KC wheat rally breaks out above triple top, cattle bottom

Howdy market watchers! 

Our community of Enid, Oklahoma, made the national news this week, but for all of the wrong reasons.  An EF4 tornado with winds between 166-200 mph touched down on the south side of Enid on Thursday evening and hit Vance Airforce Base and then a housing addition impacting around 40 homes.  Miraculously, there were no fatalities.  

We are praying for those who lost homes and belongings and for the healing of our community.  We also had hail and high winds earlier this week that damaged some wheat and newly planted corn.  

However, we did receive rain in some areas.  There are a few more chances this weekend, but for the winter wheat crop, it is really too little too late.  Wheat maturity is well ahead of schedule this year, which means moisture now can aid in filling out the berries that are there, but not in terms of adding yield. 

This sparked the wheat market rally this week to break out above the triple top from around the $6.50 level on May Kansas City wheat futures.  Once that high was triggered, KC wheat contracts surged nearly $0.30 per bushel higher on Thursday and making another new high on Friday overnight at $6.75 1/4, but closed the week off those highs with some light profit taking.  The daily limit for wheat futures is $0.35 with expanded limits of $0.55.  

While KC wheat has surged $0.91 per bushel since April 10^th, gapping higher on April 11^th, I believe there still could be more upside.  I believe $6.85 area could be the next stop.  For new crop July KC wheat futures, I believe the next stop could be $7.00, which has not been seen since May 2024.  US winter wheat conditions declined by another three percentage Good-to-Excellent points this past week to 33 percent versus 45 percent last year led by declines in Kansas, the largest wheat producing state, down 8 percent from last week.  This puts Kansas at 24 percent G/E versus 41 percent last year, Oklahoma at 10 percent, Texas at 14 percent, Nebraska at 11 percent and Colorado at 14 percent.  

There is now 70 percent of winter wheat areas in drought conditions.  The spread between KC and Chicago wheat futures has widened significantly with soft red winter wheat areas in much better condition.  I would expect to see further deterioration in the hard red winter wheat belt ratings next week despite some recent rains.  
 

Spring wheat planting is now 12 percent complete. Corn planting is 11 percent complete, and soybeans are now 12 percent planted.  Sorghum is 15 percent planted.  Heavy rains across the Midwest in the coming weeks could begin to delay corn planting. However, we are currently ahead of average and farmers are planting fast to get ahead of the storms.  

As the Middle East conflict continues to rage on, oil prices have chopped around and remained volatile.  Having said that, the on again, off again news cycle has somewhat faded into the background for other markets that have returned to trading their respective industry fundamentals.  Equity markets have recovered strongly after the initial shock of the war and higher oil prices.  In fact, the S&P 500 closed the week at new, all-time highs, reaching 7,200!  

The Federal Reserve’s FOMC meets next week to announce the next interest rate decision.  Another pause is widely expected while there are sure to be several decenters.  The “K” shaped economy is further diverging and muddies the outlook for the overall health of the consumer.  Everyday inflation from elevated food and energy prices are squeezing the disposable incomes of families and could begin to show up in softer demand.  The thoughts that higher oil and fuel prices are short-term and transitory are beginning to feel less likely as the tit-for-tat between the US, Israel and Iran linger on and damage to infrastructure continues.  

One of the biggest threats to growing the demand economy is higher energy prices that flow through to everything and tighten consumer balance sheets.  This remains a concern for the cattle market. After making new, all-time highs on April 14^th, feeder futures traded lower in the 6-consecutive sessions following that high.  Thursday’s action of an outside reversal higher day stabilized the market and I believe we could start trading higher again next week.  Friday’s action was a higher high for May feeders and after, but closed off the day’s highs.  

With strong equity markets and decent fed cattle cash trade this week that topped out at $246 in Texas and $247 in Kansas.  Despite some recent precipitation, the US drought monitor shows worsening drought in many of the largest cattle areas.  In fact, 63 percent of the US cattle inventory are in drought areas.  

The fed cattle futures have been trading a similar trend and look to move higher into next week.  From recent rumors, I was expecting to hear something about one cattle crossing with Mexico to be reopened, but nothing yet.  China is dealing with an outbreak of Foot-and-Mouth disease, something we have not heard about in a while, and has restricted imports and culling cattle.  There is also said to be a disease outbreak in Russia although they have denied that it is FMD at this time.  Those are definitely not the kind of headlines the industry needs to become more prevalent.  

The higher corn market could explain some of the recent headwinds in the cattle market and there could be more upside to come in the grain markets.  Hopefully we will see fed cattle cash trade reach $248 or higher this next week and fight to the $250 level.  Grilling season is here or near and it is time for strong consumer demand for beef to show up in the months ahead and continue to fuel this rally. 

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 https://www.sidwellstrategies.com/fccp-disclaimer-21951.