Commodity bulls tested by macroeconomic uncertainties | Ag / Energy
Hello market watchers. The old trade adage that “nothing big happens in the grain markets in the last two weeks of August” has ringing true this week with a long sell-off of almost all agricultural products.
After a few days on the corn chart last Friday and Monday for Chicago, Minneapolis and KC wheat, markets fell lower and followed the rest of the week. However, it wasn’t just agricultural commodities that were under pressure, with crude oil dropping nearly 10%, lower to mixed metals, stocks slipping and weaker livestock markets before ending the week ahead. USDA’s Cattle-on-Feed Friday report.
Feeders, the US dollar and cryptocurrencies were among the few markets that closed higher for the week.
As often appears to be the case, cattle futures began to advance ahead of the feed report which was released at 2pm after the market closed. The July 1 feeder cattle were slightly below expectations. June’s investments were also lower than expected at 91.9% versus 93.1%. Releases for June were below expectations at 95.5% against average trade estimates of 96.7%. Feeder futures rebounded this week, rallying above the 50-day moving average, but unable to hold above the 20-day moving average. The June 11-14 spread remains on the August power chart at $ 151.90.
While the gaps are closed on the charts, it’s hard to imagine that this gap will be closed when this contract expires on August 26th. September food contracts hit new highs on Friday. Spreads also remain on these deferred contracts down to $ 154.075 on the September contract from Friday’s close at $ 165.50. The livestock market remains strong in all respects. Spot prices this week at the sales barn were slightly lower, although they remain firm until the fall when producers buy feeders to graze wheat pastures.
For producers keen on buying calves at these high price points, Livestock Risk Protection (LRP) offered 800-pound steer protection until March 18, 2022, at around $ 47 per head. This compares to the $ 168 puts of March 2022 at $ 63.60 per head for the same weight. Of course, protecting a lower price point will cost less, but it will also increase your deductible, so to speak, as the market may fall with the loss on you before your insurance (LRP or put option) starts.
There are, however, considerations with LRP that are different from using CME puts directly. LRP protection cannot be cleared before the expiration date even if you sell your livestock before March 18 in the example above. Note that cattle protected by LRP also cannot be sold more than 60 days before your LRP protection expires, unless exceptions are made, such as currently due to drought conditions, but this exception is likely. to end at some point. The premium for LRP is only due after the expiration of the protection against the put options where the premium must be paid at the time of the purchase of the put option.
For LRP there is also a cover for heifers which takes into account the wider base when selling heifers versus steers, while the CME put option is based on 750 pound steers. As of Friday, LRP could protect $ 151.20 on 800-pound heifers for just under $ 40 per head until March 18 of next year. CME puts are based on 50,000 pounds, while LRP covers a per capita basis up to a head. If you’re interested in LRP coverage, give me a call and I’ll cite LRP puts versus CME puts and discuss the pros and cons of both to see what works best for your trade. These products can also be used in combination with each other to maximize your flexibility while reducing the overall cost of protection.
In addition to feeder cattle contracts, there is also price coverage on calves under 600 pounds, including unborn calves in your cow herd. There are also feeder contracts for steers and heifers weighing between 1,000 and 1,400 pounds. So far, I am licensed in Oklahoma, Kansas, Texas, and Missouri. If you are from another state and are interested in LRP let me know and I will be licensed to be able to provide LRP and CME quotes in one phone call.
If you’re in Oklahoma, join us with Sidwell Insurance on Monday, August 23 at 6:30 p.m. at Autry Tech in Enid for a dinner and updates on crop insurance and the grain and livestock markets. You can also join us on Thursday, August 26 at 6 p.m. at Enid Livestock Market for barbecued beef and discussions on livestock markets and comparisons of LRP and CME price protection tools.
Grain markets have struggled this week with broader profit taking and a long sell-off as inflation anxiety continues to subside. Although trillions have been pumped into the US and global economy, the Federal Reserve meeting minutes released this week following the previous FOMC meeting revealed that the reduction will begin as early as this year. With high optimism despite a continued increase in cases of delta variants, inflationary transactions such as bonds, gold and Eurodollars are showing anything but signs of inflationary concerns, at least for now. However, the question is when these inflationary transactions will be back in fashion.
The stronger US dollar put pressure on commodities in general, with Chinese demand estimates and weather-adjusted production uncertainties tipping the balance. China was back in the soybean market this week.
The Profarmer crop tour of Midwestern corn and soybean yields ended Thursday by pegging overall corn yields at 177.0 bpf against the latest USDA estimate of 174.6 bpf and soybean yields at 51.2 bpa versus USDA’s 50.0 bpa performance target. This brings us. corn production up to 15.116 billion bushels versus 14.75 billion bushels in the latest USDA reports and 4.436 billion bushels for soybeans versus 4.339 billion bushels for USDA.
Corn and soybean futures closed below major moving averages this week, with December’s 200-day corn moving average below $ 4.95 from Friday’s close at $ 5.37 and the 200-day moving average for November is near $ 12.42 from the week’s close at $ 12.90. The chart spread on December corn is between $ 4.77½ and $ 4.80 ¾. Look at the $ 5.00 level on December corn for a technical breakdown.
The underlying bullish sentiments in this market make it hard to imagine re-testing these levels, but anything is possible in this market environment, especially given the widened daily limits.
If you are ready to trade in the commodities markets, call me at (580) 232-2272 or drop by my office to create your account and discuss strategies to pursue your goals. Auto-trade accounts are also available. It’s never too late to start, and no operation is too small to implement a risk management and marketing plan.
Come see me every Thursday during sales at the Enid cattle market and let’s talk about the markets. I wish everyone a good 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 in 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.