Happy Valentine’s Day market watchers!  

If you forgot, it’s probably too late, but still worth a Saturday night reservation at Enid Brewing Company’s decorated Barrel Room surrounded by whiskey barrels and romantic-ish tunes!  

Also, this may also be the last time you desire to go out with the next week’s highs below or near freezing.  Yes, the highs.  Natural gas has been a good barometer of the coming cold that is expected to blanket much of the center and eastern half of the US over the next week.  While there is some precipitation in the forecast, it is more cold than wet.  There is a decent amount of snow forecast for next week’s system, but that is often the case with disappointing reality once the time finally comes.  

The US drought monitor is beginning to show increasing signs of stress that have also helped excite grain markets recently, particularly the wheat complex.  It is said that snowfall will protect much of the winter wheat from winterkill, but such cover is pretty spotty at this time, but perhaps that changes with next week’s expectations.  

Russia has also experienced a cold snap with limited snow cover fueling this wheat rally with crop conditions also the worst in decades going into dormancy dry with declining inventories of exportable grain amid demand stability evident through rising export prices.  

With increasing reporting this week of talks between Trump and Putin on ending war in the Ukraine that looks increasingly likely to result in more territory of the latter succeeded to the aggressor, Russia, the ruble has strengthened considerably against the US dollar, that has also been weakening on its own accord, making grain from the former USSR less competitive on the international stage.  

Reading between the lines, it seems to me that Ukrainian President Zelensky may largely be left out of the negotiating room. While I feel the risk premium for grain markets of the now 3-year war in the Black Sea was discounted starting in the summer of 2023, the absence of conflict in that region could still bring downward pressure to the grain complex.  Ukraine is/was the world’s 4^th largest exporter of corn and getting that grain supply and reliability back online will add supply to the global balance sheet, but this will take time and the weather has to cooperate, which has been less than ideal.  

It has been an incredibly busy week in the markets with endless headlines impacting agriculture emanating from Washington, both from the White House and USDA.  We now have a new Secretary of Agriculture, Brooke Rollins, with a directive to make the USDA more efficient and effective. Between the efforts of DOGE, Secretary Rollins and the new Secretary of Health and Human Services, RFK Jr., I believe we are about to see some major changes to food and agriculture policy and administration of the policies in this country.  While I think we all agree that changes are warranted, some adjustments may also bring about lifestyle changes for agricultural enterprises that could be uncomfortable at first glance.  Stay informed and vigilant and know that adaptation is part of business, especially when government programs are a large part of balancing our budgets.  

The tariff stick continues to be wielded with expanding scope as reciprocal tariffs were put in place this week on all countries that have import duties on US products.  This move was confusing at times as there was talk of such a decision being delayed, which surged equity markets, but then they were put into place with some exemptions still to be understood.  

Since China’s retaliation to Trump’s 10 percent tariffs last week that resulted the call with President Xi being cancelled, the two leaders have not spoken.  China reported the tariff action to the WTO, objectively a smart move, and both sides continue to build more leverage against the other to provoke desired action. Despite the barriers, trade will continue driven by demand, fear and competitiveness.  

The USDA released its February WASDE (World Agriculture Supply & Demand Estimates) and Crop Production reports on Tuesday.  Starting in the US, corn and soybean ending stocks were unchanged from the prior month with expectations for reductions in both. Wheat ending stocks were reduced from the prior month while trade guesses were calling for an increase.  

Moving to South American row crops, Brazil’s soybean crop was unchanged at 169.0 million metric tons, while the trade was expecting an increase that would have better aligned with private estimates of an increasing crop there.  The Argentine soybean crop was however cut more than expected to 49.0 MMT from 52.0 MMT last month and 50.2 MMT expected.  Brazil’s corn crop was cut more than expected to 126.0 MMT from 127.0 MMT while 126.6 MMT was expected.  Argentina’s corn crop was cut less than expected by just 1.0 MMT while nearly a 2.0 MMT cut was anticipated.  

Shifting to the global balance sheet, corn ending stocks were cut 3.0 MMT, which was more than the 1.1 MMT expected.  World soybean ending stocks were also cut much more than expected by 4.1 MMT versus only 0.2 MMT expected.  That is a large variation for global stocks, but there are still plenty of beans.  World wheat ending stocks were also cut more than expected at 1.2 MMT versus just 0.2 MMT expected largely due to production declines in China despite last week’s cancellation of Australian wheat imports by the same due to so-called excess domestic supplies in the PRC.  

China’s corn import expectation was cut by 3.0 MMT to 10.0 MMT versus previous guesses and well down from last year’s 23.4 MMT.  

Despite US and Russian wheat conditions driving the wheat rally, Australia’s recent wheat crop continues growing with more exportable supplies available.  

The precipitous drop in the US dollar index over the past couple weeks has added significant underlying support to US grain markets.  After failing to make a new recent high on February 3^rd, the selloff, despite some two-sided volatility in between, led to Friday’s lowest close since December 17^th.  There remains a chart gap far below from November 5^th at 103.500, from the present 106.685.  

With Wednesday’s hotter than expected January CPI inflation coming in at 3 percent year-on-year, it is difficult to expect more aggressive interest rate cuts that would help press the US dollar index lower.  Instead, tariffs and investment optimism in the US seem to be more suggestive of a stronger than weaker US dollar.  However, there are many things at play and we will have to watch how they impact the US dollar.  If weakness could continue, this would be a major underlying support for commodities from grains to energy to metals, ceteris paribus.  

US exports, especially for corn and wheat have been strong while beans have been on the weaker side.  

Brazil’s soybean harvest has now caught up to average and year-ago levels and so any issues there from a delay are now muted.  Brazil’s safrinha corn planting has also caught up and is now slightly ahead of last year and well ahead of average.  Brazil’s 1^st crop corn harvest is on pace with the average and last year while conditions in Argentina have brought some concern about corn output there.  

The energy from bulls has shifted from cattle to grains in recent weeks.  January finished with an incredibly strong cattle market in futures and cash.  While strength remains in the cash markets, although off highs, the futures have notably deteriorated in February.  The range in feeders has been around $16 per cwt while fed cattle futures have ranged nearly $14 per cwt lower.  The highs in fed cattle cash trade reached $203 this past week while February live cattle futures finished the week at $198.00 and April at $194.500.  

We have seen some mid-week attempts for this cattle market to rebound, but it just cannot hold its own.  I believe more longs have liquidated in the live cattle futures than the feeders and the larger liquidation and selloff will likely be more fed cattle led followed quickly by feeders.  

As I’ve written recently, the immigration issue could result in packers in a similar situation as during COVID times with fewer employees resulting in lower capacity and backing up cattle.  With the DOGE efforts to cut government employees, I’m now concerned about fewer USDA meat inspectors being available in packing plants as another reason/excuse for fewer cattle to be processed per week.  This could add quick downside pressure to markets sparking long liquidations if this happens en masse.  

Feeder charts are holding the 50-day moving averages so far and is my trigger for further selling.  April fats had disappointing action late on Friday breaking the $195 support approaching the close.  I’m hopeful we can see some upward momentum return next week, but if not, this is probably the beginning of a broader long liquidation in fat cattle contracts to be followed by feeders.  The Mexican border is back open to cattle and new bird flu strains impacting dairy cattle have plenty of shock and awe.  ‘Tis that time of year.  

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.