Hello market watchers. It’s hot. Oklahoma Mesonet reported this week that the past 30 days were the driest in 100 years in our state with just 1.24 inches of precipitation, a deficit of 3.23 inches.
This takes us back to 1921 and even includes the Dust Bowl in the 1930s. It’s not just the southern plains that are hot and dry, nor is it just the United States. In fact, much of the northern hemisphere is experiencing a record heat wave and flash drought. While spontaneous storms crop up at times like in the Eastern Corn Belt, the extreme heat makes up for much of the good it does. And there’s more heat to come next week. It will be warm, upper 90s to 110s, from the Mexican border to the Canadian border and out to the west coast.
Dryland summer crops are pushing the boundaries, while those under irrigation are also struggling with excessive heat. Millions of bushels of American corn and soybeans are at risk in the next 10 days and I think we’ll start seeing them in the markets again next week.
Last Sunday night’s open was a preview of the oversold conditions, premium weather and anxious buyers a market can make. Wheat, corn and soybeans widened the gap at the 7pm open, taking grains to levels identified last week as potential targets, although I certainly didn’t expect all of that in one single session. KC wheat jumped 50 cents to nearly $10.00, new crop corn to $6.60 and soybeans to nearly $14.40.
And, just when we thought we were out of the woods, there was a flip-flop in the markets. As of Wednesday morning, wheat was down $1.45 a bushel, corn 82 cents and soybeans $1.23 a bushel. Dead cat bounce. Corn and soybeans managed to hold above last week’s lows and stabilized through the end of the week, while wheat continued to sell off, hitting a new weekly low. The first September KC wheat contract traded in a high-low range near $1.80 a bushel in just five days. Indeed a sign of the times.
Crude oil also had a volatile week with President Biden visiting Saudi Arabia to discuss increased oil production to curb runaway inflation and deal a blow to approval ratings. June US inflation was released on Wednesday and again beat expectations at 9.1% versus the Dow Jones estimate of 8.8%. Consumers are feeling the pain with much higher prices for gas, groceries, rent and dental care. Workers’ inflation-adjusted hourly wages fell 1% in June, down 3.6% from a year ago.
Yet another month of higher inflation raised concerns about more aggressive interest rate hikes from the Fed and sent stock markets tumbling. Markets have started talking about a full one percentage point increase at the next FOMC compared to the likelihood of a 75 basis point jump. The stock market itself flip-flopped in Friday trading, with the Dow Jones jumping more than 650 points on stronger-than-expected consumer spending, up 1% from a month ago. This should provide much-needed relief to bulls next week across all asset classes, although it is strong currency for more aggressive rate hikes from the Fed as recession fears may subside for the time being.
While the US Dollar remains a headwind for commodities, I believe the bullish sentiments will carry over into the commodities complex. The rebound in the crude oil market from Thursday’s drop was necessary to stabilize the global commodity complex. Short of making headlines, I think we could see a rally in agricultural commodities next week. Corn, in particular, looks set for some strength. A firmer energy market, new purchases of American corn by China on Friday and the surprise announcement at the end of this week that China will not be able to import corn from Brazil this year given that the phytosanitary documentation does not will be complete only for next year’s harvest, argue .
As recently as Tuesday last week, Brazilian farmer groups were touting that China was set to import corn before the end of 2022. However, both sides have now said Chinese procedures require information throughout the growth cycle, which was not finished for the crop. being harvested. With the increase in the Chinese pig herd, we may see an upward adjustment in US corn exports to the PRC in the coming months. There has been continued fund selling in corn over the past month, which is now at a two-year low. Open interest and volume also declined, suggesting the selloff lacked true conviction, but a catalyst is needed for buying to return.
I think the weather and those demand fundamentals are coming back to the fore. Ukraine’s winter grain harvest is 10% complete, with yields much lower than last year, partly due to reduced nitrogen input. The French wheat harvest is now 50% complete. A meeting this week between Russia, Turkey, Ukraine and the UN suggested that an export corridor for Ukrainian grain across the Black Sea could soon become a reality. The group said a signed deal is coming this week as Russia continues to bomb Ukrainian cities. I think the wheat market has partly priced that in, but I’m very skeptical that there will be any significant shipments in the months ahead. However, this will be a source of market volatility.
This week’s USDA WASDE and Crop Production monthly reports were largely uneventful. US corn and soybean ending stocks were higher than expected, while wheat ending stocks were lower. Winter wheat production was up 2% from June but down 6% from 2021. Hard Red Winter wheat production was in line with expectations and 3 million bushels above previous USDA estimates. As the U.S. harvest is over on the southern plains, growers are making crop insurance losses.
Sidwell Insurance reports heavy casualties in the southern half of Oklahoma through Texas, as well as begging in both states. The final harvest price tracker for hard red winter wheat in Kansas, Oklahoma and Texas was announced this week, which is the price paid on “lost” bushels between the APH (Actual Production History ) of an individual and its actual yield in 2022. This wheat price was $10.88. US corn implied yields fell 0.1 bpa while soybean yields remained unchanged. World ending stocks were higher for corn and slightly higher for beans and wheat.
Chinese soybean imports have been reduced by one million metric tons. Russian wheat production increased by 0.5 million metric tons to 81.5 million metric tons despite IKAR’s output increasing this week to more than 90 million metric tons. This is a significant deviation and it is either handling or much better conditions than seen so far. Wheat production in Ukraine and the EU fell by 2.0 million metric tons, while that of Argentina fell by 0.5 million metric tons. Canadian wheat was up, but only by 1.0 million metric tonnes. Corn and soybeans from Brazil were unchanged from last month while corn from Argentina was unchanged, but beans were up slightly.
Livestock markets also flip-flopped this week, driven by cheaper feed grains and a strong cash market as supply numbers tighten. August feeders jumped $11.00 per cwt in three trading sessions. October fats traded higher in the $4.00 per cwt range through Wednesday. Both contracts fell as corn stabilized and earnings started on the weekend. Worsening drought will continue to lead to the liquidation of herds. Although this cattle market is volatile with an unstable economy, I believe supply fundamentals will outweigh demand disruptions given the sell-off we will continue to see. Cull cow prices this week have fallen 25 to 30 cents a pound in barns for sale as the market begins to get saturated with the numbers coming off the grass.
Come see me every Thursday sale day (check summer times) at the Enid Cattle Market and talk markets. I wish everyone a successful trading week.
Sidwell is a Licensed Series 3 Commodity Futures Broker and Director of Sidwell Strategies. He can be reached at (580) 232-2272 or [email protected] Trading futures and options involves risk of loss and may not be suitable for all investors. See the full disclaimer at http://www.sidwellstrategies.com/disclaimer.