Howdy market watchers! 

And another month begins as we grind closer to summer.  It will be a busy month of graduations, wheat field days, planting of summer crops and hopefully relatively mild temperatures.  The abundant rains have been most welcome in recent weeks although some have been in excess and caused flooding and erosion issues.  In recent years, it seems that spring weather is skipped and we go straight to the heat of summer.  

Over the next 30-days, NOAA is forecasting above normal temperatures in the northern and eastern regions of the US, but also wetter than normal conditions for the Southern Plains through portions of the High Plains.  However, in the 90-day outlook, we see much of the US with hotter than normal temperatures and below normal precipitation chances.  As they say, when it rains, it pours.  What we wouldn’t give for steady rains throughout the year, but that’s just not how it works.  

Cover crops have grown in popularity and rightly so as a strategy to help maintain moisture as well as mellow and cooler soils.  If you haven’t looked into some of these options especially during the summer months, this may be a good summer to consider.  Call Enterprise Grain or 81 Feed & Seed for practical options for your operation.  

The recent rains are definitely ideal for conditions and prospects for summer grass pasture and hay production.  The fields and skies will be busy with ranchers applying fertilizers and herbicides to grow quality forages.  

For winter wheat, these rains came slightly late, but still ideal for filling.  This should help improve quality and test weight, but there is still more time to go before this harvest is in the bin.  There is some disease pressure emerging from wetter conditions, but it seems it is still limited and controllable.  Now is the time to check your fields to see if fungicide is needed.  Hopefully we are past the hail chances for this season.  

All this moisture has put significant downward pressure on wheat prices as conditions improved.  In the USDA weekly crop conditions report, Good-to-Excellent ratings for winter wheat improved to 49 percent, jumping ahead of last week’s 45 percent and trade expectations of just 47 percent.  G/E ratings are now exactly in line with last year as well as above the 5- and 10-year averages.  Many states saw improvements with Kansas up 6 percent, Oklahoma up 5 percent, Texas up 4 percent and Nebraska and South Dakota up 3 percent.  We are still behind last year’s ratings at this time in Texas, Oklahoma, Nebraska and South Dakota.  Colorado has missed much of the recent precipitation and declined 8 percent this past week while Arkansas declined 4 percent in G/E ratings.  

Wednesday, April 30th was First Notice Day for May grain futures meaning that May longs had to exit by Monday or register for delivery. I was expecting the market to stay week through the roll and it was only Friday that the market finally turned around. 

In the 10-consecutive sessions prior to Friday, July KC wheat futures had down days every day.  This was a drop of over 57 cents in 10-sessions to Thursday’s low of $5.25.  Ugly.  In fact, local cash wheat came within 15-20 cents of cash corn, which could bring about more feed demand for wheat.  Friday managed to hold above that low and rally from oversold conditions up to and through the 9-day moving average. Chicago wheat futures kept pace on Friday, but bottomed on Wednesday, putting in an outside reversal day with a higher high and lower low followed by an inside chart day on Thursday and then break higher.  Given that, we could see a technical follow-through to the upside come Monday.  

The US dollar rallied 3-days this week to the highest level since April 11^th, which was also a headwind for grains, but weakened Friday.  

US jobs data released Friday morning showed growth in payrolls stronger than expected at 177,000 jobs created in April versus the Dow Jones poll of 133,000.  The unemployment rate however remained steady at 4.2 percent while average hourly earnings rose, but slightly below forecast. 

While President Trump then posted that Fed Chair Powell needs to cut interest rates, such strength in payrolls suggests otherwise.  Given this stronger payroll number ahead of next week’s FOMC meeting, I foresee rates remaining steady as widely expected.  The US economy just isn’t giving up despite negative growth in the first quarter of this year. 

There has been plenty out of rhetoric out of DC this week as we marked the Trump Administration’s 100-days in office. Whichever side of the aisle you’re partial to, there has been significant uncertainty added to markets and policy in the past 100-days.  While inflation has softened largely driven by the plunge in energy prices, there is an unhealthy level of unknowns that has resulted in companies halting investments until more clarity returns on tariffs and trade specifically.  

The markets have begun to factor in a somewhat softer tone on potential trade talks with China and I’m expecting announcement of bilateral deals within weeks.  I foresee the trade stance with China remaining firm while I’m sure we will see country-by-country deals continue to be announced over the coming months.  The expectation by the Trump Administration is that a tough policy towards China will be politically desired by his base while these other deals will be seen favorably by the markets.  Will these other deals in fact “outweigh” uncertainty vis-à-vis the China relationship?  That will be the question over the next few years.  

US consumer strength trumps all and we will need to see that robustness hold for any hope of the market sidelining the China conflict.  

US corn planting has reached 24 percent, one percent behind expectations and last year, but ahead of average.  US soybean planting is now 18 percent complete, one percent ahead of expectations and last year and 6 percent ahead of average.  Spring wheat is just behind expectations and last year while cotton and oats are ahead of schedule.  

There are growing expectations that corn could begin rallying again soon as we often do from May into the summer months, but we have a lot of key moving averages above to get push through first.  Soybeans, however, have seen more breakthroughs this week especially for old crop.  Watch these soybean futures to potentially put in a ‘head-and-shoulders’ pattern that could help us determine where we are headed next based on the coming couple sessions.  This week’s monthly oilseed crush report showed US soybean crush in March as slightly higher than expected while US soybean oil stocks were sharply higher than expected.  
 

Among all the commodity contracts, cattle continue to be the winner.  With April fats coming off the Board this week, the June contract is now the front-month.  June fats broke higher on Friday after an inside chart day on Thursday, suggesting we could continue to the upside Monday.  

Cash trade this week for fats was phenomenal developing Wednesday and topping out the week at $218 in Texas and Kansas and $222 in Nebraska.  Packer margins are deepening in the red, but market demand remains intact even at these record levels.  

I have been talking about the potential to reach $3.00 feeders for two years and we are almost there.  I suspect that August feeders could touch this in the coming week after putting in a high this week at $297.975 on Friday although closing off that high.  The chart did have an outside reversal day on Thursday after falling short of outdoing the prior day’s new, all-time high.  However, Friday’s new high and pretty strong close somewhat mitigates this outside reversal day.  

It is amazing to think that commodity hamburger can and used to cost around $3.00-3.50 per pound at the grocery store and an 750-800-pound feeder calf is bringing not far from that and still has 120+ days to be fattened and processed and packaged and distributed and retail margin added.  

I do believe if and when we reach $3.00 on feeder futures that it will serve as psychological resistance and potential heavy selling pressure, but we have to see how charts and open interest are developing once we are there. The strength and resilience of this market makes any risk manager complacent, but do the math and realize that these are excellent profit margins and take some risks off the table.  Your banker should be supportive of that despite the cost and I am happy to help you explain futures, options and LRP price protection with your financial provider if need be.  

Escalator up and elevator down is typically how this stretched rubber band ends.  The regret of having to pay for your protection and not need it is far better than regretting to have the protection and leaving money on the table.  

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.