Sidwell Strategies Week-in-Review: Long’s liquidate in shortened trading week

Howdy market watchers! After a year gone by that we thought was un-toppable, it was yet another eventful week to kick off the new year. A new US President was inaugurated that was largely uneventful other than the outgoing President Trump leaving town before the events. President Biden signed 30 Executive Orders in his first few days of office and continued to pressure Congress to pass his proposed $2 trillion stimulus package. While stimulus is needed in parts of the economy, this adds to a national debt that is already near $28 trillion. To put this into perspective, that is nearly $75,000 per person in the US or $195,000 per taxpayer. While spending needs to be curtailed, it seems the tax base also needs to broaden or that $195,000 per taxpayer is only going to increase and those creating the jobs are also the ones paying the taxes. More burdensome taxes on those individuals and their businesses will only result in less jobs created. Doubling the minimum wage will only result in fewer jobs, at least temporarily, both from greater automation as well as extinction of jobs with higher opportunity costs. There will be a number of policy changes over the coming two years of Democratic control in Washington leading up to the next Congressional elections. The question is rather the post-COVID economy will be able to bear those burdens without continued stimulus. Either way, inflationary times are ahead. The second impeachment trial for President Trump is expected to start in the Senate on February 8th. If convicted, part of the sentence could be a ban from running for public office in the future. No matter the outcome, I expect we will hear more from Trump soon and for years to come. Talk of him creating his own political party, the “Patriot Party”, seem very likely as does a possible news/media company and channel. Stay tuned for more from Mar-a-Lago. In the markets this week, grains and energy took on the nose. Long liquidation was the overarching theme to end a shortened trading week after markets were closed Monday in observance of Martin Luther King Jr. day. In the last 5 trading sessions, front-month March soybean futures lost nearly $1.30 per bushel to settle the week at $13.12. New crop November futures slipped $1.00 to settle the week at $11.12. Long liquidation and profit taking was the driver. The CFTC report showed selling of 25,000 longs in corn and 15,000 in beans. Although we have not seen such magnitude of sharp losses since the bull market began last August, we remain in a bull channel.  South American rains over the past several weeks have slowly but surely tamed the market anxiety over widespread dryness. While pockets remain, much of the peak concern has been alleviated. Amid broader demand uncertainty from the continued spread of the coronavirus and a South African variant that is said to be 50 percent more contagious against which the current vaccine may not be effective, there is plenty of uncertainty overshadowing these markets. I would not be surprised if we see some further weakness and consolidation come Monday followed by a turnaround Tuesday on the rebound. Export sales for the period ending January 14th reported higher than expected soybean, meal and oil sales as well as corn while wheat sales were towards the bottom of expectations. Rising Russian wheat prices and export tariffs that will result in $1.60 added per bushel, US origin wheat has an opportunity to win some business. Nigeria this week purchased US hard red winter wheat. We may see more sales in the coming months should the Russian export tax remain in place with US wheat being cheaper than Black Sea origin. Following Friday’s near $0.60 selloff in soybeans, $0.24 selloff in corn and $0.22 selloff in KC wheat, new crop July KC wheat sits at $6.16, right at the 20 day moving average. If the market holds this level, we could be headed back to $6.50 area. If it breaks, watch for potential move down to $5.95, 50 day moving average at $5.86 and possibly to $5.76.Wheat is a follower to the row crops and so acre competition between corn and beans will lead the fate of KC wheat. Are $15 soybeans, $6 corn and $7 wheat possible? Absolutely although we may take a pause until spring weather ahead of US planting creates potential delays and corn and beans fight for acre share. In wheat country, producers are busy topdressing before weekend rains with limited windows thus far in a wetter than expected winter. Snow cover in Russia reduced impacts of winterkill from recent cold temps although some was expected in the Ukraine. Fertilizer prices have been on the rise from higher energy costs and rising agriculture commodity prices. Despite higher grain prices, producers must be vigilant of input costs as a consolidated inputs industry will capture as much of the margin creep as possible. Consider new ways of purchasing chemicals utilizing generics and bidding platforms. Call Enterprise Grain for more details on significant savings as well as zero percent financing available for ag chemicals. The cattle market was the winner this week supported by lower grain prices and in anticipation of relatively bullish expectations for Friday’s monthly USDA Cattle on Feed report. The report released at 2 PM after the market close was however not what traders were expecting. January 1st cattle on feed were modestly higher than expected at 100.1 percent over last year vs. average trade expectations of 99.4 percent.  December placements came in higher than expected at 100.8 percent vs. 97.0 percent expected.  December marketings were slightly higher than expected at 101 percent vs. 100.6 percent expected. March feeder cattle futures closed limit up Friday at $5.00 per cwt higher at $144.150.Producers should be vigilant on Monday morning to potentially extend downside protection if markets give back recent gains following the report. Corn’s movements on Sunday night into Monday morning should provide some direction. If grain markets rebound from last week’s losses, expect the feeder market to face more pressure on the week’s open. Equity markets continue to hold up and are expected to continue doing so with a large stimulus plan soon expected to be announced. The Live cattle market looks strong and should see further continuation to the upside. If you’re ready to trade commodity 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.