COLUMN: Markets reel from data-dense week

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Howdy market watchers. It was a busy week in markets. A slew of data was released that unfortunately only brought about more uncertainty.

U.S. Consumer Price Index (CPI) and Producer Price Index (PPI) for August, released Tuesday and Wednesday, respectively, surprised markets that were expecting softer numbers given the drop in fuel prices. Consumer prices increased 0.1% over the prior month while economists had projected a decline by that amount. On an annual basis, prices increased a stubbornly high 8.3%, although this was a slower pace than July’s 8.5% and the 40-year peak in June at 9.1%. Core CPI, which excludes the volatile food and energy prices, rose 6.3%, an increase above July’s 6.2% and double the monthly forecast economists were forecasting. The cost of eating at home rose 13.5%, the largest jump since 1979, with egg prices up 40% an dairy products up 16.2%.

August PPI, a measure of wholesale prices, came in at 8.3%, higher than both the 7.8% in July and expectations of 8.2%. This was the largest annual PPI increase in over 10 years. On a monthly basis, PPI rose by 0.7% compared to 1.0% in July. Core PPI also was higher than expected. These stronger than expected price pressures all but solidify at least a 75-basis point hike by the Federal Reserve in next week’s meeting that concludes on Wednesday with the announcement at 1 p.m. CDT.

The market wasn’t shy in its reaction following the morning CPI release with the Dow losing 1,274 points on the day while the S&P lost more than 4%. EIA’s weekly energy data showed that implied gasoline demand is at a 25-year low for this time of year. Adding to nervousness, the threatened rail strike by the major U.S. railroad labor unions that was to shut down transportation lines one minute after midnight on Friday was averted with a deal announced Thursday morning. The agreement still must be ratified by union members, but is expected to pass.

Ag markets found some support on the news, particularly live cattle and corn, given input and outflow dependence on rail freight, especially ethanol. It also is critical for fertilizer that has seen delays and price hikes. All this data came after Monday’s highly anticipated monthly USDA WASDE and Crop Production reports. By far the biggest surprise came from USDA’s cut of U.S. soybean yield (1.4 bpa vs. 0.4 bpa expected) and acres (580,000 acres vs. an increase of 82,000 acres expected) that reduced total output by 153 million bushels versus average trade guesses that called for a 35 million bushel decline. U.S. ending stocks that were expected to increase by 4.0 million bushels instead decreased by 45 million bushels.

November soybean futures spiked up closing over 72 cents higher on the day. China imports were, however, cut by 1 million metric tonnes. Argentina’s favorable currency exchange rate for farmers selling beans for exports has encouraged greater sales with farmers having sold around 57% of last year’s crop. There is now some concern that this increased flow of beans out of Argentina to China may further threaten U.S. bean exports. The four weeks of U.S. export sales data that was held up from USDA’s faux pax as they attempted to upgrade the system were released Thursday that revealed wheat sales running 0.2 MMT below last year’s pace, corn sales down by 12.3 MMT and soybean sales 3.0 MMT behind.

U.S. dollar strength has been working against U.S. commodity exports despite a recent reprieve. U.S. corn yields were cut from USDA’s previous 175.4 bpa in August to 172.5 bpa, on the nose of average trade guesses. However, harvested acre forecasts were cut more than expected (1 million vs. 128,000 expected) resulting in lower-than-expected production (415 million vs. 264 million expected). The corn market found support on Monday’s report, but lost momentum as the week progressed with pressure from the crude oil selloff and upcoming harvest pressure. U.S. corn crop conditions reduced by one percentage point with U.S. harvest now 5% complete. Across the Atlantic, Strategie Grains further cut the EU corn crop to a 15-year low of 52.9 MMT from 55.4 MMT in August. This is down nearly 25% from last year and 20% from June this year before the record breaking heat and drought hit much of Europe.

The wheat market was perhaps the most exciting this week, but not from Monday’s report. The USDA kept U.S. wheat ending stocks unchanged despite higher trade estimates while slightly increasing world ending stocks. The expected increases in Russia’s wheat production to 91.0 MMT from 88.0 MMT actually was less than I was expecting. Ukraine’s crop was increased by 1.0 MMT at the same time that new crop acres are expected to decline by 30-40 percent this fall due to shortages of inputs including fertilizer and diesel as well as financing and labor. The Russian and Chinese presidents met this week in Uzbekistan on the sidelines of the Shanghai Cooperation Organization to celebrate their common differences from the West. This is the first time for the Chinese President Xi to leave the country since COVID and demonstrates his grip on power ahead of next month’s Communist Party Congress where he is expected to be sworn in for an unprecedented third term.

Ukraine’s inspiring offensive recapturing 2,300 square miles in recent weeks is a risk to Putin’s regime. All of this is likely to keep risk premium in the wheat market.

India, the world’s largest rice exporter, has seen a drop of 25% in export sales after government levies priced it out of the market. This news on top of China’s recent rice crop issues support wheat as it can be used as a substitute in areas. Wheat futures sold off Thursday and early Friday, but closed well off the lows to finish the week at $9.35 ¼. Headline and weather depending, I believe we could test the 200-day moving average this next week at $9.67 and possibly then some as we go into planting season with widespread drought conditions.

The cattle market this week benefited from weaker grains, but faced headwinds from a volatile equity market and consumer data. Feeder cattle need to hold the 100-day moving average, $180.25 on October futures, or risk greater downside. However, I believe we will see weaker corn futures, a rebound in equity markets and in turn cattle markets. It was a volatile week for fat cattle closing the week with an inside day on charts. Monday’s move likely will see follow through in that direction.

U.S. wheat planting is now 10% complete. Come see me every Thursday sale day at the Enid Livestock Market and let’s talk markets. Wishing everyone a successful trading week.

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.