Howdy market watchers! 

What a difference a week makes. As I highlighted in last week’s article, the grain closes on Friday after the holiday looked like a turning point. Well, the post-holiday blues took center stage on Monday and all bets were off.  Significant selling dominated all commodity markets on Monday including grains, cattle, metals and energy.  

That tone pretty much dominated the week until some relief buying on Thursday after the morning inflation report showed a decline followed by the US dollar plummeting to trendline support and commodities catching a bid from buyers. 

The US dollar followed that trend lower into Friday making a new daily low and closing right down on the levels that previously found support in April, May and June.  As more inflation data is reported and digested, we could finally see the stubbornly strong US dollar begin to lose footing.  Thursday’s CPI for June increased 3 percent from a year earlier, a slight decline from May’s 3.3 percent.  
 

This is just the data point that the Fed’s FOMC has been waiting for to gain more confidence that tight monetary policy is working and may soon be able to ease.  There are four FOMC meetings remaining in 2024 with the next being at the end of July. It is widely expected that there will be another pause followed by a 25-basis point cut in September.  The Fed dot plot has begun to disperse with differing opinions in terms of how much of a cut is needed by year end.  The data will be the determinant, but further softening in inflation will bring more certainty of lower rates.  

The short-term surge in inflation that reached 9.1 percent followed by interest rates has created significant headwinds for business, particularly small business, as well as households and signs of potential easing are very welcome news for everyone, but deposit holders.  It may be time to lock in longer term rates if you’re holding cash.  

However, this is just one element in a noisy and opaque macro landscape of mixed messages.  While the broader economy remains strong with equity markets surging again on Friday pushing the Dow Jones back to near-peak levels, lower interest rates should continue to support exuberance if and only if consumer confidence and spending remains intact.  

The US Presidential election continues to cloud the outlook with increasing calls for Democratic candidate and incumbent President Biden to step aside.  However, there is no obvious replacement, and the confusion is lending greater momentum towards former President Trump’s campaign.  

The USDA released its monthly WASDE and Crop Production reports on Friday at 11 AM with great anticipation after heavy selling this past week and increasing net short positions by managed funds.  

Overall, market reaction muted the selling even after some bearish numbers.  Perhaps the bearishness is getting priced in and enough is enough.  

This year’s all wheat class production in the US came in above 2.0 billion bushels.  While we were expecting an increase of 37 million bushels, this was above trade expectations by 96 million bushel, 20 million bushel of which was from Hard Red Winter wheat.  Interestingly, Soft Red Winter wheat came in 4.0 million bushel below trade guesses and just 2.0 million bushel above USDA’s previous forecast.  

World wheat ending stocks were expected to remain unchanged from prior forecast, but the USDA bumped them up nearly 5.0 million tons due to production increases in Argentina, Canada and China.  However, demand is also starting to emerge after the nearly $2.00 per bushel selloff since the high on May 28th.  Could this finally be support?  It is possible, but we need a catalyst.  

Friday marked the last trading day of the July futures, which could serve as one and often is a low point in wheat futures.  Stepped up attacks in the Ukraine and their seizure of a Russian vessel leaving Crimea with looted grain helped spark some short covering.  Even USDA’s bearish outlook didn’t see continued selling with the session lows prior to the report’s release.  

September KC wheat held one-tick above Thursday lows while Chicago made a new low to finish the week.  The bulls need a weak US dollar and US export sales next week to help keep these grain markets together in the face of larger production and ending stocks.  The USDA did increase US wheat and corn exports by 25 million bushels.  

US new and old crop ending stocks for corn actually came in lower than expected and below USDA’s previous estimates while US new crop production was increased above expectations to 15.1 billion bushels with yield unchanged from previous at 181.0 bushels per acre (bpa) while expectations were for a cut.  I do know there is a lot of variability in this year’s corn crop and the 181.0 bpa yield is going to be a tall order to reach.  However, it is an average.  

Brazil and Argentine corn production were also adjusted higher although world ending stocks came in slightly below average trade guesses, but higher than USDA’s previous figures.  

Soybean ending stocks in the US balance sheet were cut for old and new crop while US production was increased though yields unchanged at 52.0 bpa.  World soybean ending stocks came in above trade guesses, but slightly below last month with Brazil production unchanged despite an expected cut while the Argentine bean crop came in lower than trade guesses and last month’s forecast.  

The corn market saw the best chart action for the bulls with an outside day, higher high and lower low, closing nearly 12 cents off session lows for December futures. November soybeans closed nearly 6 cents off session lows.  The wheat markets told a mixed story with Chicago wheat closing only ¾ of a cent off the day’s lows while KC wheat was around 5 cents off the lows.  It was an inside day for KC wheat and so Monday’s move could see follow-through in that same direction.  

The cattle markets had a much better finish for the bulls after Wednesday’s lows below trendline support saw a sharp rebound.  The optimistic move in equity markets from potential rate cuts on the horizon supported feeder and fed cattle futures, but are now near key moving averages that may serve as resistance.  Cash fed cattle is still active, but seems to be slowing.  

I have mixed emotions with the cattle market here as we could finally be catching a bid in the corn market into next week and these key moving averages may be difficult to pierce given this later stage of summer demand.  I maintain the view of protecting the downside on rallies and I would consider the strong finish to last week as that rally.  Perhaps we see upside follow-through early next week, but be cautious here if you have a lot of price exposure on physical cattle.  
 

If you would like to sharpen your knowledge on LRP, futures and options trading, Sidwell Strategies and Sidwell Insurance are hosting training classes on July 26th at Autry Technology in Enid, OK.  Online access will also be available.  Get registration requirements, cost and sign-up by emailing [email protected].  

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 [email protected].  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.