USDA reports weigh on grain markets while cattle rally stalls

Howdy market watchers! 

Remember gentlemen, Valentine’s Day is coming and so is the snow!  So, they say… It’s been difficult to imagine with the warmer than usual temperatures we’re enjoying for early February.  Yet again, additional moisture is blessing us after we’ve been continually blessed.  The windows for topdress applications and field prep continue to narrow as spring approaches. 

We are likely to see a wet spring complicate planting that will be the next major headline for row crops to consider after a significant selloff that extended this week up to and through Thursday’s USDA Crop Production and WASDE reports.  The USDA Outlook Forum concludes next Friday whereby projections are made on ag commodity balance sheets in the near and longer term.  However, these numbers are largely known from recent reports and so it is not a market mover.  

The Chinese New Year of the Dragon starts on Saturday, February 10th and extends through next Saturday.  The mainland China market will be “closed” for all intense and purposes.  While it is logical that we shouldn’t see any China buying, the past couple of years seem to prove otherwise when purchase orders have been announced despite major public holidays there.  

Lackluster demand for US soybeans has been an issue as of late in addition to the changing South American weather patterns that seemed to suddenly turn concern of heat and dryness to optimism over production prospects there.  This week, however, saw US soybean exports sharply higher than expected and in fact, at a 7-week high.  China was the driver shipping a substantial 957,000 metric tons last week.  USDA’s annual soybean export projection is still possible although it is looking like more of a stretch given weekly shipments would have to be nearly 3.0 million bushels per week in order to do so.  

The USDA left this year’s China soybean imports unchanged in Thursday’s report at 102.0 million metric tons versus last year’s 100.9 million metric tons.  US corn and wheat exports were lower than expected with the US dollar extending last Friday’s strength in Monday’s session though softening through the end of the week.  

In this week’s USDA reports, US 2023/24 ending stocks were raised considerably for soybeans to 315 million bushels while only a 4 million bushel increase from last month’s 280 million bushel estimate was anticipated by the trade.  A retroactive increase in last year’s supplies was the main culprit, which seems well after the fact.  

US corn ending stocks were also raised by 10 million bushels while a cut of 14 million bushels was projected.  US wheat ending stocks were expected to remain unchanged from USDA’s previous estimates while an increase of 10 million bushels was made.  

For row crops, the main focus was on what the USDA was going to do with South American forecasts.  Brazil soybeans were reduced to 156.0 million metric tons, down 1.0 million metric tons from last month, but higher than the 152.5 million metric tons expected by the trade.  This was also after CONAB, Brazil’s version of USDA, lowered their countries output to 149.4 million metric tons from 155.27 MMT previously.  Argentine soybean and corn production were both kept unchanged while slight increases were anticipated.  

Rains have continued to fall across parts of South America although the extended forecast has turned dryer, but not before additional showers making it difficult to read for market direction.  Brazil corn production was cut by 3.0 MMT to 124.0 from USDA’s 127.0 MMT last month, but came in 0.4 MMT above trade guesses.  CONAB lowered Brazil’s corn production to 113.7 MMT from previous forecasts of 117.6 MMT.  So, the USDA is optimistic for output, which is not so much for prices.  Many of us are asking is there an inflation bias to USDA’s forecast?  I’ll let you be the judge.  

Another question is will there be a battle for US acres between planting corn or soybeans as prices adjust and weather interferes?  There is talk that US farmers will favor soybeans at these price levels, but that much of the anhydrous has been applied which favors corn and would even “lock in” corn acres.  This may suggest though that soybean prices may have further to fall if more soybean acres are expected.  

With various state primaries choosing US presidential candidates, it is increasingly clear that Trump is likely to be the Republican nominee.  Recent talk of applying 60 percent tariffs on China have not been well received by the grain markets although these penalties are probably warranted for other products being dumped such as steel.  Either way, it is going to be a complicated year for US-China relations and we need their export business in the grain as well as livestock markets.  Perhaps they continue to buy, but they will be shopping if able.  

StatsCan also had updated forecasts out this week although no major surprises.  All wheat production came in just slightly below last month followed by a similar trend for canola, but an increase in oats. China left corn and soybean balance sheets unchanged from last month and will use such data to manipulate markets where needed to favor price advantages when buying.  

This next week is going to be important for the soybean and corn markets. Soybeans chopped sideways this week finishing the week with an inside day, lower high and higher low.  Corn stayed week putting in a new recent low on Friday, but closing above the prior session lows.  Crude oil surged all week trading in a $6 per barrel range from high to low. 

The wheat market was variable with Chicago holding better than Kansas City futures with some optimism overall of lower-than-expected ending stocks as was also the case with corn.  For the near-term, unless we see a weakening US dollar and demand re-emerge or bargain buying and short covering by managed money, it is difficult to foresee any catalyst for a major move in any of the grain markets. 

The cattle markets also be looking to take a break after an impressive rally since early December.  At this time, the fed cattle charts look more bullish than the feeder charts, which we’ve been discussing with clients.  Thursday’s action on feeder cattle looked like a shooting star formation in which strong early session moves are met with selling and a close below the day’s open.  The week ended with a low below the prior session lows and a lower high.  

While it will probably be short term, I foresee this feeder cattle market easing back $4-5 per cwt before resuming the upside to fill the last remaining gap.  Back month feeder contracts were much weaker versus front month in Friday’s session.  
 

Cash fed cattle emerged late in the week again, but strengthened considerably to $182 in Kansas.  That is a major increase from sub-$180 for many weeks.  Snow projected in the Midwest at the end of next week could be the impetus for a rebound in feeder markets after an early week pullback. 

While the bulls dominate the cattle complex, I would protect cattle you’re buying at these high levels as you can do so and pencil a profit in protecting further out months.  Don’t let that profit that you can protect and lock in get away from you as it is hard to make up especially with death loss as I’ve been hearing about.  

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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