Howdy market watchers! 

T minus 10 and counting until the US Presidential Election.  There are virtually no similarities between the two candidates except that they are polar opposites.  The contrast is as stark as will be the priorities of the Executive branch over the coming four years.  

The world is rapidly changing and has changed considerably with new alliances being forged that oppose the status quo.  The economies of Brazil, Russia, India, China and South Africa, so called “BRICS”, met in Russia this week to discuss enhanced cooperation and growing interest to develop alternatives to the US dollar-dominated payment system.  The ability of the US and its allies to freeze US dollar reserves of its adversaries is an emerging concern of these countries with increased interest to diversify.  

There has long been talk of alternative currencies with limited traction.  The BRICS consortium this week made another attempt by introducing a “BRICS banknote” that Russia’s Putin was seen handing out to other leaders.  While this is likely more of a symbolic impact at this time versus a material move, it is another reminder that the world is, again, becoming increasingly divided. These divisions are beginning to create partnerships among our adversaries that will continue to strengthen if left unchecked.  
 

SOURCE: BRICS unveils symbolic banknote to challenge dollar dominance

The next US President will need to be proactive in addressing this and it will be complicated given various trade relationships are still important to our own economy.  While trade must be fair, it is needed to develop strong, stable markets, especially in agriculture.  As South America’s grain and livestock sectors have advanced, so too has the alternative for major importers to diversify away from the US farmer.  

The US has the largest consumer market in the world.  However, our agriculture industry also produces far more than we can consume domestically.  Therefore, exports are critical to achieving higher, stable prices.  

That has not been more evident than in the past couple of weeks with strong US exports of corn pushing December futures back above $4.20, despite the much strong US dollar.  As US corn harvest advances well ahead of average, now at 65 percent complete, and basis strengthening, our cheapest global status did give way to Ukraine’s corn this week as the lowest priced source after the recent rally in futures and basis.  
 

After filling several of the chart gaps I wrote about last week, the US dollar rally stalled late this last week.  That and the building stockpiles as harvest advances did bring about profit taking to finish the week with December corn closing back below the crossover of the 20- and 100-day moving averages.  Further downward pressure next week could see December corn futures retest the 50-day moving average around $4.09.  

We saw similar action in soybean futures to finish the week with November beans closing at the 9-day moving average at $9.88, slightly off the lows.  US soybean harvest is now 81 percent complete also well ahead of the average pace.  Exports are also running 8.3 percent ahead of last year’s pace with this week’s largest sales destined for China.  

Improving moisture conditions in Brazil have eased recent concerns of their crop that is now being sown.  Soybean planting progress in Brazil caught up significantly this week, catching up with last year’s pace and is now ahead of average.  US wheat exports were also strong this week, now up 18 percent versus last year.  
 

As one of the hottest and driest October’s on record, the US winter wheat conditions, which USDA ratings start next Monday, have been deteriorating.  Winter wheat areas in drought conditions jumped 6 percent this week to 58 percent.  Despite this, the wheat market just could not get going this week with every rally finding sellers.  That was perhaps foreshadowing to the late week development that the Southern Plains could see soaking rains mid-to-late next week around Halloween into the first few days of November.  
 

Grains attracted plenty of sellers generally on Friday, but wheat led the downside likely due to the shifting forecast for US winter wheat areas.  However, it hasn’t rained yet and these forecasts often change quickly, but hopefully the outlook is accurate this time.  

The drought situation is very concerning for planted crops, those being harvested and the prospects for livestock operations.  For those harvesting soybeans, moisture is extremely low, which results in lower test weights as well as more splits when handled that lead to discounts.  

Contracts across the wheat complex were weak on Friday although December Chicago wheat did not make a new low for the week.  However, the charts unfortunately look weak and could come under further pressure if the US rain chances hold.  

US winter wheat this week was 73 percent planted, 4 percent lower than expectations and the average.  Farmers continue to dust in the crop although we could see a lot of acres behind beans not get planted unless conditions and the price improve.  

Drought conditions are also driving more cattlemen to thin the herd.  Winter wheat pasture is virtually non-existent in most areas.  Rain next week could dramatically change the prospects, however.  Fingers crossed and prayers needed.  

There is money to be made in the cattle market, but in such dry conditions, it can get expensive.  The feed grains remain relatively cheap and have resulted in increased carcass weights that skew production numbers when based on cattle headcounts. With a resilient economy and consumer, herd retention needs to begin, but dry conditions and high prices continue to persuade otherwise.  

Friday’s USDA Cattle-on-Feed report for October updated the pipeline and outlook for headcounts.  While the pre-report trade guesses seemed to suggest a bullish tilt, the actual numbers painted somewhat of a different picture.  

October 1st on-feed came in marginally higher than expected equal to last year despite trade guesses at 99.7 percent of last year although this was largely in line.  September placements came in modestly higher at 98.1 percent of last year versus trade estimates of 96.0 percent.  That is the primary number that markets will trade come Monday.  Marketings in September came in exactly in line with trade guesses at 102.0 percent of last year and reflects the demand strength mentioned.  
 

After a week of trading in a tight, sideways pattern, we did make a higher daily high on Friday above Thursday’s inside chart day and could suggest some upside follow-through.  However, with the higher placements, I’m not sure we are going to get much of a push higher unless we see the equity markets recover from a brutal week with the Dow Jones down 5-consecutive trading days.  
 

If you are buying stockers here, I would get protection under them in case we get volatility in the coming weeks.  This market can move $10-15 per cwt in a hurry.  Fed cash cattle trade is the hope for higher prices topping out this week at $190 for most of the trade and $191.50 on the Fed Cattle Exchange negotiated grid trade.  That was quite a jump from last week and should continue to support the cattle complex if it holds steady or moves higher.  

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.