Commodity Futures Trading

[DiscoverGold]

Wheat Has Lift Off!
By: Barchart | February 11, 2023

Come on down to Enid Brewing Company for Kansas City BBQ sandwiches and Philly cheesesteaks! And then bring her back for Valentine’s Day on Tuesday for a steak dinner and bottle of wine, sangria or one of our many craft beers. It will seem as if you really didplan it in advance…

It was an exciting end to the week in the grain markets. After Wednesday’s largely uneventful monthly USDA WASDE and Crop Production reports, grains gave back most of the week’s gains up to that point. And then just as we looked set for more profit taking, we had lift off in Friday’s session.

Though seldom the case, wheat contracts led the way starting with Kansas City and followed by Chicago. While March KC wheat traded above end of December highs on Wednesday, deferred months only did so on Friday. This March contract traded AND closed above the 100-day moving average to finish the week. Chicago and KC contracts closed only 4 cents off session highs with July KC new crop closing just above $8.82, only 8 cents shy of the 100-day moving average. I have been targeting this level for protection of new crop bushels.

While I still think that to be the case, returning tensions in the Black Sea region could provoke short covering among managed funds in the wheat market and accelerate a rally. Weather-wise, the high probability of rains in the US plains wheat belt in the 6-10 and 11-15 day forecasts should put downward pressure on the market. However, the precarious nature of large net shorts in a market combined with the frothy nature of geopolitical headliners particularly from war games could see the news of welcome rains take a back seat.

I recently discovered a small, quarter cent gap on the July KC chart up at $10.12 ¾. This will likely take some time to get there, but we should see that gap eventually filled before this contract expires.

As we approach the one-year anniversary of Russia’s initial attack on the Ukraine, it is said that a major offensive is soon to bear down on the eastern part of the country. Russia announced Friday that they would cut oil production by five percent, which sent oil prices surging. Grain commodities soon followed after Russians were said to have taken over major water reservoirs used for agriculture, drinking water and Europe’s largest nuclear plant.

The oil production cut was announced by a deputy prime minister and Russia’s point man on energy, saying that the cuts would “contribute to the restoration of market relations.” This seems to suggest that the resulting rebound in oil prices following the announcement was just the outcome Russia was targeting given sanctions and the recent $60 per barrel price cap.

The USDA increased 2022/23 ending stocks for US corn and soybeans that also came in above average trade guesses. Ending stocks for US wheat came in one million bushels above USDA’s previous figure, but 10 million bushels below average trade guesses. World ending stocks came in slightly above expectations for wheat and beans, but below for corn.

Perhaps the notable surprise, if any, were reductions in Brazil corn and soybeans versus expectations although unchanged from USDA’s previous figures and reductions in Argentine corn and soybeans well below last month and expectations. Brazil soybean exports were increased by 1.0 million metric tonnes while corn was increased by 3.0 MMT that largely offset Argentina’s soybean export reduction of 1.5 MMT and corn of 3.0 MMT. Returning dryness in Argentina and rains in Brazil have brought support back to soybean futures. Brazil soybean harvest has been slowed by rains and is slightly behind average, but well behind last year as is the planting of the safrinha corn planting. China imports of corn and soybeans were unchanged while wheat imports were increased by 0.5 MMT.

Russia wheat production for last year was increased by 1.0 MMT and exports by 0.5 MMT. This came as news of Russia’s current wheat production is expected to be well below last year’s record production. India’s continued flip flop in wheat trade emerged again this week with news that the wheat export ban is now expected to extend for another year due to surging domestic prices. This should continue to be a supportive factor on the international front until soon-to-be harvested new crop is in the bin that was this week said to be less than expected.

US grain exports have been more active in recent weeks. Export sales for wheat and corn will be of particular support given the lackluster year up until recently. The US dollar index will be key to this and rallied last week in conjunction with the Federal Reserve interest rate increase.

The cattle market started out the week strong, but faded as the week progressed in light of higher grains. Cash trade was slow to develop for fats this week, but managed to post $160 in Texas and Kansas on Friday. This should be supportive in next weeks trade. Higher corn should translate to higher fat cattle prices, but serve as a headwind for feeders.

While key moving averages remain well below on the feeder charts, I still think these contracts have support with the potential for March feeders to fill the gap at $190.600. We first have to break through the double top around $188.700. Strength in the equity market will be needed to get feeder contracts to this level and so relief in corn strength.

For the time being, it looks as if corn strength will be more a function of wheat strength that its own. As we approach planting in the northern hemisphere, weather will play a key role. If spring planting weather cooperates, I believe we will see an increase in intended corn acres. If this materializes, we could see weakness in new crop corn futures and some upward momentum in feeder cattle. December corn futures have not been able to hold above the 50-day moving average since last November and continues to face strong resistance at the now $5.96-level.

As international tensions rise and grain markets increase in volatility, be cautious in overextending your risk exposure due to overall bullish sentiments as headlines can and will move these markets quickly. Profits can be exhausted in short order among higher costs of feed and interest. Price protection through April and May is now quite reasonable given shorter time value.

Give me a call for strategies to trade these key events coming up before year’s end and get a plan for 2023. If you’re ready to trade commodity markets, give me a call at [phone] 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.

Read Full Story »»»

DiscoverGold