October is here, market watchers, and that means the fourth quarter is upon us! And it finally rained … in areas.
While forecasts showed wide coverage across the Southern plains, the heaviest rainfall was limited. However, we’ll take it! A break from the heat and a couple overcast days was enough to get us all in a better mood — the wheat planting mood, in fact. Although we get back into the upper-80s this next week, we’re on the downhill slide, hopefully. Once things dry, there will be plenty of planting action in wheat country.
It was a week all about wheat with prices surging after the release of USDA’s Sept. 1 U.S. Grain Stocks and Small Grains Summary updating this year’s wheat production and marketable supplies. It goes without saying that the bulls were favored for the wheat market. Led by Chicago wheat, followed by KC, the wheat market surged 60 cents in two trading sessions closing near the highs Friday at $7.55¼ and $7.59½, respectively, on the front month December contracts. This was around 10 cents from the Aug. 13 high. New crop July 2022 KC wheat closed just shy of the $7.50 level.
A 19-year low in wheat production, which led to a 14-year low in stocks, down 18% from last year, was the culprit. All wheat class production in 2021 was pegged at 1.65 billion bushels, down 10% from 2020. Winter wheat was up 9% from 2020, but below average trade guesses. Spring wheat and durum came in slightly above expectations, but was 44% and 46%, respectively, below last year. If you’re holding wheat or have locked in inputs for the crop you’re about to plant, consider taking action at these levels. Fund buying has also helped push this market, but just be cautious at these levels, especially considering the rains we’ve seen ahead of wheat planting.
The USDA called U.S. winter wheat planting at 34% planted, slightly ahead of average. Locally, it seems like more producers have held out given hot soil temperatures, army worm threats and dryness. Internationally, dryness issues persist in Russia. The EU raised wheat production estimates but kept exports unchanged. Australia’s crop is looking good and will come onto the market over the coming months to watch.
While corn stocks were down 36% compared to last year and soybeans were down 18%, both were above average trade expectations and lacked the support for the bulls. This in combination with harvest pressure and lack of export support this week and a stronger U.S. dollar, back to September 2020 levels, weighed on both corn and soybeans. This week’s crop progress report pegged corn at 18% harvested with conditions holding at 59% Good-to-Excellent and soybeans at 16% complete at 58% G/E. December corn finished the week at $5.41½ with November soybeans dropping to $12.46½.
The cotton market exploded higher this week breaking above the $1.00 per pound market and then some closing the week at $1.045. Uncertainty in the Chinese economy, a big buyer of global cotton, has yet to impact this market with more focus on supply issues. If you have cotton that looks like it will make, these are at least prices to protect if not hedge. Put options are the means to protect downside while keeping the upside open. The USDA showed oat production at a record low, down 39% from last year while barley was down 31%. Enterprise Grain has just announced a barley program and so call (580) 874-2286 if interested. Limited acres are available.
It was a wild week in equity markets with the Dow Jones trading a range of nearly 2,000 points. With a government shutdown looming and risking default of U.S. government debt and plenty of politics being played on Capitol Hill, the Dow plunged on Tuesday and Thursday, the biggest drops since May. Friday’s action alone saw a 1,000-point trading range with the market closing back above 34,000, but below the key moving averages. Energy prices also had a wild week with natural gas and crude oil experiencing significant volatility. Just when it looks like a panic sell is in play, these markets base and surge back higher.
Natural gas busted through the $5.00 mark on Sept. 8 and then through $6.00 this past Tuesday, making a high at $6.425 all in one trading session. Daily swings in natural gas look more like crypto currencies than fuel and the highs are still unlikely to have been seen. December natural gas closed the week at $5.763. Crude oil breached the $76 level in Tuesday’s session, as well, finishing the week with an inside day on the charts and closing at $75.58. It looks that $80 may be in the cards, but it is difficult to see this market pushing much above that as of now. OPEC is no doubt keeping an eye on this as the upper $70s is the level at which more U.S. production is likely to come online.
Higher energy prices, particularly natural gas, translates to higher fertilizer prices. Transportation issues are also driving prices from shortages. In the U.K., a shortage of delivery drivers has caused a panic among motorists racing to fill vehicle tanks. Surging natural gas prices led CF Industries to shutter a fertilizer facility.
Jitters across the macroeconomic news real has also impacted animal protein markets. African Swine Fever threats just offshore from the U.S. in the Dominican Republic and Haiti are now being taken on by the USDA to prevent it coming to the U.S. This disease does not effect humans, but has a 100% mortality rate once pigs are infected.
The cattle market continued its slide this week after breaking below what looked like support levels on Thursday. Although I believe value and support is soon to be found, significant value has been lost. September feeder futures and options expired Thursday coming off the board at $153.925. Feeder cattle had an inside day on the charts Friday. November feeders closed the week at $152.900. Timing is unknown, but I do foresee a major reversal in this market ahead, which may not be until after the new year. Higher placements seen recently are more due to the drought than larger cattle numbers, in my opinion. This will catch up with the market in time. Fund buying, however, needs to return before we see a momentum reversal.
As you’re buying cattle after these rains, be sure to consider Livestock Risk Protection (LRP), which I also offer, in addition to puts and hedges to protect cattle prices. 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 risk management and marketing solutions 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. Come see me every Thursday sale day at the Enid Livestock Market and let’s talk markets. Wishing everyone a successful trading week!
Sidwell is a Series 3 licensed commodity futures broker and principal of Sidwell Strategies. He can be reached at (580) 232-2272 or at firstname.lastname@example.org. 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.