Israel-Iran conflict supporting energy, metals and grain markets
Howdy market watchers!
Summer is officially here and so is the heat! June has felt more like May this year, but the heat ahead may quickly make that a distant memory.
The US winter wheat belt welcomes some hotter and dryer weather with significant delays in wheat harvest progress that is only 10 percent complete versus last year’s 25 percent and the average of 16 percent. While we’ve had long delays before, it seems like even fewer acres are harvested this year with harvest just getting started from southern Oklahoma to central Kansas into Missouri.
So far, yields are robust. We’re hearing dryland yields anywhere from 50 bushels per acre (bpa) to upwards of 100 bpa. This is one of the best crops that farmers have harvested and yet, much of it remains in the field. We finally have a 10-day clearing that will allow progress to leap forward although the heat and humidity could give rise to pop-up storms.
The biggest concern at this stage is the declining test weights. We’re already seeing test weights below 59 bpa at our Enterprise Grain elevator and I expect there will be loads coming in below the milling cutoff of 58 bpa going forward after recent rains. This will be seed variety dependent, but hopefully we will be void of any sprout issues. Anymore rain at this point of maturity could be devastating for wheat quality. Such is the nature of production agriculture.
For diversified farmers, the rains have been welcomed for summer crops. Heavy winds with thunderstorms has caused some green snap in corn, but this was largely limited. Overall, crop conditions have been mixed with corn now rated at 72 percent Good-to-Excellent (G/E), just one percentage point higher than expected, but in line with last year. Soybean conditions were rated at 66 percent G/E versus 68 percent expected. Winter wheat conditions were also two percentage points below expectations at 52 percent G/E. Spring wheat conditions have continued to improve at 57 percent G/E, but still well below last year’s 76 percent G/E. Cotton conditions were in line with expectations, but 6 percentage points below last year.
Midwest heat could spark some weather premium returning to row crops that have traded counter-seasonally over the past month. This week’s corn rally pushed December new crop corn to the 50-day moving average at $4.47, but weakened into the close to finish the week below the 20-day moving average near $4.42. So far, this market has held the $4.34 level, but a close below that level could mean more weakness ahead.
November new crop soybean futures had an outside reversal lower day on Friday closing around $10.60. If we start losing momentum, this market could retrace to below the $10.50 level. However, on Friday, the 50-day moving average just started to cross above the 200-day moving average, which is often a sign of a market turning bullish. Friday’s high on November futures came within 2-cents of the February 4th high and we will need fresh news to push us to and through that $10.75 ¾ high.
US NOPA soybean crush reported this week came in slightly below average trade estimates, but above last month. Soybean oil stocks have tightened below last month and below already lower trade guesses. Soy oil production was higher than last month. Crush demand remains above last year with hopes that EPA’s renewable energy targets will further support the soy complex.
July grain options expired Friday with First Notice Day on July futures on June 30th.
The US dollar continues to be supportive for US grain exports with its continued weakness despite a recent bounce.
With Fed indicators getting closer to the long-term target trendline, the data is beginning to lean towards a potential cut at upcoming meetings. However, not just yet. The FOMC decided again this week to pause any interest rate changes until there is further proof that such a cut is warranted as the tariff concern continues with an approaching July 9th deadline when President Trump’s tariff extension expires. The next FOMC rate decision is July 29-30th.
The escalating conflict in the Middle East is the single most important factor impacting markets right now and the situation is tenuous. How this situation develops over the next two weeks will be one of the single most important factors for commodity and equity markets alike. The surge in energy markets has supported grain markets and depressed equities that spilt over into the livestock complex. The uncertainty and weaker US dollar have also supported precious metals.
Easing energy markets on Friday off the overnight new highs allowed equity markets to come up for air. Into the close, however, energy markets began creeping back up with all the unknowns in the Middle East that turned to diplomacy at the end of the week, but could change at anytime over the weekend. With crude oil prices inching back up, equities lost steam. Fuel prices have also surged amidst the conflict. If you haven’t purchased diesel in a while, be ready for a price shock. Remember, I can help you protect against higher cash diesel prices through call options on the Heating Oil contract. Give me a call as should this conflict intensify, it could be an expensive summer for fuel expenses.
The USDA released its monthly Cattle-on-Feed report Friday at 2 PM, after the market closed. June 1st on-feed numbers came in line at 98.8 percent versus average trade guesses of 98.9 percent, but were at an 8-year low. Placements leaned slightly bullish at 92.2 percent versus average trade estimates at 94.1 percent. Marketings were lower than expected at 89.9 percent versus 90.7 percent.
Cattle futures had a volatile session on Friday with a strong rally mid-session met with heavy selling pressure. Feeder cattle contracts surged to the 9-day moving average before closing $5.50 off the day’s highs and below the 20-day moving average. However, the feeder cattle contracts did hold above the prior session lows. Fed cattle futures was another story with Friday’s price surge to the 9-day moving average, weakening into the close.
While Friday’s close was above the prior session lows, it was an outside reversal lower day, higher high and lower low. We will have to see what next week brings after the Cattle-on-Feed report and the Middle East conflict. June live cattle futures finish trading on June 30th and there remains a gap higher on the August futures. Fed cash cattle traded to a high of $228 in Kansas and Texas this week with June futures still at a discount, closing the week at $223.225.
The supply fundamentals continue to be historically tight in the cattle complex, but I do not like the long side of this market right now. Protect the downside of this incredible rally and we can use options to keep the upside open. If you are wanting to make a change in your LRP agent, this transfer needs to be complete by June 30th. Consider Sidwell Strategies to combine your LRP with your commodity trading account to have it all in one place for more effective strategies and execution.
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.
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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.