Howdy market watchers! 

It’s Farm Show weekend in Enid, Oklahoma and that means winter weather is here.  Most of the state received its first meaningful snow of the season that largely outperformed forecasts.  The moisture is always welcome although it doesn’t amount to much in terms of actual precipitation, but it did mean some fun in the snow with the kiddos.  

It was an action-packed week in the markets with an abbreviated session on Thursday for commodities in observance of President Carter’s funeral.  Equity markets were closed for the declared National Day of Mourning.  

While much of the market’s uncertainty has been addressed by the fact that the election is now over and with certainty for the results, there is new uncertainty emerging for the direction of domestic policy and what may happen just after January 20th.  I believe we will see this uncertainty playing out in the next 10 days leading up to the inauguration.  Bottomline, I would advise that you protect your positions.  

Friday was especially busy with the December jobs report surprising the market where good news was bad news.  Nonfarm payroll numbers jumped by 256,000 jobs versus expectations for only 155,000 and above November’s 212,000 jobs.  This brought unemployment to 4.1 percent, below expectations and showing a tightening labor market.  

This much stronger than expected employment figure lowers the probability of Fed rate cuts this year that have already been reduced to two cuts from five just a few months ago.  More employment does suggest a stronger consumer with average hourly earnings also increasing, but it can translate to higher cost of credit that consumers are increasingly using to support purchases.  The risk of sticky and potentially higher interest rates also pushed the US dollar index to new, recent highs above the January 2nd high, making US origin products more expensive to importing countries.  

The coming tariffs have been a large part of the building uncertainty for supply chains, but leaks this week suggests that President-Elect Trump may now be considering limited tariffs focused on only critical imports as opposed to broad-based tariffs.  Such news, although denied by the incoming Trump Administration, was and would be welcome news across nearly all markets and just demonstrates the headline risk sensitivity of markets right now.  

Across the ag markets, grains and oilseeds recouped much of last Friday’s new year selloff.  Soybeans have been developing a firmer tone on dry conditions in Argentina with dryer forecasts to boot.  

Winter wheat condition ratings vary across the country with Kansas, Illinois and Colorado holding above year ago levels while Oklahoma, Nebraska, South Dakota and North Carolina are below year ago levels.  However, all markets have been trading in anticipation of Friday’s market moving USDA January WASDE and Crop Production and US winter wheat seedings updates.  

As seen from the Friday movements post-report, these latest figures were bullish for corn and soybeans and largely neutral for wheat.  Corn production estimates for the crop just harvested came in at 14.867 billion bushels, which were below the low end of average trade guesses and 474 million bushels below last year.  Average corn yield was reduced from 183.1 bushels per acre (bpa) to 179.3 bpa.  US corn ending stocks also came in nearly 200 million bushels below USDA’s previous estimates at 1.738 billion bushels.  US soybean production came in nearly 100 million bushels below USDA’s last guesses that dropped yield by 1.0 bpa to 50.7 bpa.  Ending stocks for soybeans were 90 million bushels below previous guesses. 

Globally, both corn and soybean ending stocks tightened from prior estimates as well as average trade guesses despite unchanged production for both corn and soybeans in Brazil and Argentina from USDA’s previous estimates.  China imports of soybeans were unchanged at 109.0 million metric tons (MMT) while corn was reduced by 1.0 MMT to 13.0 MMT.  

March corn futures closed $0.1425 per bushel higher on Friday at $4.71 while March soybeans closed nearly 30 cents higher on the day at $10.26 and above the 100-day moving average.  New crop December corn pierced the November 8th high at $4.51 and reached $4.52 ¾, but closed off those levels just below $4.50.  

New crop November soybeans pushed above the January 2nd high, but still $0.20+ below the November 8th high and closed at $10.31, below the 100-day moving average.  

It is still early, but it is time to calculate your breakevens and begin getting a plan for price risk management in place.  I believe this is going to be a difficult year for marketing at a time when financials are tight all around.  I would not waste time in protecting a profit when there is one to protect.  This is a year not to expect home runs, but a boring year with acceptable profit.  

Turning to the wheat market, it was a more muted end to the week.  US ending stocks for wheat came in slightly above previous USDA estimates, but below average trade guesses.  December 1st quarterly wheat stocks came in slightly above average trade guesses.  The USDA put winter wheat seedings at 34.115 million acres, 725,000 acres above last year. Hard red winter wheat alone accounted for 248,000 acres of the increase.  However, being on the ground and in the seed business, I would say that while there may be more acres, the condition and yield potential are questionable.  The top end yield potential has likely already been taken off of much of the US winter wheat areas.  

Meanwhile, global stocks which were reported to increase slightly in Friday’s report, seem to be tighter than represented with India recording record wheat prices this week.  The wheat charts do show some hope with key reversals, lower low and higher highs, on Friday and decent closes on the day.  We still need a break in the US dollar to promote exports and fund buying, but there are triggers in reach.  

The release of some clarity on the 45Z biofuel legislation on Friday afternoon encourages demand for grains and oilseeds that is important for demand clarity.  

Cattle deserves more attention that I have been giving it as it is the real winner.  Unbelievable strength continues to push cash and futures higher.  Just when we feel the correction and that the top is in, the market bursts to new highs.  We saw that again Friday with markets gapping higher only weakening to fill that gap and closing mid-range on the day.  

Fed cattle cash bids in Texas and Kansas topped out at $201 per cwt to end the week, which was slightly below last week, but still full strength.  We are in a unique position now as cattlemen that could get better, but could definitely get a lot worse.  The fundamentals are clear and justify these prices, but the world is a wreck. It is often the unrelated headliners that change the market dynamics rather than the things that make sense. Do not be surprised if we see a $30 per cwt break lower in the coming couple of months.  Protect your equity and profit.  These price levels make us complacent.  
 

If you’re buying cattle here, spend your stress on keeping them alive and not on the price.  There is profit to lock in here, but a dead calf takes around 4-5 head to make up for the loss, but only if this profit level is realized.  Call me to discuss price protection and let’s have a boring, good profit year.  

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 https://www.sidwellstrategies.com/fccp-disclaimer-21951.