Howdy market watchers! 

There are just over two weeks until the US Presidential election.  It is a tight race, but there is increasing talk late week that the stock market is pricing in a Trump victory.  

There is plenty of time for anything to happen.  Middle East tensions have continued to flare although somewhat muted to what I was fearful of just a few weeks ago.  Israel terminated the leader of Hamas this week as part of its retaliation to the Iran attacks, but said they would not attack oil infrastructure.  

As a result, oil and gas futures plummeted.  Crude oil prices dropped over $6.00 per barrel from Monday’s high to Friday’s low.  Crude futures are now down at the trendline off which prices bounced in both mid- and late-September.  We will see if oil futures follow this trend next week.  
 

Energy weakness has weighed on grain futures this week as has advancing row crop harvests, the strengthening US dollar and lack of follow-on China stimulus. 

There is a gap above on the US dollar chart that will be filled at 103.870.  There are several others above all the way up to 105.000 that could be in the cards if rate cuts stall.  
 

Monday’s government reports were delayed due to the Columbus Day holiday, but showed both corn and soybean harvest well ahead of last year and even more ahead of the average.  This acceleration is putting greater pressure on basis levels as well as futures and likely will until the harvest surge passes or exports pick up amidst a continued dry Mississippi river to allow barge shipments to flow at needed levels. 

US exports this past week were in fact strong with Mexico stepping up considerably as they also face drought conditions and high inflation.  US corn and wheat sales were at the very top of expectations while soybean sales were strong as expected.  

Despite plenty of concern about the health of consumers and the economy, there seems to be a stronger demand theme for grains.  

Equity markets just continue to find strength after each dip with six consecutive weeks of gains.  While a soft landing is in sight for the Fed, stronger jobs and economic data returning could complicate the next couple FOMC meetings, the next of which starts the day after the US Presidential Election Day.  

The metals markets showed no such concern with gold, silver, copper and other metals surging higher on Friday.  Gold and silver made huge moves Friday with calls for more to come.  Hopefully such strong buying interest spreads to the rest of the commodity complex, which I do believe is possible.  
 

The cattle market found solid strength return Friday after the recent correction.  Feeder cattle contracts stalled after reaching respective 100-day moving averages.  Fed cattle contracts bounced off the respective 20-day moving averages, but closed off session highs near the 9-day moving averages.  

Fed cattle cash trades topped out at $188 this week in Texas, Kansas and Nebraska. With December Live cattle futures reaching a high Friday at $187.675, it may take higher cash trade to see futures find more support.  
 

Weaker feed grain prices however continue to allow feeders to add more pounds at reasonable price levels to wait out for higher prices.  This could make the stand-off continue to favor feedyards and push fed cash prices higher yet especially on the heels of equity market strength and consumers that keep spending.  

Friday’s weakness in grains in general and wheat specifically must have been profit taking as the fundamentals seem to be telling a different story.  While there are some chances of rain in the Southern Plains to start next week, the drought intensity is worsening and continuing to spread.  Nearly all major wheat areas in the US have some degree of drought.  Overall, 52 percent of US winter wheat areas are in drought with nearly two-thirds of acreage planted.  

The rare exception is the Oklahoma and Texas panhandles and parts of Southwest Kansas that are typically on the dryer side, but now in better conditions relative to areas more central.  Until these conditions change in combination with other areas of weather stress, I believe the wheat market is due for more upside.  However, the volatility is frustrating with rallies met with profit taking before buying resumes.  
 

Late last week, Russia introduced a minimum price floor on wheat exports and restrictions on customers to strictly include sovereign buyers in private deals only instead of tenders.  We continue to see Russian export prices increase.  Turkey also discussed increasing wheat import quotas from 15 to 30 percent to allow more supplies into the country at lower prices.  

Australia’s wheat crop has been a bright spot for production optimism, but dry conditions emerging in the southern states are seeing estimates adjusted lower.  The USDA’s last estimate was 32.0 million metric tons (MMT) with some private estimates lowering the forecast to as low as 30.6 MMT while ABARES official estimate is at 31.8 MMT.  However, this would still be up from last year’s 26.0 MMT, but is tightening global, exportable supplies as demand seems to be increasing.  

Cotton harvest has maintained its fast clip now 34 percent complete versus 31 percent last year and 30 percent on average.  The selloff in energy markets and concern over China’s economy have seen ICE cotton futures come under pressure.  We need to hold above 70 cents on December cotton, which looks likely based on this week’s chart action.  However, don’t lift your downside protection just yet until we see stability in the energy markets and possibly more rhetoric on China stimulus.  
 

Corn and soybean futures also need better news from China to stabilize prices as harvest pressure mounts.  Rains in Brazil are easing earlier concerns for soybeans. China’s declining hog herd is softening demand for corn and soybean imports.  

Amid weak consumer demand in China, the government has been making moves to reduce hog numbers to support domestic prices.  China has half of the world’s pigs, and it is an extremely important source of income for rural Chinese citizens and therefore social stability.  Lagging economic growth and deflationary pressures are impacting household incomes of the lower quartiles with limited ability to find other jobs.  With both US presidential candidates talking tough on China and trade restrictions, we could very well see the PRC pause on further stimulus until the election is over.  

There are many of us that are doing the same and waiting out the election result before making big decisions in spending.  

If you’re beginning to buy cattle, be cautious to get complacent with Friday’s rebound. If we do not make new highs above the recent highs in next week’s trade, we will consolidate and risk weakness. After the recent buying, we are at risk of small headlines potentially having an outsized impact on futures contracts. 

Just remain vigilant and get your trading account and LRP application opened and active so that you are ready when the market tells us to play it safe.  

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.