Brady Sidwell
Happy New Year market watchers! What a way to end a decade and welcome in a new. The beautiful snow seemed fitting to cleanse us all from a problematic 2020 for a fresh start ahead. Whatever your resolutions for the New Year, there is little doubt we all now recognize that the impossible can happen.
We begin 2021 with a renewed appreciation for life’s simplest things that are easy to take for granted. Hopefully by the second quarter of the new year at the latest, we will be talking about the virus in the past tense. When that time comes, I would expect one of the strongest and fastest economic growth periods we have seen. Despite the economic and social devastation felt around the world, there is pent up demand for social activities that will reemerge in full force. Look for those companies and sectors to experience what may be known as the Great Rebound. As we have already seen, the asset class that will certainly benefit are commodities. With trillions of dollars pumped into economies globally, inflation is returning and will help drive a major commodity boom. A weak US dollar and incoming Democratic Administration in the US, we are likely to see the commodity bull market continue and even accelerate. Metals, energy and agriculture commodities will find support from investors as a hedge against inflation. In August and September of 2012, corn prices reached $8.40, beans near $18.00 and Chicago and KC wheat near $9.50 and crude oil at $112.00. During this time, Barak Obama was the US President and the US dollar index was around 80. With incoming President-elect Joe Biden set to take office later this month, the US dollar index is already down to the 89-level. Further slippage will add further fuel to the fire for commodities as will accommodative fiscal policies. The outcome of the Georgia US Senate elections on Tuesday, January 5th will set the tone in Washington. Bull commodity markets can bring unique challenges for producer marketing and should be managed with upside protection once physical bushels or hedges are locked in. With higher market prices, there will be less support from USDA policy programs. As outlined previously, I expect a significant priority for agriculture policy under a President-elect Biden to be on climate change mitigation and sustainability. Watch this space closely as there will be opportunities driven by regulations that may impact how we currently operate. More to follow on this in articles ahead. In the markets, grains continue to surge led by soybeans. The Argentine strike concluded with limited to no impact on the upward momentum of soybean and wheat futures. The announcement on Wednesday that Argentina would ban corn exports until February 28th due to domestic supply issues further fueled the corn surge. The last 10 trading days have seen new recent daily highs in soybeans and corn. Since December 10th, soybeans have rallied $1.50, corn up over 65 cents and wheat up 50-60 cents. As corn and soybeans compete for US acres this spring, we will likely see them moving more in tandem as we’ve seen recently versus a push only in soybeans. This push could continue leading up to the USDA WASDE and Crop Production report on January 12th that will determine directional trade going forward. Acres estimates are for a 7 percent increase in soybean acres in 2021 to 89 million and a 1 percent decline in corn acres to 90 million. South America weather has potential to lend support should conditions impact the Safrinha corn crop. To conclude the trading year on Thursday, March soybeans closed at $13.10, March corn at $4.85 ¾, July KC wheat at $6.09, March cotton at 78.12 cents and February WTI crude oil at $48.42. Higher feed grain prices weighed on the cattle market in recent sessions. The head and shoulders pattern on January feeders held and broke the bottom bull channel trendline on Wednesday. Thursday’s action resulted in an inside day on the chart which can lead to a breakout either higher or lower. Live cattle futures have been pushing higher in recent weeks with higher boxed beef prices. April fats have reached levels at the end of February just before the precipitous drop from COVID. With the passage of another US stimulus bill despite plenty of political maneuvering, there will be another round of payments to producers on all commodities included in the CFAP2. Wheat will be included and crops will receive $20 per acre. For cattle, the following payments will be made per head: Slaughter cattle: Fed Cattle – $63.00; Feeder cattle: 600 pounds or more – $25.50; All other cattle – $17.25; Slaughter cattle: Mature cattle – $14.75; and Feeder cattle: less than 600 pounds – $7.00. Producers should consider protecting the feeder cattle market on rallies and also consider upside on corn to help hedge feed costs. If you’re considering getting involved in the markets, give me a call at (580) 232-2272 or stop by my office to get your account set up and discuss strategies to protect your exposure to these markets. It is never too late to start and there is no operation too small to get a risk management and marketing plan in place. Remember, I am on-site at the Enid Livestock Market on Thursday, sale day. Wishing everyone a successful trading week!
Brady Sidwell is a Principal of Sidwell Strategies.
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