Hotter CPI and US dollar rebound results in mixed markets

Howdy market watchers! 

Happy St. Patty’s weekend and hope you’re enjoying a green beverage somewhere comfortable.  Enid Brewing is celebrating with festive drinks and themed food items and so come on down this weekend to enjoy the spring weather and patio. 

It was a two-sided week in markets with stubborn inflation continuing to rear its head.  February CPI and PPI both came in higher than expected this week signaling mixed reviews from market participants.  Core CPI increased 0.4 percent over the month that brought the annual increase to 3.8 percent.  Shelter and energy costs were the primary drivers.  

Wholesale price inflation increased 0.6 percent, which was double the estimate by the Dow Jones survey.  The annual increase was the largest move since September last year.  A rise in goods prices was the primary culprit where energy costs again helped drive increases throughout the supply chain. The labor market remains tight with jobless claims coming in lower.  Retail sales, however, came in less than expected.  Spending continues to be watched closely as concerns over consumer confidence remain critical to a stable growth outlook.  

The US presidential landscape became somewhat clearer this week with both Biden and Trump winning enough delegates to become their respective party candidates.  Now let the games begin!  

The US dollar increased on the release of the inflation data that created a headwind for the grain markets.  

After rumor was followed by fact last week of Chinese cancellations of US soft red winter wheat, this week started with additional news of cancelled orders. There was also talk of Chinese cancellations of French and Australian wheat orders.  The combination of these releases put ample pressure on the wheat markets that traded back near recent lows.  

Both corn and soybeans found resistance at their 50-day moving averages, but managed to hold ground with a positive close in Friday’s session. 

Perhaps the largest, fundamental news of the week was CONAB’s official cut of Brazil’s soybean crop to 146.9 million metric tons versus USDA’s 155.0 MMT.  CONAB, Brazil’s version of the USDA, also reduced corn production to 112.8 MMT from the USDA’s current estimate of 124.0 MMT.  While CONAB and other local estimates have long been well below USDA estimates, the market hasn’t paid much attention.  However, this is starting to change as most of the bearish sentiments are priced into this market and any hint of tightness is being watched with greater attention. 

Thursday was the last trading date for March futures contracts with May now the front-month.  

Key aspects in the week ahead will be US dollar movements leading up to and after the FOMC meeting and rate decision on March 20th as well as exports announcements and South American weather developments.  If the soybean market can break above the 50-day moving average, there is room to run.  The same goes for corn.  Wheat will need help from corn to make a move higher unless we get fresh news.  

Russian wheat prices continue to remain soft while there was more chatter this week of India’s state reserves being at 7-year lows and selling supplies into the local market to ease pricing pressures.  While wheat conditions in the southern plains remain favorable, it continues to be hot and dry with limited precipitation in key, wheat growing areas in the near future.  This could add some bullish undertone to wheat contracts, but returning demand is as important after recent cancellations by China and Egypt.  

The next major report will be US planting intentions for row crops at the end of the month.  

The cattle markets failed to hold strength this week as the standoff among packers and feedyards is at an elevated stage.  Live cattle futures finally filled the chart gap on Thursday after which it staged a strong selloff.  Markets managed to recover some during Friday’s session, but closed on a weaker tone.  

Cash trade emerged Thursday in the $185 and 186 area and increased to $187 and $188, but on limited volume.  These are high prices for packers to pay, but demand remains and cold storage supplies are tight and in fact, at a 10-year low. 

Feeder cattle contracts are being supported by these cash bids, but feels like it lacks strong support in the near-term. Don’t get me wrong, I do believe we will see this feeder cattle market move higher later this year, but this market looks at risk of selling off another $5.00 per cwt from Friday’s close. There are a lot of cattle coming to town off wheat pasture at the moment, which is always a reason for this market to ease.  

Cattle producers on wheat pasture with the intention to graze out through late May are getting concerned that the hot, dry weather may accelerate the wheat maturity making it less palatable and grazeable requiring cattle to be pulled off early.  This could very well be the case if we don’t receive moisture and perhaps cooler temperatures soon.  

If you’re selling cattle in the next week or so, you may want to purchase put options to protect short-term pricing.  If you are buying cattle at these levels, I would advise protection in case markets move against you although I believe we will see firmer trade by May into June.  

Sidwell Strategies is the one-stop shop to protect cattle with futures, puts, LRP or a combination of all, which is probably the best strategy overall.  

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.  

Wishing everyone a successful trading week!  Let us know if you'd like to join our daily market price and commentary text messages to stay informed!

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. 

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