Market surge, Dollar plunge on Fed’s 3rd pause

Howdy market watchers! It’s less than 10 days until Christmas. 

We have again been blessed with plentiful rains in parts of the Southern Plains.  The drought monitor continues to lose colors in grave contrast to recent years. Relatively warm weather and adequate precipitation have winter wheat fields looking extra lush and green.  For cattle grazing on wheat, this is less than ideal as forage is washy and calves fight muddy conditions.  However, it will be good for the near-term prospects of available forage should it turn colder when wheat goes into dormancy.  

These conditions are however isolated with much of the south under increasingly severe drought conditions followed by the Midwest and west primarily in New Mexico and Colorado.  Ski resorts in the Rocky Mountain state in contrast are receiving ample snow for the season ahead.  

There is plenty to celebrate as we head into year’s end with the equity markets make new record highs yet again.  In fact, the stock market has been rallying for seven consecutive weeks.  Can you believe that the Dow Jones has surged over 5,000 points from its recent October 27th low to Friday’s high at 37,784?!  Christmas came early, as they say, and we could yet go higher in the next two weeks. 

It has been a difficult few months for the bears.  This week’s CPI reading for November slowed to 3.1 percent annually while PPI was unchanged and both favorable for the Fed’s inflation flight.  The FOMC’s rate decision followed on Wednesday with the Fed holding rates steady for the third consecutive meeting.  Chair Powell’s commentary suggested a pivot with committee members penciling at least three rate cuts in the new year.  Of course, there are many “ifs”, but there is growing and broad-based optimism that we’ve seen the peak in rates.  

That comes as a welcome relief to individuals and businesses with variable rate credit lines as well as for consumers anxious to spend on the sidelines. Lower energy markets have contributed a lot to softer inflation.  Both crude oil and natural gas charts have been obliterated in recent weeks but found footing late this week and rebounded off Wednesday lows.  

The United Nation’s COP28 climate meeting in Dubai concluded this week with countries “agreeing” to transition away from fossil fuels by 2050 and achieve net zero.  These bold statements are often made, but it definitely seems global alignment is more resolute among today’s constituents.  On the other hand, we are also seeing greater cooperation among OPEC producing nations and those with ulterior motives against democratic governments trying to maintain peace and stability.  I think we will continue to see these alternative groups working together to aggressively resist the status quo.  

Argentina’s new president is moving fast to implement campaign promises with the devaluation of the peso by as much as 50 percent this week and proposed elimination of export tariffs jostling global grain markets early this week.  The expectation is that more Argentine grain will be available on the international market at more competitive prices.  However, policy changes require congressional approval and this will take time.  

Markets dropped on these announcements, but recovered as the week progressed. Overall, global fundamental news this week was supportive with new recent lows in the US dollar promoting US export competitiveness.  China bought US beans again this week, corn sales were solid again and wheat sales were very strong.  

On Friday morning, the Biden Administration officially recognized the GREET methodology favored by the ethanol industry in calculating the greenhouse gas reduction for the purposes of Sustainable Aviation Fuel (SAF) in the Inflation Reduction Act. There is still a long way to go to align other areas of the government, but this is an important step in “approving” corn-based ethanol as an SAF that has been a major buzz across oilseed markets to-date and now corn.  

This added support for the grain markets as did international news that Ukraine’s 2024 wheat crop could be at 12-year lows and France’s winter wheat area is down as much as five percent.  After a turbulent see-saw start to the week in the wheat market, Chicago wheat contracts had an impressive 13-cent rally on Friday closing above the 100-day moving average.  With rains across key hard red winter wheat areas, the Kansas City wheat contracts were slower to catch steam, but did hold above prior session lows while making new daily highs and closing near session highs on Friday.  

The next resistance for March KC wheat will be the 50-day moving average at $6.54, which I think could soon become support once penetrated. Additional SRW wheat purchases by China would be a great trigger.  US wheat exports to China so far this marketing year that started in July are already 700,000 metric ton increase over last year.  

This week, China did surprise the market by reporting a sizeable, domestic corn crop.  This resulted in the Dalian Commodity Exchange corn futures dropping to two-year lows that spilt over some into international markets.  However, this could very well be a sign that China is about to buy corn in an effort to lower prices ahead of doing so.  Watch China corn buying to be a market mover as well.  

China released November industrial output this week at 6.6 percent, a full percentage point above expectations, and was the largest increase since February 2022.  This is some of the best economic news we’ve heard out of China in quite some time.  Retail sales climbed 10.1 percent, below expectations, but inflation has also been declining.  

For 16 of the last 16 years, March corn futures have rallied after the December USDA reports into January.  Friday’s move could just be the start.  December wheat and corn futures expired Thursday clearing the way for all volume on front-month March futures.  

Brazil soybean crop estimates were also lowered this week and could help to keep support under soybean futures despite better rains expected next week.  US NOPA crush on Friday came in higher than expected and was the 2nd highest and again supportive of soybean bids.  

The cattle market continued the upward momentum started in last Friday’s trade throughout this entire week.  On Thursday, feeder futures finally closed above the downward sloping trendline in place since late September.  New, daily highs were put in Friday with a higher close. We are now above the 20-day moving average on feeder cattle contracts and about to approach the 20-day moving average for fed cattle futures.  

Cash fed cattle developed late week with trades on Friday reaching $170.  With stronger equity markets that should support demand and cash bids, I think we could start to see a sustained rally in the cattle complex through January though not without its ups and downs. There could be potential for another $10 per cwt move in feeder and fed cattle futures.  

If you locked in hedges or LRP at a higher rate and would like to capture this selloff, call us to buy call options that helps you capture the upside should this market rebound.  

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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