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Sidwell Strategies Week-in-Review: Little love for grain markets after USDA report


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Howdy market watchers! Hopefully everyone had a good Valentines Day! In other words, we hope our gentlemen followers remembered Good luck in the year ahead if not. A wee bit of luck is what is needed for those in infected areas as the coronavirus continues to spread. After two consecutive days this week of fewer new cases that had us all on the edge of optimism of a corner being turned, China changed reporting criteria that resulted in cases jumping by 15,000! Although after living in China for 10 years, this was really no surprise. In fact, I estimate that the total cases are at least double what is currently being reported. Just let the cat out the bag already! However, this is just not how Communist countries work. And as the virus spreads, government officials continue getting sacked in order to put the publics mind at ease that something is being done. The problem is that lack and manipulation of information is the expectation. If contained, it served its purpose. If not, as it never is in such a society, good luck in the year ahead As the numbers multiply, the market continues to be fickle as to what it means. US equities this week hit another all-time high as did the US dollar (recent high that is) creating headwinds for US commodity exports, particularly agriculture. On Friday alone, 2,621 new cases in China alone were reported bringing the number to 67,000 worldwide and more than 1,500 deaths, 143 of which were reported on Saturday morning China time. News spread Friday that auto factories in Europe are considering shuttering in order to contain the spread of the virus as fresh cases emerge. What does it all mean? Are US equity values being propped up as money seeks to find return and safety from an impending global crisis? As US equities climbed higher earlier in the week to soften on Thursday and Friday, gold prices were the equal opposite remaining near the recent highs as a safe haven asset. As uncertainty looms in the broader sense, the agriculture markets looked to the monthly USDA WASDE and Crop Production reports this past Tuesday for directional guidance. Upon the 11 AM release, there was a muddled market response with some bullish yet bearish signs across the grain and oilseed complex. US ending stocks and exports for wheat and soybeans had a bullish tilt while the global stock levels suggested slightly larger numbers versus expectations with Brazil soybean production higher and Argentine numbers held the same. The USDA did in fact increase Chinese bean and wheat imports for the year ahead although Phase 1 imports have not been factored in given no specific numbers have been revealed. Nevertheless, an increase in Chinese imports in the face of demand skepticism from coronavirus and an African Swine Fever reducing hog numbers, is in itself hopeful. Every month ahead will reveal a greater reality of the impact of these two potentially significant factors on Chinas ability to fulfill the $40 billion annual commitment of US agriculture imports in 2020 and 2021. KC wheat prices have been consolidating settling lower on the week just below $4.80. Seasonally, the second half of February sees weakness in the wheat market, but this has already been an atypical year with unseasonal trends prevailing with trade and political headlines influencing. December new crop corn this week settled below $3.89. US ethanol demand increased in this weeks USDA report, but exports were reduced by an equal amount. The unharvested acres in the north are still unknown and unmeasured although the USDA does plan to resurvey farmers as to the harvested acre number. This could add support to corn, but for the meanwhile has suggested that corn production remains elevated with no supply issues. Basis levels remain firm, but I am surprised that the USDA does not factor in quality adjustment for lower test weights that the higher basis levels seem to suggest as we all know exist. The soybean market has been fighting hard to stay off the early February lows only to remain with the recent trading range. New crop November soybeans on Friday retested Thursdays $9.25 highs only to settle lower on the day at $9.22 . Holding above $9.18 is a support level needed to sustain a move higher. While the market remains oversold, there still needs to be a demand reason for longs to cover net shorts. Should the fear of the coronavirus further spread be ebbed, all these markets could see a meaningful relief rally. However, with a two-day easing this week followed by a significant jump in new cases, the market may be cautious to trade good news until it is more certain. Speaking of relief, the cattle market late this week found exactly that with Feeder and Live cattle futures rebounding in the last 3 trading days. Feeder cattle contracts filled recent gaps on the chart during Fridays session while April Fats jumped back above $120. This comes at a time when producers grazing stockers on wheat pasture are soon to bring them to market. While up markets create a renewed sense of optimism among producers, we do have resistance levels in the March contract just above the $141 level and in the April contract around $143. March Feeders settled Friday at $138.525, up $2.2 on the day, while April settled at $141.375, up $2.425 on the day. Cash cattle markets this week traded in the $119 area and we will be watching yearling levels over the next couple weeks from the Enid Livestock auction barn where I know have an office on sale day (Thursday) and soon to be more days. Light calves still remain expensive and difficult to protect/hedge at the level theyre bringing. This is just an affirmation that the graze-out option remains popular and there are fewer, lighter calves available with smaller cow numbers and greater demand. The selloff in hogs makes it tempting to trade, but I do advise caution as hogs seem to always be the market that gets slaughtered. Weve learned that getting in on the futures side is best served with stop orders for when things get hog-wild As they tend to do. We saw a minor recovery in the April contract on Thursday and Friday to 64.30 cents with another gap on the chart to fill starting near 68 cents. Note that markets will be closed on Monday for Presidents Day and grains will reopen at 7 PM CST on Monday evening. 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. 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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