Howdy market watchers! 

Welcome to the heat of August and the start of the Olympic games!  I believe everyone is feeling that summer is coming to an end and back-to-school is only a few weeks away.  

It has been a busy week of data with Thursday US jobless claims for July coming in higher than expected followed by Friday’s disappointing employment data showing unemployment at the highest level since October 2021.  This sudden shift to weaker labor market figures triggered a significant change in confidence that resulted in a two-day range on the Dow Jones of nearly 1,800-points.  It was the first time since July 10th that the industrial index dropped below 40,000.  
 

These fresh data points came on the heels of Fed Chair Powell’s announcement on Wednesday afternoon that the FOMC decided yet again to hold the Federal Funds Rate, that essentially sets interest rates, steady at a range of 5.25-5.50 percent.  The good news is that mortgage rates dropped to the lowest level in over a year.  In light of this weaker labor market, it is becoming increasingly likely that the Fed will cut rates at the next September 17-18th meeting.  The Kansas City Fed hosts its highly anticipated Jackson Hold Economic Policy Symposium from August 22-24th and we will indeed hear more commentary on the economic and interest rate outlook around that time.  

There are however a lot of moving parts always, but especially now with the US Presidential election and international conflicts heating up.  The Middle East conflict is intensifying and spreading with a lame duck President and Congress understandably uninterested in redeploying troops to the region.  

Crude oil prices swung widely this week after the Middle East conflict followed by US economic weakness and rising production levels from OPEC.  I expect the rest of the year is going to be filled with geopolitical noise that will create uncertainty in markets and so get ready.  

This week’s data also dealt a blow to the stubborn strength of the US dollar with the index finally making a meaningful break below the upward sloping trendline in place since late March.  Friday’s low at 102.910 was the lowest level since Q1 and will likely set a new trend going forward.  The probability of interest cuts leads to a weaker US dollar, and this is finally some good news for the grain market bulls.  
 

As I wrote last week, we have started to see international buying of US grains and a weaker US dollar will aid in this buying interest.  While fundamentals still lean bearish with the US corn crop seemingly getting bigger, the technicals are starting to suggest that enough is enough. After December new crop corn futures broke the $4.00-level for the first time in 4-years this week, we had a decent close on Friday above $4.03.  

The same seems to ring true for wheat and soybeans as well although more downside potential is possible after a short-term, short-covering correction higher.  The corn crop in the northern hemisphere is largely made while August is the critical month for soybeans.  Farmer surveys of yields seem to suggest both corn and soybean potential is increasing, but there remains variability although it is hard to say how widespread and ultimately could only be marginal.  

Managed money shorts need a reason to cover, and it will need to come from demand and geopolitical conflict rather than supply concerns. Friday’s US crush numbers for June came in slightly lower than expected with soybean oil stocks higher than expected and not the best data for demand in the soybean complex despite China buying more cargos this week.  

US corn conditions improved one percentage point from last week to 68 percent Good-to-Excellent and were two percent higher than expected.  On the contrary, soybeans were one percentage point lower from the week prior, but equal to trade expectations at 67 percent G/E.  Spring wheat and cotton conditions both declined below last week as well as trade expectations.  

If you’ve been watching the Olympics in Paris, you may have noticed all the rain they’ve been having.  Well, that does not bode well for a mature wheat crop that needs harvesting as sprout risk increases.  The crop is around half harvested with weather clearing in the coming week.  However, it is already estimated that this year’s soft wheat crop could only reach 26.0 million metric tons versus last year’s 36.3 million metric tons.  This would be the smallest French wheat crop since 1980 if that is what materializes. France is a major wheat exporter and so this is significant in terms of world stocks.  Similar issues are happening in Germany, which is also a major Europeon exporter.

We’re hearing mixed results for Russia and Ukraine’s wheat crops, but any issues would be welcome news for the exhausted bulls and farmers still holding wheat.  I’ve said it time and again, but if you’re selling physical grain at these levels, I would advise maintaining ownership with call options.  A bull call spread may be best in case we chop sideways or go lower for a period of time so that you at least have the short call premium to keep.  Give me a call to discuss the best fit for your situation.  

The US winter wheat harvest is now 82 percent complete, slightly behind trade expectations, but still ahead of last year and the average. After a $2.25 slide in both the KC and Chicago wheat contracts since late May, it looks like a temporary bottom was put in on July 30th.  I notified customers of this on that day, but was nervous to do so given the relentless selling we’ve seen as of late.  Both wheat contracts had solid closes on Friday with the Chicago futures at the day’s high and KC futures near the high.  If we can now close and break above the 20-day moving average, we could see some upside potential to the $5.80 and possibly $6.00-levels.  
 

There is however a seasonal trade to sell wheat in early August until around the 3rd week of September before another rally into October and so be cautious on rallies.  However, every year is different, but any major move in the coming week or weeks should be rewarded with sales or protection.  

It does seem that the grain shorts and cattle longs started trading places late this week.  We could in fact be coming into a period when managed money is going to start buying grains and shorting cattle.  

It basically happened all at once in the cattle market with all contracts plummeting on Thursday and Friday.  So goes the stock market, so goes the cattle, is ringing true again.  The weaker jobs data had equity longs dumping positions that quickly bled over into the cattle complex.  In just two days, the feeder cattle contracts traded in a $14.00 per cwt range!  That’s huge, but as I said in my recent trading classes, it was only a 5 percent move. Consider that a 10 percent move in today’s feeder cattle market is a whopping $25 per cwt and 10 percent corrections can be common.  

The stakes are much higher today and deserves adequate attention if you have high priced cattle to protect.  Thankfully, we saw contracts close around $3.50 off the day’s lows after trading Friday below the mid-April lows.  I could see this market rebounding into the mid $250s, but at those levels, I would not hesitate to get protection in place with puts or LRP and keep the upside open, but protect your downside.  
 

Remember, it will soon be one year ago that the feeder market corrected $53 per cwt from late September to early December!  The fundamentals are bullish and the cash markets are still holding, but this can change very quickly in this environment.  Puts and LRP are price insurance that you don’t have to use if there is no disaster, but its better to have it and not use it than not have it and need it. 

First notice day for August fats is Monday and there is a chart gap all the way down at $179.675 versus Friday’s close near $184 and fed cattle cash trade at $188.  Not all gaps fill before the contract goes off the CME Board, but you just never know with daily limits on Live contracts at $7.50 per cwt and that of Feeders at $9.25 per cwt.  
 

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.