Happy July and Independence Day weekend market watchers!
Celebrating the 4th of July in our country always makes for an exciting start to the 2nd half of the year. What an incredible history the journey of the United States has experienced. From visions and dreams of freedom borne out of oppression responded to with bravery and perseverance against all odds that ultimately resulted in the world’s most successful country.
Success, however, can also result in complacency, and we seem to be at a pivotal yet precarious point in our country where our founding principles are being tested. The key presidential election before us doesn’t add much comfort that things will change in any branch of government.
It seems increasingly likely that the candidates who appear to be the nominees of each Party may not actually be on the ballot in November. While Trump was questionable before due to legal proceedings, it now seems that Biden’s nomination likelihood is declining by the hour due to vitality. This uncertainty may bring volatility back to some markets, but if Biden remains the candidate, it could also favor the GOP. The Democratic National Convention starts on August 19th, and I would say that’s the deadline for the Democrats.
Alright, back to my lane in the markets. While US-based markets were closed Thursday with lower holiday-ish volume on Friday, there was plenty green on the screen. The S&P and NASDAQ indices screamed to new, all-time highs in Friday’s trade with the Dow Jones also closing positive with an outside chart day, lower low and higher high, versus the prior session. Metals were also firmer while energy markets closed lower on the day after an early session surge. Grain markets found footing and managed a corrective bounce Friday after selling pressure on Wednesday ahead of the holiday.
US jobs data on Friday showed non-farm payrolls at 206,000 for June that were 6,000 better than expected, but lower than jobs added in May. However, unemployment increased to 4.1 percent that was unexpected and reached the highest level since October 2021. Overall, this was interpreted as continued softening that could eventually lead the Federal Reserve to consider an interest rate cut, perhaps at the September FOMC meeting.
The US dollar accordingly sold off that helped support equity markets as well as commodities. With the June plunge in grain markets, the US is getting more competitive on the global stage that any weakness in the US dollar will further support. We’ve seen US wheat sales lead export data in recent sales reports that is helping conclude that the bottom is in.
News Friday that the French wheat crop could be the lowest in eight years supported global prices. However, old crop stocks are expected to be near a 19-year high and could partially offset this year’s reductions and stabilize exports. France’s wheat harvest is just getting underway at one percent complete, behind average progress, and so the next couple of weeks will see more harvest data hit the market.
Winter wheat harvest in the Black Sea is also going to start progressing in earnest and add fresh fodder for traders. Heat and dryness is returning to that region. There are some areas where this could still impact wheat filling while past for other areas. However, it was news out of this very region that led to massive fund short covering in wheat futures in the magnitude of $1.60 per bushel from late April to the end of May. This is why that if you’re selling physical wheat here to cover this with futures or option positions on the Board.
The combination of a weakening US dollar, if it continues, combined with US export demand, production issues in key exporting countries that are now harvesting and fund short-covering could be the perfect storm for another rally into late July. Having said that, the US winter wheat harvest is only 54 percent complete and it is likely that yields as the harvest moves north will continue to provide better-than-expected results.
Spring wheat conditions also continue to improve that will be a headwind as will improving conditions in the early stages of the Australian and Argentine wheat crops. Upward support from the row crop markets would also be helpful and may be necessary. Both corn and soybean markets have been under immense pressure with all weather premium now non-existent with the most critical crop-making months ahead. With managed money now holding a new, record net-short in corn futures, it may not take much for a relief rally.
The USDA provides its next round of data on Friday, July 12th, in its monthly WASDE and Crop Production reports. Given USDA’s recent surprise in the larger corn acre number, corn yield and demand will be critical to any meaningful rally hopes in corn. US corn conditions declined another percentage point versus expectations to 67 percent Good-to-Excellent (G/E), two percent below last week, while soybeans remain unchanged, but one percent above expectations also to 67 percent G/E.
The cattle market had a two-sided performance on Friday with early strength met with selling. Feeder and fed cattle futures were both higher during the session, but both closed well off the day’s highs.
Cash fed cattle have been exceptionally strong this week reaching $198 in Western Nebraska on Friday. This week’s cash strength stabilized fed cattle futures after last week’s weakness, but Friday’s action of a sharp spike followed by selling and a close on August Live cattle nearly $2.00 off the highs was less encouraging. However, we did make new, recent highs on fed cattle contracts and pierced the vail for potentially higher moves after corrective trade.
It is the time of year when the ‘dog days of summer’ begin to set in and demand peaks. Cattle numbers are short, but corrections are still in the cards after new highs are made for a short-term move.
We are just starting to hear of new human COVID strain, and the bird flu is still lingering in dairy and so be vigilant to take advantage of spikes as you never know when the next headline is going to emerge.
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 trade@sidwellstrategies.com.
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.