Hello market watchers. What a difference a single week can make. After blizzard-like conditions and freezing temperatures last week, it almost felt like spring had arrived.
Highs in the upper 60s return next week before precipitation returns and near-freezing highs return on Thursday. While much of the weather talk has called for rain, the potential remains for alternatives to sleet or snow. NOAA’s 8-14 day forecast shows above normal probabilities for the southern plains wheat belt through the eastern corn belt.
Despite the significant winter storm that covered much of the United States in early February, limited moisture resulted. Dry conditions continue to support pre-planting cereals in the United States and continued row crop reductions in South America. China’s continued buying of U.S. soybeans only added to an anxious market that together helped push soybean futures up $2.40 a bushel from lows to highs in just two weeks. The biggest news came on Thursday, a day after the USDA’s monthly WASDE and Crop Production reports, when Brazil’s CONAB sharply lowered soybean crop estimates to 125.5 million metric tons from 140.5 million metric tons, which was significantly lower than the USDA’s 134.0 MMT the previous day. This drop in production also reduced exportable availability to 80.2 MMT from USDA estimates of 84.5 MMT and well below last year’s 88.5 MMT. November new crop futures ended the week at $14.44.
Brazil’s maize production, on the other hand, is expected to be significantly higher at 112.3 MMT from 87.1 MMT last year. The USDA has even higher expectations for the Brazilian corn crop at 114.0 MMT. With these lower adjustments for corn and soybeans, I expect the USDA’s upcoming monthly estimates to reduce the size of these crops as well.
The recent flurry of US bean purchases by China may suggest similar and tighter supply expectations in the future. China’s purchase commitments for U.S. agricultural products made under the previous administration can be seen to result in such purchases as well, but I firmly believe that these commitments are only honored when market need or opportunity favors China. December new crop corn futures traded at a multi-year high of $5.98½ on Thursday and closed the week at $5.94¾.
Crude oil futures surged this week to levels not seen since the fall of 2014, closing the week at $93.10. The $100 level looks good in the charts, as does the $120 possibility. These high energy levels should support ethanol which, in turn, will drive demand for corn. Natural gas prices fell 30% in six trading sessions as the cold weather subsided. A gap remains above the current market level to be filled at $4.487. The market closed above the 50-day moving average on Friday, and I think we’ll see the chart pick up again in the coming weeks.
The escalation of the conflict along the Russian-Ukrainian border is expected to cause volatility in energy and grain markets. The chatter of Russia ordering its military to step up alert at the end of Friday’s agricultural session saw crude, natural gas and grains push higher at the close. The Beijing Olympics end on February 20, and if anything is to happen, it will likely be right after the closing ceremonies so as not to capture China’s global stage amid much geopolitical controversy.
Wheat has risen this week with Russia staging protests in the Black Sea, although no grain shipments have yet been made. France has reduced new crop soft wheat acreage by 500,000 acres due to increased winter rapeseed production. However, this reduction of a major exporter could become increasingly significant depending on conditions in other major exporters, including and especially the Black Sea region. July new crop KC wheat ended the week higher at $8.04¾ after high volatility. The wheat market had an impressive rebound this week in general and during Friday’s session in particular. In fact, July KC set up an outside day, higher and lower, with a trading range of 38 cents on Friday alone. The fact that this recent bounce was a higher low on Feb. 3 compared to Jan. 14 suggests that this market may be attempting to reverse the downtrend channel we’ve been trading since Thanksgiving. Confirmation of this would require seeing the July KC wheat trade above the January 25 high of $8.46¼. Note that March grain options expire on February 18.
If you’re looking for a crop with solid prices, but no market risk, consider sesame through Enterprise Grain. This crop requires fewer inputs, is drought tolerant, and has a taproot that can benefit the next crop. The Kremlin and Kingfisher delivery points cover much of the state in terms of proximity, and if you have a location that would like to be a delivery point, contact Enterprise Grain to discuss opportunities. The deadline to add sesame to your crop insurance policy is March 15, so if you’re considering this as a crop option, be sure to add it now in case conditions aren’t ideal for the crop. corn or soybeans. Sesame is planted between May 15 and early July, so there is a large window for planting.
Thursday’s monthly inflation figure for January at 7.5% was the highest since February 1982 and above Wall Street expectations. Weekly jobless claims came in at 223,000 below the 230,000 expected, suggesting the labor force continues to remain tight. Stocks sold after the higher inflation figure as fears that the Fed could tighten rates more in March than expected adjusted the outlook. I believe we are all starting to see inflationary pressures in day-to-day services as businesses of all sizes start to feel the effects. The protest by Canadian truckers against vaccination mandates is exacerbating already disrupted supply chains and is expected to spread across the United States and culminate in Washington, DC, around the State of the Union address on March 1. Although headline inflation can be brought under control by rising interest rates, supply chain issues are likely to linger.
The cattle market hit new recent highs before selling off over the weekend. The strength of the livestock sector has been impressive in a short time and earlier than expected, but I think we need to undergo a correction before finally recovering. With higher prices and persistent dry conditions, I expect to see big auctions in the coming weeks of cattle coming out of wheat pastures. April fats hit $148.70. Rising grain prices and inflationary pressures on equities are expected to put downward pressure on this market in the near term.
If you’re ready to trade the commodity markets, call me at (580) 232-2272 or drop by my office to set up your account and discuss risk management and marketing solutions to pursue your goals. Auto-trading accounts are also available. It’s never too late to start and no operation is too small to have a risk management and marketing plan in place. Come see me every Thursday sale day at the Enid Cattle Market and talk markets. I wish everyone a successful trading week.
Sidwell is a Licensed Series 3 Commodity Futures Broker and Director of Sidwell Strategies. He can be reached at (580) 232-2272 or [email protected] Trading futures and options involves risk of loss and may not be suitable for all investors. See the full disclaimer at http://www.sidwellstrategies.com/disclaimer.