Sidwell Strategies Week-in-Review: USDA reports further ignite grain rally

Howdy market watchers! Where the wind comes sweeping down the Plains! That’s how the week ended and not just in Oklahoma, but across much of the US winter wheat belt. With consecutive rain and snowstorms in recent months, producers are getting anxious to get back into the fields to topdress wheat acres and the wind may help quicken the pace ahead of returned precip chances in the middle of next week. Markets will be closed Monday in observance of Martin Luther King, Jr. day, but reopen for the overnight session starting at 7 PM. There were plenty of headlines this week from the first ever second impeachment of a US President, lackluster jobs numbers and calls from the President-elect for a nearly $2 trillion stimulus to come. Grain markets continued to be excited this week from anticipation for and the result of USDA monthly reports that were one for the record books.  This included a record drop in November to December corn production, record shortfall in December 1st US corn stocks versus trade expectations and record US corn feeding in the first quarter. In fact, the trade missed pre-report corn stock guesses more than ever in history. Wheat had additional support from news of Russia’s proposals to double to 50 per tonne starting March 1st already intended export taxes of 25 per tonne starting February 15th on wheat to curb domestic inflation and extend such taxes through the next marketing year starting on July 1st. Egypt cancelled its wheat tender due to the surge in prices. China buying late week also supported wheat markets despite some profit taking Friday in corn and soybeans as more rains were seen over the weekend in South America. Tuesday’s USDA reports included the monthly WASDE and Crop Production reports as well as the Winter Wheat Seedings numbers. Last year’s US corn yields were reduced 3.8 bushels per acre to 172.0 bpa while soybeans were reduced 0.5 bushels per acre to 50.2 bpa. While South American weather will continue to be watched, the extent of the corn and soybean rally will largely be determined by the extent to which the US can regain total planted acres as seen between 2012 and 2018 above 324 million and around 320 million acres, respectively, versus just 303 million and 310 million in the past two years. Any weather delays or threat of prevent plant this spring should have corn users, including cattle feeders, preparing now. With global corn stocks at 8 year lows and demand increasing in China on the rebuilding of its hog herd, there is limited room for weather risk at the current price levels. The Brazil safrinha corn crop that will be planted after soybeans will also be watched closely as a major supply side factor. The USDA increased China corn import numbers by 1.0 million tonnes to 17.5 million. That same morning, China increased their estimated corn imports to 10.0 million tonnes from 7.0 million tonnes while already importing 11.7 million tonnes from the US that is likely 14.0 million tonnes given shipments reported to “unknown” destinations. Despite the increase, we believe China will import more in the range of 25-30 million and so watch for this “new” demand factor to grow and further tighten the global balance sheet. Corn prices in China are currently around $11 per bushel. NOPA’s monthly crush numbers for December reported Friday were below trade expectations, but still a record. China soybean demand for 2020 came in just above 100 million tonnes versus 88.6 million the year before. With tight supplies in Brazil ahead of harvest, watch to what extent China will shift buying to South America around mid-February or continue to buy US origin to cover needs. Front-month March soybeans settled the week just above $14.16 after highs for the week near $14.37. Friday was an inside day on the charts and so watch for a breakout on Tuesday. Harvest contract months continue to be behind in corn, beans and cotton. November new crop futures closed the week just below $12.00. March corn settled Friday at $5.31 ½ while December new crop futures finished the week at $4.60. As we get into planting range, watch for these spreads to narrow. Planted acres for winter wheat were reported ½ million acres above trade guesses at 1.5 million acres above last year’s historical lows.  We do expect spring wheat acres to ultimately come in lower in competition with soybeans. Russia wheat production was raised 1.3 million tonnes by USDA despite dryness in the southern 1/3 of the belt, held the same in Ukraine, Canada, Australia and the EU with ½ million tonne reduction in Argentina and a 1.7 million tonne reduction in China. Elevated corn futures and basis levels are likely to result in higher wheat feed usage. With Washington to be dominated by the left and a weak US dollar, the macro environment is supportive of the commodity complex. Tight balance sheet fundamentals have created a scenario where the unexpected should be expected. Therefore, producers that have forward contracted new crop or those that have hedged should protect the upside. For those concerned about increased interest rates down the road, shorting the Eurodollar futures is the approach. Call me for strategies to hedge these low interest rates. The cattle market traded both sides this week selling off on higher corn prices before finding support Friday. However, be cautious and watch that $132.00 level on March feeder futures. If we break that level, watch out below. March feeders closed the week at $135.825. Corn’s movement this next week could see the cattle complex soften again as headlines this next week leading up to the inauguration are expected to be disruptive that may see the equity market and consumer sentiments soften. If you’re feeding corn, protect the upside with call options or long futures. This is not an environment to be exposed. If you’re ready to explore the markets, give me a call at (580) 232-2272 or stop by my office to get your account set up and discuss strategies to trade these markets. 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.