Sidwell Strategies Week-in-Review CommodityBuzz: Time marches on

April is on the horizon market watchers! However, the peak of the COVID-19 spread in our country is unfortunately not. The same week that China closed the last temporary hospital as new cases have supposedly ceased, the total US cases have surpassed those in China and Italy as numbers climbed to more than 100,000 to finish the week. States across the Union have further tightened restrictions in an effort to flatten the curve. As testing kits become more prolific so too do the number of new cases. On Friday, the House finally passed the $2 trillion stimulus plan subsequently signed by President Trump after delays by the Senate prolonged the much needed aid by small businesses and individuals by another week. Unemployment claims this week soared to 3.28 million, the largest weekly jump ever of 3.0 million versus 695,000 in 1982, as the first real impacts from the virus shutdown begin to show up in the data. Some pundits expect this number to reach double digits in the coming weeks. To put this into perspective, during the 2007-2009 financial crisis, a total of 8.7 million jobs were lost. SBA Disaster Loan applications are being circulated for businesses although we received confirmation this week that such loans not approved by the end of March will be mutually exclusive with the fiscal stimulus plan passed on Friday. Thus, businesses are going to have to decide which route is best for their situation. The equity market this week was another roller-coaster after the biggest 3-day gain in the Dow since the 1930s that ended Friday with a 4+ percent or 900+ point loss. The Federal Reserve continues to ensure liquidity in the banking system as well as unprecedented transparency in its actions with Fed Chair Powell appearing on the Today Show and St. Louis Fed President Bullard on CNBC this week. The Fed has essentially indicated that it has unlimited ammunition to support the economy. It is a very interesting time to be a part of the Fed Reserve Board of Directors. My next Board meeting is scheduled for this Wednesday and of course by video conference. We will discuss the current state of affairs in business including supply chains and credit availability to gauge how the Feds monetary policy accommodation actions are implemented locally by banks. We will then conclude, as we do every Board meeting, with a recommendation to the FOMC on interest rate movements. Have no doubt that I am updating the Federal Reserve on the state of the agriculture economy and that of northcentral and northwest Oklahoma. If there are points that you would like for me to consider, please give me a call to discuss. This is also not exclusive to agriculture as we also of course talk extensively about energy and other sectors of the economy. Equities were not the only roller coaster this week as the agriculture commodities remain just as volatile. After two limit up days to start the week in the cattle market, Wednesdays session traded in a $10! range in Feeders to close lower on the day followed by a lower Thursday and limit down Friday. As weve been telling our clients, there are gaps to fill on the downside of this Feeder chart and while some were filled on Friday, there are more to fill. May Feeders did not quite fill the gap at the current level given the normal limits of $4.50 per cwt. Expect expanded limits to $6.75 per cwt come Monday. Several of the Fat Cattle months managed to stay just off limit, but still look weak. Cash cattle bids on the other hand remain above the futures, which was one of the reasons for the run up. Beef shortages continue in the supply chain as panic buying continues to spread across the country at the very localist of levels. Packer margins are back to record highs as they take advantage of the consolidation in the industry. The temperature among cattlemen and politicians continue to climb about the disconnect between boxed beef prices and feeder cattle prices. While this is nothing new, it lacks a solution. While Tyson announced paying $5 more basis this past week to support producers, I also heard that they were the equivalent amount less the week before bringing them on-par with the rest. As I contemplate my own situation with cattle on wheat getting heavier, I am planning to send off a load this next week and hold the rest, for now. Should the market continue to fall, Ill be glad I sold a load of cattle that are getting big enough to the point of limiting options. Should the market bounce back, Ill be glad I didnt sell them all. If you sell your cattle, consider buying August call options at or near the bottom of gaps to ride this market back up should things stabilize in the months ahead. Remember, there is also something to do in the markets. Of course, dont get ahead of your skis, but be practical and proactive to get positioned when your physical options limit you in terms of weight and (grazing) groceries. This is what I do every day and I work with all sizes of producers including our own cattle. Give me a call to discuss different options. March Feeder futures and options cash settled this Thursday at noon at $130.80. April is now the front month that finished Friday limit down at $120.60. May futures settled limit down at $120.925 and August feeders finished limit down at $127.10. Call me to discuss the gaps. However, if you have physical cattle, this is the time to be cautious as this market could go lower than you might think and so expect the best, but prepare for the worst. The grain markets this week were most of note in the wheat and soybean contracts. Corn continues to struggle with lower oil and thus, gasoline prices as well as a significant slump in ethanol demand as much of the country is no longer driving to work. My hedge and spec accounts are buying RBOB Gasoline contracts given how beat down this market has been in recent weeks. After Chinas purchase of wheat last week and forward buying by mills globally concerned about supply chain issues and then Russias proposal Friday by the Ag Ministry to potentially limit exports to ensure food security, the wheat market has been on-the-move. Despite a setback Thursday, the new crop July wheat contract settled Friday at $4.91 . I have been helping clients protect the $5.00 level this week on July and September and although we would like more, the health of the US winter wheat crop suggests that this level may be difficult to hold unless we see more China buying or a late freeze to alter its course. If you choose to lock in Hedge-to-Arrive (HTA) contracts at your preferred delivery point, a suggested strategy is to buy call options in case the market surges on a freeze. This also helps you to cover the cost of buying out contracted bushels you dont produce should the freeze curb your production. If youre nervous about contracting physical bushels above your crop insurance guarantee, put options is an approach to consider that still protects your downside while also keeping your upside open on those bushels should the market rally. For corn and beans, Tuesdays USDA Prospective Plantings and Grain Stocks reports released at 11 AM CST will provide us with the next directional guidance. The expectation is for corn acres to increase to above 94 million acres, but we will see. I doubt the events in the last two weeks are going to be factored into this number considering the time it takes the USDA to compile such figures. Lower oil prices and ethanol plants closing down would suggest lower corn acres, but it all depends on how producers are positioned in their rotations among other factors and rather this recent change will reflect the latest farmer decisions. Corn and bean exports were reported this week to Mexico, but no more yet to China. Managed funds increased their short in corn while increasing longs in soybeans and wheat with demand actually increasing for the latter two. Dec new crop corn settled Friday just above $3.64 while Nov new crop beans finished the week just below $8.77. If you have been sitting on the sidelines, it is time to get involved in this market either on the upside or downside to supplement your marketing year selling price. As always, call (580) 232-2272 or stop by our office to get your account set up and discuss strategies to protect your exposure to these markets. It is never too late to start and there is no operation too small to get a risk management and marketing plan in place. Remember, I am on-site at the Enid Livestock Market on Thursday, sale day. Wishing everyone a successful trading week ahead!

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.