Howdy market watchers! Just over two weeks until Christmas! 

The time is nearing for us procrastinators to start thinking about making our list and checking it twice.  Holiday parties fill the calendar and be sure to consider Enid Brewing Company for your event.  We have an excellent private space connected to the brewery that we call the Barrel Room for the whiskey barrels that decorate the room.  We have a full kitchen serving local beef and a full bar after our recent license upgrade featuring all your favorite cocktails as well as popular craft beers from the best breweries across Oklahoma.  We are always family friendly with activities and specials throughout the week including Sunday brunch.  

With these exceptional times in the markets, one can use a stiff drink or two to ready oneself for the next trading session.  Though we may hope for calmer times ahead, there is going to be anything but that as the election season is about to get underway.  

I foresee the conflicts in the Middle East and the Black Sea intensifying, but also merging into one larger, connected issue instead of seemingly separate conflicts.  Iran and Russia are fueling the turmoil and cooperating to disrupt stability and engage the West while political and economic stress is heightened.  Russian President Putin recently traveled to the UAE and Saudi Arabia to discuss the Israel-Hamas war, which indicates his grip on domestic power.  He also announced his candidacy for reelection, which could secure his position through 2030.  Where will China stand is the question?  As ambiguous as possible I’d say.  

Meanwhile, China has returned as an active buyer of US ag commodities.  As I’ve recently written, I believe China is much shorter on wheat supplies than the market realizes.  Some of that position was exposed this week with multiple purchases of US soft red winter wheat by the PRC.  Friday’s purchase of another 110,000 metric tons of US wheat puts China buys for the week at 1.010 million metric tons!  With the 2023/24 marketing year just underway, this brings estimated US SRW sales to China to 1.8 million metric tons versus just 157,000 metric tons at this time last year.  

Egypt was also back tendering for wheat this week with Russia and the Ukraine winning contracts, but only for a fraction of the 1.325 million metric tons in the round. Prices have increased with the recent rally in global wheat prices.  Northern Africa buyers that compose the largest global wheat importers used to be a market for US wheat until Russia began to dominate.  It is going to be difficult to get that market back with the Russian regime controlling the market and using grain exports as a source to raise foreign currency as energy exports have depleted.  

Perhaps China will be a market that US wheat can begin to secure away from Australia although the Chinese will always keep their options open when it comes to US dependence on any one item.  It is interesting that the Chinese have not been purchasing wheat from Russia or the Ukraine despite lower offers.  Ukraine grain shipments remain slower than last year with 626,000 metric tons exported in the first nine days of December versus 1.1 million metric tons in the same timeframe last year.  

The wheat market has made a quick and impressive reversal with Chicago wheat surging 92 cents from the November 28th low to the December 6th high while Kansas City wheat had a high-low range of 82 cents.  Long-awaited short covering by the funds that saw a plunge in open interest has fueled the rally that triggered from China wheat buying and a lower US dollar.
 

The USDA released its monthly WASDE and Crop Production reports on Friday that led to some profit taking at the end of the week.  Wheat contracts settled back to moving averages making a new daily high, but not a high above December 6th’s high, which is now the next objective. The USDA increased US SRW exports by 30 million bushels, but decreased white wheat by 5 million bushels leaving all wheat ending stocks 25 million bushels tighter versus trade expectations for an only 4.0 million bushel decrease.  The HRW balance sheet was left unchanged despite some chatter of a production increase.  

While Australia’s crop is much smaller than last year, it has improved from earlier expectations as harvest progresses.  The USDA increased Australian wheat production and exports by 1.0 million metric tons.  Canadian wheat was also nudged higher by 1.0 million metric tons of production and 0.5 million metric tons of exports.  China wheat imports were increased by 0.5 million metric tons, but still lower than last year.  Overall, this tightened global wheat ending stocks by 0.5 million metric tons that was right in line with expectations.  With the US dollar rebounding slightly, the recent rally took a breather on Friday, but I think there is more upside. 

Reuters reports from India indicate wheat inventories at state warehouses are at the lowest levels in seven years, a decline to 19 million metric tons.  Expect shortages in India to result in that typical export market looking to the international market to ease supply gaps and ease prices.  This could develop into key support for global prices given India is typically a supplier to the global market. 

Bitcoin, though a controversial topic, is an indicator of the market’s risk appetite. Bitcoin futures have exploded higher recently suggesting the risk-on attitude is back.  I believe wheat contracts are the risk indicator in the grain markets and should help keep these contracts supported barring any major development. The Fed’s FOMC meets on Tuesday and Wednesday with a decision on December 13th.  Another pause is widely expected.  

Friday’s payroll report came in slightly stronger than expected while the unemployment rate was lower than expected.  Average hourly earnings increased for November, which is a key indicator of inflation.  These data are mixed at best and still leave the door open to inflation concerns. 

Brazil weather continues to be uncertain though more rains are forecast.  December is a critical month for beans and foresight to the corn that will be planted after.  The USDA left the US soybean balance sheet unchanged while decreasing Brazil’s production estimate by 2.0 million metric tons to 161.0 million metric tons, slightly higher than expected.  Argentine bean production was left unchanged.  Global ending stocks tightened slightly, but less than expected while the USDA did increase China imports by 2.0 million metric tons.  The US stocks-to-use ratio is now 5.9 percent. Despite Friday’s market weakness, I believe the bean futures will rebound.  

US corn ending stocks were reduced while the expectation was for an increase. Brazil and Argentine corn crops were left unchanged.  Global corn ending stocks were slightly increased versus an expected decline with Ukraine corn production and exports increased by 1.0 million metric tons. Mexico’s corn imports were increased, which is not a surprise after major orders in recent months.  US corn exports this week were at a marketing year high. 

The roller coaster in the cattle market continues.  Just as we think we’re bottoming and rally early session, the contracts slam lower and disappoint.  Friday’s rebound and close near the highs gives optimism for next week, but we just made new lows for several contracts on Thursday that saw high-low ranges of nearly $9.00 per cwt!  The chart gaps above on the feeder charts around $245.00 seem to be likely targets, but “when” is the question.  

For the Live cattle contracts, the lower chart gaps were filled this week, which is important for technical action to turn.  Chart gaps remain above around the $183-184.00 level.  These targets are quite a bit higher from the current futures, but could be reached within a matter of days under the right circumstances. 

US beef exports have softened this year versus last year’s record.  For October alone, US beef exports were down over 21 percent.  We are on track for annual US beef exports to be down 15 percent overall due to slippage in China, South Korea and Japan, in that order.  As much as we may disagree with China’s politics, we need that market for beef and wheat not to mention soybeans, corn and milo to support our industry and prices.  We need to aggressively capture the China beef export share like Russia has done in Northern Africa with wheat.  Our competition is South America and Australia all of which are grassfed models.  The Chinese prefer our beef and we need Executive and Congressional leadership who understand this and lead with it accordingly. 

Higher US beef prices from a shortage of cattle have led to greater beef imports that benefit from a stronger US dollar. That combined with higher carcass weights in the US are attempting to compensate for fewer cattle, but there will still be a shortage as long as domestic and export demand holds.

If you locked in hedges or LRP at a higher rate and would like to capture this selloff, call us to buy call options that helps you capture the upside should this market rebound.  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.