Sidwell Strategies Week-in-Review: Explosive week in grains while cattle turn

Howdy market watchers! A perfect storm of factors drove grain markets to new, multi-year highs this week. Several days of freezing temps in US and French winter wheat areas, continued dryness threatening Brazil safrinha corn, suspension of Brazilian import duties on soybeans, corn, meal and oil, rumored China buying of US wheat and corn and late week purchases of soybeans, cold soil temps in the US corn belt delaying planting and emergence, a weaker US dollar, fund buying and spot market feed demand on fire as seen in basis levels that further fueled corn and wheat futures. As soybean shipments from Brazil declined due to rain delays and logistics issues, it was reported this week that China imported 320 percent more beans from the US in the month of March. The outlook for China’s feed grains and protein appetite have been clouded by uncertainty around growth, the spread of African Swine Fever and geopolitical tensions across the Taiwan Straits. While China’s corn import estimates this year continue to rise now seen at 28 million metric tons (MMT) from USDA’s official 24 MMT forecast, the USDA Attaché in Beijing lowered China’s corn imports next year to 15 MMT as well as wheat due to increased domestic production announced by the Chinese government. If it were up to market forces alone, China would import the majority of its corn with production costs higher than imports from developed agricultural markets. However, minimum pricing by the Chinese government to support the countries vast rural population keeps the border “controlled.” Ukraine is China’s other option when it comes to corn. Both corn and wheat production estimates for the Ukraine have increased above last year allowing for higher exportable supplies as well. There is no denying that the bulls remain in charge in the grain markets. Front month corn contracts locked limit up on Thursday at $0.25 while KC wheat hit the $0.40 limit several times while settling just below. Profit taking was expected on Friday to end the week, but markets held firm with wheat, beans and front month corn contracts finishing positive on the day after mid-session selloffs. Weather remains a wild card with any ideas of freeze damage in winter wheat really unknown for at least a week to 10 days after the freeze. Should early signs of damage emerge, the true impact will not be known until harvest as ideal weather conditions between now and then could still result in a bumper crop. We were also concerned last year of freeze damage that turned out to be a record crop. If you are concerned about delivering on contracted wheat, add call options to your strategy to capture upside should you have to buy out bushels that you’re unable to deliver. With the momentum in this market, this anyway may be an investment that proves worthwhile. It is important to keep perspective that weather markets come and go. Major crop concerns that seem unsurmountable at the time can quickly pass with cool temperatures warming and rain chances in dry areas. Midwest producers can plant quickly when conditions are right. It is important to keep this in perspective when markets climb to these levels. December new crop corn futures traded in a 42 ¼ cent range this week settling the week just above $5.50. July KC new crop wheat traded in a 66 ¾ range finishing the week just above $6.80.Interestingly, the KC market didn’t surge until late week with initial reports of the freeze saying that it wasn’t as damaging, in terms of times and temps, as expected. November new crop soybeans traded in a near 75 cent range closing the week at $13.41 ½. December cotton finally caught on to the rally finishing the week near 85 cents per pound. May corn and wheat options expired Friday and many with call options at higher levels were pleasantly surprised at the recovery into expiration. The perfect storm of factors that continues to drive this market may continue. However, I would advise calculated risk strategies at these levels as opposed to doing nothing. There’s a combination of forward contracts, futures and options to manage risk while keeping the upside open. If these strategies are new to you, please let’s schedule a call or in person meeting to discuss the mechanics of how these tools can be combined with your physical sales. It is always a good idea to involve your banker and your spouse to discuss these strategies and ensure everyone is on board and understands. Expect more volatility in the coming months, which you need to be prepared for as a producer. The wheat market has moved $1.20 in two weeks. The feeder market has fallen nearly $18 per cwt in the same timeframe. Has the value of these products changed this much in such a short period of time? Well, I would argue not, but such volatility is where this market is comfortable with plenty of excess funds in the system chasing opportunities in search of return with low interest rates. If freeze damage is terminal to your wheat crop or you’re looking for a double-crop, Enterprise Grain has a solid, proprietary sesame program that offers seed variety options, improved yield potential, germination rates above 85 percent and higher, premiums for Grade 1.The high prices of corn and soybeans futures are no doubt attractive, but consider your input costs, potentially hot and dry periods in key growth stages and basis risk compared to the diversification that sesame provides. If you would like more information about the Enterprise Grain sesame program that includes an “Act of God” contract not available for corn, beans and milo, call (580) 874-2286 to get your acres contracted. Friday also marked the USDA’s monthly Cattle-on-Feed report released at 2 PM after the market close. Large numbers were expected this week for on-feed and placements given COVID’s impact on cattle movements at this time last year. Marketings were also expected lower. Ahead of the report, it seemed and was hoped that these expectations were priced into the market. Futures finally rebounded slightly on Friday and I would expect more to come next week with the report having a bullish tilt. April 1st cattle on feed were lower than expected while March placements were also lower than expected and March marketings were higher than expected and near record. Demand remains strong in this market although feed grains remain a headwind. If you have on farm storage or looking for a way to lock in futures without choosing your delivery point until you can find the best basis bids, I have several risk management and marketing programs for wheat, corn, milo, soybeans and sesame to consider that will enhance your marketing efforts. This is a very creative solution to lock in futures without having to pay margin calls, but also have the freedom to negotiate the basis with delivery points once you are ready. 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 pursue your objectives. 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 Futures and Options trading involves the risk of loss and may not be suitable for all investors. Review full disclaimer at