acres were down 500,000 acres, which some think is conservative, while bean harvested acres were 1.4 million acres lower, which also reduced production and ending stocks. These numbers were however right in line with trade expectations and in fact, slightly higher for US ending stock levels. Managed funds continued to add longs as the US dollar remains weak although recovering from early September lows. In fact, funds added longs in all grains except Chicago wheat. The USDA was optimistic about South American production especially in Brazil with increases in corn and bean production in 2020 and 2021 reaching new records. On a global level, perhaps the biggest surprise was reduction in corn ending stocks by 11 million tonnes from last month and nearly 4 million tonnes below trade estimates. All others were in line with estimates although wheat ending stocks were increased above last month USDA numbers as well as above trade guesses that called for a slight reduction. November beans on Friday surged 18.5 cents to close at $9.96 after making a high at $9.98. This market has pushed through the resistance $9.80 triple top, but remains firm. I expect $10.00 to be the next resistance level and going all the way back to November 2017. Although this market could keep pushing, this one month rally of $1.30 is a favor for producers and should be taken advantage of with cash sales, rolling up put options or adding hedges. The same goes for corn at the $3.70 and $3.80 levels. The wheat market lost momentum after the report with production increases forecast for Australia and Canada with only a 1.0 million tonne decline in Argentina. Recent US rains may pressure markets ahead of winter wheat planting although there is talk of dryness in the Black Sea region. July 21 new crop wheat closed down 2.5 cents at $4.96. New crop protection when this market is above $5.00 is starting to look more attractive with recent action. The cattle market continues to struggle although finished the week higher in both feeder and live contracts. The feeder market put in a near term low this Wednesday below the 100-day moving average and continues to trade between that and the 200-day moving average. October feeders settled the week at $140.575 up from the weeks lows at $137.250. Live cattle trade was weaker this week with light sales reported at $101 down from $102-103 the week prior. Germany reported a case of African Swine Flu in a wild boar this past week sending the lean hog futures up $9.00 in 3 sessions creating several gaps on the chart. Japan and South Korea have already banned imports and it is likely that other countries could follow although this was not in the commercial herds. With Chinas need for pork and Germany off the market for awhile, this could tighten up pork supplies that could have spillover into beef. 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!

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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