Trump’s tough tariff talks and turkey served up for Thanksgiving week

Merry Christmas season market watchers!  

Hope everyone had a great Thanksgiving with family and plenty of stuffing!  The weather was beautiful though temperatures are finally beginning to reflect the time of year, which indeed makes the holiday spirit merrier.  

When you’re out shopping this giving season, support small businesses.  They are the backbone of our communities that are the most frequently asked and biggest supporters of local events through donations that all the largest retailers without a local face get to skip.  That means more of your dollars spent at local businesses end up back in your own community that will be there regardless of the whims of corporate store closures.  I said my piece and I believe you will find more meaning in buying from a local family-backed business.  

Black Friday brought early closes to US equity and commodity markets.  Low and behold, Friday’s trade marked yet another new, all-time high and close for the Dow Jones and S&P 500 Indices.  The Dow pierced 45,000 for the first time on Wednesday, but managed to close above that level after making new highs on Friday.  The S&P 500 closed above 6,000 for the first-time on Friday.  Nothing like record highs going into the holiday season!  

The feeder cattle market was right there with them making new recent highs on Friday slightly above the new Wednesday highs.  Upward momentum is slowing, but this move has been nothing short of phenomenal.  The 10-session move has now reached a high-low range of just over $17 per cwt. These levels take us back near the early July highs.  

The fed cattle market has been a choppier affair with Live cattle contracts less impulsive with closes still within the November 25th highs.  Cash fed cattle trade is back to the $190 per cwt levels across Texas, Kansas and Nebraska, with some trade up to $192 in Nebraska on Wednesday.  
 

This week’s surprise to spur more buying in feeder cattle contracts was the announcement late last week of the immediate closure of the US-Mexico border to animals including cattle due to the detection of “New World Screwworms” (New World Screwworm) in cattle thought to have been smuggled from Central America and spreading northward. 

Feeder and Live cattle contracts popped at Monday’s market open, but faded drastically from the highs by the day’s close thinking the border may not be closed for long.  Monday’s action was sure confusing to what followed the rest of the week given it was a clear technical signal of a blow off top or even shooting star. Tuesday’s inside day with a firm close was not expected with Wednesday’s higher trade suggesting more upside follow-through in the next session, which was Friday.  

While Friday’s trade in feeder cattle contracts was higher, it seems the upward momentum is waning.  Fundamentally, it is difficult to argue that the market shouldn’t even be higher, but it is similarly difficult to explain why the market ever went to $225 in September as well.  If you’ve bought or are buying cattle at these levels or lower, it is my risk management duty to say protect them.  

If you’re typically a hedger, this could be the year to either consider put options or LRP or to hedge the hedge by buying a call option against your short futures. This market is very unpredictable at the moment and I wouldn’t be surprised if we get another correction ahead of possibly going higher and even making new, all-time highs come the new year. 

With better moisture, there is more speculation that heifer retention for breeding is slowly starting although we’re far behind.  However, the strong cash market continues to bring more cattle to town especially in areas with limited wheat pasture.  More of the lighter weight cattle are going to feedlots earlier given cheap corn, but that could start changing.  

If you’re in the feedlot or planning to be and will have exposure to rising feed costs, I would advise to protect the upside on corn.  Demand strength continues and Friday’s outside chart day, lower low and higher high, and strong close suggests we could see more upward movement next week for corn.  If the US dollar begins to soften as it has started to do with Friday’s close the lowest since mid-November, we could see corn futures firm further.  

That is welcome news for the grain complex that has been under pressure since the most recent highs around November 8th.  With Friday marking the last trading day of the month and First Notice Day for December futures contracts, we could see a reversal in the luck of the grain markets to start December.  Note that March futures are now the front month for cash corn and soybeans and so basis will change to reflect the carry between December and March futures contracts.  

Friday was an outside chart day for corn, soybeans, gold and silver suggesting potentially key reversals higher.  Meanwhile, the wheat market continues to cause indigestion.  Despite Russia’s announcement this week that wheat export quotas would be reduced to nearly one-third of last year, which should be a huge, bullish signal for the wheat market, Kansas City hard wheat made a new low below the August 26th low.  

Of course, the US winter wheat ratings continue to improve going into dormancy with this week seeing another 6 percent Good-to-Excellent and now the 2nd best of the past 8 years going into dormancy.  This will be the last winter wheat rating until April with the upcoming Southern Plains precip outlook turning back dry.  Chicago soft wheat came within one cent of it’s August low, perhaps the more telling news that this could be a bottom.  
 

US exports for all the grains have actually been strong regardless of the exceptionally strong US dollar, which brings optimism for overall demand strength and prospects should the dollar continue its recent action lower.  Mexico made another huge US corn purchase this week and China bought more US beans.  

There is so much happening in the world right now that it is hard to get a pulse on where we go from here.  The geopolitical tensions have escalated in all conflicts although a cease fire has been called between Israel and Hezbollah.  President Biden certainty hopes this holds to help his legacy as the clock is ticking. I’m doubtful given the long-standing resentment between both sides and Biden’s lack of support to Israeli President Netanyahu.  Time will tell.  

Russia’s President Putin continues to warn against escalation in the Ukraine with stepped up attacks on their power grid this week as winter conditions bring humanitarian concerns.  I could see the Russia-Ukraine conflict continuing to escalate as Biden seems to be leaving office with no regrets at what he supplied to Ukraine.  

President Trump was back in the spotlight this week talking tough on tariffs.  This time, he was more specific with 25 percent tariffs announced on Mexico and Canada and additional 10 percent on tariff linking migrant and drug inflows to the ending of such trade restrictions.  I still believe a lot of this is pre-gaming in order for Trump to enter policy discussions at the onset of his Administration from a position of strength and in seeing how these countries are equipped to react before instituting any such tariffs. 

As one of his last Cabinet nominations, President-elect Trump announced Brooke Rollins, currently the president of the America First Policy Institute, as his pick for Secretary of Agriculture. It is difficult as yet to gain perspective on policy bias with this pick, but loyalty to Trump’s agenda likely to be the main conclusion.  

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.