Heartland Daily Newsletter - Cattle and Oil

Commentary

It was just another depressing Groundhog Day in the grain world today with more selling from index funds who are already own a record corn short position. Lack of specifics of any China-US trade deal, improving weather forecasts for some areas on planting keep the pervasive bearish trend attitude rolling. The likelihood of an end of the month low is high, but that doesnt come until next Tuesday-Wednesday.

The market sell-off continues with wheat in the lead amid no sign of stress on US winter wheat crop and forecast for improving showers across EU. Weather leans negative with most of US, except for northern tier, benefiting from above normal temps into mid-May. 5-day Midwest precipitation coverage of 40% (primarily southern Midwest), will allow for some fieldwork this week in band stretching from N KS into S MI. No issues internationally except for dryness across 1/3 of Australia.

Managed funds, thru the close Thursday, have continued to build on already sizeable shorts across the board but especially in corn. Crop updates tonight likely show improved US wither wheat rating and only limited progress in planting corn. The trade expects 7-8% vs. 12% average. 6 year average corn planting next Monday hits 28%, and unlikely that well hit 20%.

Crude oil rallied sharply overnight to new recovery highs from the December low on a announcement that Pres. Trump will wont renew waivers that let countries buy Iranian oil without facing US sanctions. This is upsetting energy markets for importers such as India and China, tightening supplies in lieu of the first of the year OPEC cuts. Current waivers will expire on May 2.

It has no bearing on immediate grain pricing, but the US has won another WTO case against China late last week. The WTO ruled that China has not kept promises that it agreed to nearly 20 years ago as it became a member. China pledged to purchase 9 million metric tons of wheat and 7.2 tons of corn from the world grain market starting at 2002. China handed out TR accused estate owned firms was never went forward with imports. This ruling gives the US delegation more bullets to deal with China that is not been hearing to its prior WTO obligations and there needs to be an enforcement mechanism in the current US/China trade pact that is being negotiated.

Last weeks USTR WTO win against China follows the 2nd largest monetary grievance ever in that China was artificially supporting its Ag producers with loan rates that were excessively high. Both rulings should help the US reach a trade deal with China that opens its market to large amounts of US Ag goods. USTR trade negotiators will be heading to Beijing next week with a return trip by the Chinese team to the US in the week following. The broad hope is that a deal will be reached in early May with a presidential signing in late May in Japan. However, its the question of when the details of the deal will be known that is the most important to the marketplace.

Central US Weather Update: The midday GFS is wetter in the 7-15 day period. Confidence in the extended range outlook is rising as the GFS model forecast is looking more like the wet European solution. The best rain looks to drop across the NC Midwest with a fetch of heavy rain through NE/IA. One storm system is now moving eastward through the Lake States with another several systems due next week. The midday forecast is also cooler than what was offered overnight with high temps ranging from the 50s to mid-70s. The cooler/wetter forecast needs to be closely monitored with the seeding just underway across much of the South-Central US.

Options for the May grain contracts expire this Friday, and as the market declines new put strike prices are adding to the short position by default. Looking more like a May 1 blowout, especially for wheat which 80% of the time seasonally rallies into late April/early May. Grains are on the defensive until the US dollar can break below last weeks low of 96.30 which is also below the purple line, indicating a potential head and shoulders topping formation again. this is a potential slow plus for the grains, as a weakening dollar helps us compete for exports. Looking for the US dollar to be lower into May.

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Corn

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Crude Oil

Crude oil exploded higher overnight through the two week resistance in the 64.50-64.60 range and quickly escalated to 66.00.

Today was the expiration of the May crude oil contract, and as every blue arrow below shows, typically a reversal of the present trend can occur within a day or two of that. It's possible this one could act like reversals since the first of the year, which have just seen a moderate setback before continuing the prevailing uptrend.

With the inventory data reports due out the next 36 hours, the breakout will be interesting to monitor. As OPEC has been thinking about ending their cuts on production in the June meeting, and this could offset the friendliness of the recent announcement from Pres. Trump he will end the waivers on sanctions of Iranian oil by May 2.

The next technical objective on this breakout if the market continues to accelerate is 69.50, which is the .786 Fibonacci retracement of last year's high. Plus psychological resistance at 70.00 will be high.

Beans

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Wheat

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Cattle

Cash Cattle: Last week 126 South, 129-130 Corn Belt, 208-210 Dressed. Steady calls for this week.

7 Day Feeder Index: Thursday, 145.98, +0.97. Friday 145.86, -0.12

1 Day Feeder Index: Thursday, 147.75 on 8195 head. Friday, 147.22 on 10,681 head.

Choice Beef: 234.63, +0.98

Select Beef: 221.95, +1.46

Packer Margins: +145.30 per head

Live trade seasonal bias April: Recover early and then down all month.

Beef trade seasonal bias April: Extend lower early month and then turn back higher.

There was no fuel to add to the bullish fire, other than the funds increasing their long positions by 1850 contracts. Thursdays Cattle On Feed report was not exactly friendly as the Placement number was 1+% over the average guess. Aprils numbers are expected to be higher. There were no new deliveries, and the current delivery date is April 4th. With the stronger cash market, April Live Cattle hung in there with profit taking in the back months.

The market has been in quite a quandary, with both fed cattle numbers and fund long positions being the largest in many years. Will record demand eventually take over and propel this market higher? Im in that camp. It is not surprising to see a correction in the market at 78% resistance levels, an overbought situation, and a negative Cattle On Feed report. Get used to it.there will be many more.

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2018 Hedge Recommendations

Corn

Sold 30% of 2018 corn at 409 on the December contract.

Sold 20% of 2018 corn at 421 on the December contract.

Wheat

Sold 30% of new crop HRS wheat at 628 on Sept MN or 638 Dec, depending on need.

Sold 20% of new crop HRS wheat at 630 on Sept MN or 642 Dec, depending on need.

Sold 30% of new crop HRW wheat at 532 on September KC wheat.

Sold 20% of new crop HRW wheat at 570.4 on September KC wheat or 570.4 on Dec.

Beans

Protected 100% of new crop 2018 beans by purchasing the July $10.20 short-dated new crop bean put for 26.2 cents. These were cashed in for $1.14 profit.


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