Grain rally continues, but key resistance nears

Bull & Bear - iStock-1015828796

Happy Memorial Day weekend market watchers!  

This is the time we honor and remember those who have gone before us in service of our great country as well as our communities and families.  Take time this weekend to pay a visit to those who were special in your journey.  While time marches on, there is nothing that replaces the presence or memory of family and true friends.  

It’s been just over a year since I lost someone very special in my life that I knew from the office, but quickly became the equivalent of a brother.  It is difficult to describe how important he was to me and how I thought about the future.  We all have someone like this who left too early.  Above all, I pray for his family and all the families that have lost loved ones well before the time we feel they should have.  

There has been plenty of activity in the markets in recent weeks to keep us all on our toes while many are already beginning to think about summer break, which translates to “selling in May and going away”. School is out and the officially unofficial start to summer is upon us!  

This holiday weekend also marks the time when wheat harvest is just about to kick off in northern Oklahoma.  Texas and southern Oklahoma started in earnest this past week with yield reports coming in largely better than expected at between 40-45+ bushels per acre. Test weights are holding, and protein is right around 12.0 protein average as the flour mills prefer.  

There will definitely be a wide variability of yields and quality as harvest progresses with flash drought, freeze damage, disease and hailstorms taking their toll to varying degrees.  And we’re not out of the clear of storm season yet. 

Weather has indeed captured the attention of managed money short positions as late frost and drought have sparked a massive, short covering rally in the wheat market.  The Chicago and KC wheat markets have rallied nearly $1.60 since the breakout move began the third week of April.  Mid-week action that saw an overnight surge higher and a close just below the session open was a shooting star formation on the chart that seemed to signal a temporary top.  

However, that proved not to be the case with KC wheat putting in another new, recent high on Friday while the Chicago fell short of doing so.  Wheat charts are trading in a bull channel with July KC wheat look set to touch the top end again at $7.30 while the bottom side is around $6.80.  Depending on conditions in Russia over the long weekend, I would expect to see some harvest pressure perhaps mid-to-late next week.  

July KC wheat bull channel

Having said that, I still think there is more up in this wheat market once harvest progresses to southern Kansas where I expect yields to be below recent crop tour estimates of around 42 bpa in that part of the state.  The overall Kansas wheat yield was pegged at 46.5 bpa, well above the USDA’s current 38.0 bpa in the recent crop report. 

While yield remains a question, perhaps an even larger question is the percentage of planted acres that will actually be harvested.  There is some disagreement among analysts and the USDA and that will be the key variable in total production as it is likely we will see an acre reduction in the areas most impacted by drought and freeze that have already been turned in as insurance claims.  

The case of Russia in recent weeks has been quite the opposite of the situation seen in the past few years with the crop being continuously cut versus raised.  This week, the Russian ag consultant IKAR again lowered estimates of the wheat crop to 83.5 million metric tons from 86.0 MMT previously forecast and further below the USDA’s current 88.0 MMT expectation. Export expectations have also been lowered to 45.0 MMT vs. 47.0 MMT before and USDA’s 52.0 MMT.  

Mid-week concerns of a freeze in the Ukraine were dispelled the following day that the impact was limited if any.  We will only know the truth of the situation once combines get in the fields.  India’s state wheat reserves are filling up with harvest underway there.  However, with only one week remaining, they are likely to come in below the government’s expectations.  All in all, there are a number of factors that have collectively led to this surge in wheat prices.  

My late father and agronomist at the OSU Lahoma Research Station always said that “wheat has nine lives.”  Possibly more and so we must keep our concerns in perspective as the excellent fill weather in the US in recent weeks will be more than adequate to increase test weights and therefore yields.  The welcomed precip we have continued to receive are also starting to increase weed pressure as well as sucker heads to come on that could compromise moisture levels until the heat really comes on.  

US winter wheat conditions came in at 49 percent Good-to-Excellent for the week past versus 51 percent expected.  Kansas increased by 2 percentage points while Oklahoma declined by the same.  

In the row crop markets, we were quite surprised by the surge in corn planting progress to 70 percent complete versus 68 percent expected, but only 49 percent the week prior.  This is just a reminder how fast acres can get planted with only a few days of dry weather.  However, it is getting late for corn and there will be some corn and beans that will need to be replanted due to rains or claim Prevent Plant.  

US soybean planting is now seen at 52 percent complete versus 49 percent expected and 35 percent the prior week.  Meanwhile, Brazil’s soybean harvest is nearly complete, which will focus more market attention to US planting progress and early stage weather conditions.  

Corn charts continue to look friendly to the upside.  Any further planting delays as we near the month of June could see December corn futures fill the chart gap at $5.03 sooner rather than later.  Without such issues however, we could see the 200-day moving average at $4.93 area has near term resistance.  We would then have to wait until July conditions play out to see if that height can be reached.  

Soybean futures look more bullish on the nearby contracts than the new crop November contract.  I believe there could be another 30-60 cents higher on July soybeans while November may stall out around $12.30, with a chart gap above at $12.44.  If the weather opens and the remaining acres get planted quickly, recent rains will improve early growing conditions and bring downward pressure, but that remains to be seen.  

The cattle markets have also seen plenty of excitement since the mid-April lows. A bull channel is now visible although with plenty of range from highs to lows.  

Friday’s monthly USDA Cattle-on-Feed report had a slightly bullish bias, in my opinion, just as May feeder futures and options expired Thursday. August feeders are now the front-month and closed Friday at the 100-day moving average at $260.40.  May 1st on-feed numbers came in at 99.1 percent basically in line with expectations at 99.2 percent.  This is the lowest on-feed number this time of year in four years and the first year-over-year monthly decline in 8 months.  April placements came in at 94.2 percent versus 93.9 percent, slightly above estimates, but the 2nd lowest for April in 9 years. April marketings came in at 110.1 percent versus 109.8 percent expected, which was supportive.  

Fed cash cattle trade emerged strong on Friday with highs at $188 in Kansas and $187 in Texas.  A major packer was said to be bidding $192 in eastern Nebraska early on Friday.  

There is a case to be made for feeder and fed cattle futures to trade higher, but we are getting somewhat toppy on both. Grain movements early next week followed by cash cattle trade will set the tone.  

If you’ve bought summer cattle and haven’t protected them or about to buy them, I would protect them here as we’ve had a nice rally to take advantage of. 

Equity markets have seen a wild ride recently with the Dow above 40,000 points to start the week and finishing near 39,000 to end the week.  Inflation is likely to remain sticky and it is unclear if and when the Federal Reserve will be able to cut interest rates.  This is an election year and so anything is possible.  Markets are closed Monday in observance of Memorial Day.  

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  Futures and Options trading involves the risk of loss and may not be suitable for all investors. Review full disclaimer at

On the date of publication, Brady Sidwell did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.