Month and quarter ending with market exuberance

Howdy market watchers! 

Well, that’s nearly a wrap. September is all but over and that means the third quarter is coming to a close.  The best month and season of the year is about to begin.  

Wheat planting is accelerating after the rains and corn picking is progressing north as soybean harvest gets started in select areas.  Spring born calves are getting weaned and hunters are gearing up for prime time and starting to show up missing from the office.  

In the markets, many expected September to be a bloody month and while choppy, it has been more stable than seasonal and higher in many cases. Typically, October is the month for rallies and perhaps we’ll see even more strength coming soon.  The recent Fed interest rate cut was of course an added boost that has since been replicated in many economies around the world. 

This past week, China has made multiple announcements of enhanced stimulus to counter weaker consumer and industrial data as the all-important real estate market there has lagged. China’s industrial profits for August were down nearly 18 percent from last year and another sign of worsening conditions there.  Concerned about deflationary pressures with the five percent annual growth forecast at risk of being missed, the People’s Bank of China (PBOC), the country’s Central bank, cut the required reserve ratio (RRR) for banks by 50 basis points on Monday.  

Other measures, including a 50-basis point cut of average interest on existing mortgages and 15 percent reduction on minimum downpayment requirements, were included in the broadest stimulus package in China since the pandemic. However, there is still concern that it still may not be enough.  Time will tell and much will depend on the regional and other global economies as well. 

Continued interest rate cuts in the US will only help other Central banks to follow and ease credit markets for consumers and businesses that are increasingly concerned about the future.  Consumer confidence in September fell to 98.7, down from 105.6 in August, which is the biggest month-over-month decline in three years.  

On Friday, the Fed’s preferred inflation gauge, the PCE, came in at 2.2 percent for the month of August, which was lower than expected.  This was a 0.1 percent increase over July.  Core PCE, excluding volatile food and energy prices, was also 0.1 percent higher in August, but up 2.7 percent over this time last year. However, this was the lowest inflation level across all categories since early 2021.  

The US dollar largely chopped sideways this week, but made a fresh, new low on Friday.  This new low touched down on the downward sloping trendline, but I foresee this ultimately going lower, which would be great news for commodities.  Short-covering has continued across the commodity complex and it feels like a broader fund allocation is moving to commodities.  

The equity market move has continued to be impressive with the Dow Jones and S&P 500 making all-time, record highs again this week. With Monday being the end of the month and end of the quarter, I wouldn’t be surprised if we get some profit taking to start the week.  Repositioning then may resume in turnaround Tuesday action.  
 

Monday will also see some fresh data for the grain markets with the USDA’s quarterly grain stocks report released at 11 AM.  Trade expectations are calling for a slight, 32 million increase in September 1st ending stocks for corn and 11 million bushel increase for soybeans.  

For the wheat market, trade guesses are calling for a reduction in US production from previous USDA estimates.  All-wheat production is expected to be 16 million bushels lower, half of which is accounted for an 8 million bushel decline in hard red winter wheat.  Kansas City HRW futures made several attempts this week to break higher, but just could not get it done.  However, we have moved solidly above the 50-day moving average and I believe the market will now hold above that level.  
 

Depending on what we learn from Monday’s USDA reports, I foresee a larger move higher coming in the wheat complex.  Dryness in Argentine and Ukraine wheat areas as well as parts of Russia along with overly saturated planting areas in Russia are bringing underlying support to the wheat complex.  

US wheat exports were disappointing this week as they were for corn, but solid for soybeans. Mexico bought US corn this week and China bought more US soybeans.  

The US Presidential election is less than 40 days away.  With tariff talk prevalent in campaign rhetoric, the outcome of the election will likely bring some volatility to China destined trade.  Heat and dryness in Brazil, the alternative to the US for soybeans and now corn, may complicate China’s ability to wait out the US election.  

These conditions have pushed soybean futures to the highest level since July 26th when the market started breaking lower.  Friday was an outside day on the charts, lower low and higher high, suggesting a key reversal.  

Could we still be heading higher?  Again, Monday’s reports will give us the signal.  The 100-day moving average on November soybean futures is at $10.80 versus Friday’s close at $10.66.  I would say $10.80 is likely to be traded next week, but could then stall.  Any changes to wetter conditions in Brazil’s weather could spark heavy selling pressure and so be aware.  

December corn futures also put in an outside day on the charts Friday closing just above $4.17.  The 100-day moving average is another dime and some change above near $4.30 and could be possible if we get a close above $4.23 ¾.  
 

After the recent strength in row crops, one would expect harvest pressure in the futures markets.  That may be coming, but let the charts tell you.  As long as we’re making new daily highs, the trend is your friend and that trend is higher.  The algo traders can bring volatility that confuses technicals and so discipline is required to confirm a changing trend.  

The cattle market gave some of these false signals this week with Thursday’s selloff that looked like a rally buster suddenly turned for a higher close and key reversal with upside follow through on Friday.  However, after early strength, the upward momentum faded across the cattle complex, particularly in Fed cattle contracts.  

Cash fed cattle trade this week picked up at the end of the week with the highest trades at $186-187 in Nebraska and Colorado.  

September feeder cattle futures and options expired on Thursday this last week at $245.40 with October now the front-month.  October through January feeder contracts have all seen the greatest strength with further out 2025 contracts beginning to catch up.  March 2025 and beyond feeder contracts are coming right to their respective 50-day moving averages and we will need to see action to start October to get a perspective on coming weeks.  However, these are good levels to protect spring cattle prices and much better than we’ve had the opportunity to protect just two weeks ago.  

The feeder market has moved $18 per cwt higher in just two weeks.  This is the area in the upper 240s that I was talking about during the recent Sidwell Insurance-Sidwell Strategies Road Show.  The 100-day moving average on October feeders is around $3.50 per cwt higher and is possible. We are in somewhat of a middle territory and need more data to determine if we’re going higher or due for a correction. With the equity markets continuing to push higher, we could see cattle follow unless grains make a major push higher. 
 

Fed cattle futures actually look more bullish than the feeder charts.  Dec Live cattle futures are above all key moving averages and below fed cattle cash trade.  The 2025 Fed cattle futures contracts are right at key moving averages, but look to possibly be pointing towards $190.  

With the Fed looking more likely to have orchestrated a ‘soft landing’, further strength in the cattle market could be possible if consumers keep spending.  The caveat is developing tensions in the Middle East that seem closer every day to escalating further.  Speeches at the United Nations this week brought plenty of attention to these conflicts in the Middle East and Black Sea region.  Any major developments there could deal a significant blow to the equity and cattle market bulls, but so far, it has yet to do so.  

Sidwell Strategies offers both in one place and so join the Sidwell Team today!  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.