We are in the home stretch of market watchers – of 2022, that is.
And don’t forget to take advantage of that extra hour of sleep by turning your clocks back this Saturday night. This could be the last time if Congress gets its way.
The rain does indeed make grain. It also improves the mental health of our farming community. Nothing excites growers more than a gentle driving rain during planting and after a prolonged drought.
It was another volatile week for grain prices which ended the week with some stability despite improving weather conditions at the start of the weekend. We are talking specifically about Friday’s significant rains which finally fell on the southern plains for the winter wheat harvest. While central and eastern regions received 1.0 to 2.5 inches, many parts of the western wheat belt only received tenths and remain exceptionally dry.
Weekly condition ratings will likely see some improvement in Monday afternoon’s release, but should still be historically low as soil moisture is just beginning the recovery process.
Early ratings last Monday reported the lowest wheat ratings on record, dating back to 1986, at 28% good to excellent compared to 41% expected and 45% last year. I think that 13% lack in G/E ratings was the reason for the support at the end of the week as the dust settled on the Black Sea headlines. With each week, the charts seem to get wilder.
Russia’s announcement last Saturday that it would withdraw from the Black Sea grain export corridor sent wheat markets higher earlier this week. Then, in an about-face, markets returned to previous week’s levels, closing the gap on the Chicago charts on Wednesday and on the KC charts on Thursday, as the Russian Defense Ministry unexpectedly returned to the midweek grain deal, dismissive enough that he ever left. Although little publicized, Putin hinted that Russia could again withdraw from the grain deal if its demands are not met. This alone should maintain some risk premium in the wheat market and, in my opinion, make wheat contracts one of the most unpredictable trades over the next two months. Russia says it will make the final decision on renewal by November 18. December grain options expire on November 25. I think we’ll see more Russian rhetoric between now and Thanksgiving.
The Federal Reserve made the expected decision to raise rates an additional 75 basis points this week. The Fed Funds rate is now 4% versus 0.25% at the same time last year. The Fed has called for another 0.50% increase before the end of the year, but strong October jobs data released Friday indicates the increase is that, if not more.
The energy market was equally volatile and indeed “exciting” to trade. Just like with stocks, good news about the economy can be bad news in terms of interest rate expectations, but then comes down to good news from traders. We saw it this week in the movements of the Dow Jones, S&P and Crude Oil. The G7 coalition set prices for Russian oil exports at the weekend, after which oil futures surged. It is difficult for me to understand how price caps of any kind help to moderate or control prices in the end. I think such price caps will backfire, as we have seen throughout history as well as in recent rhetoric.
In years of trading commodities, I have never seen a time when commodity markets were so volatile. It can indeed be frustrating, but it is also a time to position yourself to trade daily volatility. We’ve been getting more and more calls lately from investors diversifying their equity portfolio into the commodity and equity indices we trade, allowing us to be both short and long. We trade indices of ags, energy, metals, currencies and equities. The next five years, if not more, will see a process of unwinding the historic and unprecedented quantitative expansion. Commodity trading and volatility will be at a 5-10 year low, and volatility should stay here with more active retail participants and overall liquidity in the markets.
The US midterm elections will take place next Tuesday, which is sure to bring additional volatility to the markets.
Brazil’s presidential election last weekend, in which left-leaning former President de Silva was re-elected, gave the bean market a boost. Soybean planting progress in Brazil is behind last year, but above the five-year average. If weather conditions normalize there, we could see more beans on the world market by the middle of next year. However, there are growing concerns about current crop and river conditions in the United States, which are limiting the supply of beans to ship now. Such a situation, combined with the weaker US dollar, could lead to increased interest in US beans on the world stage in the short term.
American soybeans were harvested at 88% and corn at 76%. As the corn market encounters resistance at the $7 mark, I anticipate farmers with bins storing corn until the futures or basis rise. The gap remains on December corn at the $7.28 level as well as below it at $5.84. The lower spread can be the one expiring on the March contract drop chart.
We haven’t talked much about the cattle market here, but we’ve seen weaker futures trading as spot markets have firmed. Nebraska saw $152.00 per cwt traded this week in cash fats. I, like the rest of the market, continue to be bullish on the cattle market. Recent rains and subsequent wheat pasture prospects are improving for early New Year grazing. The fundamentals seem undeniable. However, if you buy cattle here, protect them. Investment is greater at these levels of fundamentals and hope, as well as food and medicine costs. Still, it never fails that mid-spring prices are lower because of this or that.
If you want to know more about ways to protect your investment, contact your banker to make an appointment. When you protect your investment, you protect the interests of the bank and this should encourage your bank to lend you more funds.
US wheat planting is now 87% complete and we will begin to see our first winter wheat ratings on Monday.
Come see me every Thursday sale day at Enid Livestock 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 firstname.lastname@example.org. 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.
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