RCM Ag Services

Category: Hedging

27 Jan 2025
Agriculture, CME, Futures, Hedging, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: It was a tough week with selling pressure dominating

Recap:

It was a tough week with selling pressure dominating. Who was selling? Most likely an algo that doesn’t grow a position. But I think the bigger question, and one that may linger for a few quarters, is why there isn’t much support on the way down. A quote Friday after existing home sales came out was troubling.

“On an annual basis, existing home sales (4.06 million) declined to the lowest level since 1995, while the median price reached a record high of $407,500 in 2024.” By the way, multifamily construction hit a record last quarter. The industry is very reluctant to participate beyond the contracts that they deal with.

New home sales do better as the existing inventories get sold. Today, with the higher interest rates and record costs, that won’t be happening any time soon. That leaves us in the same atmosphere in 2025 as it was in 2023 and 2024 when the builders created the market. That gives us the duty rally, the tariff rally, and finally, the shutdown/supply rally. At no time does it chase the industry into the marketplace to load up.

If nothing else, the trade is consistent. It made a high and then came back down to value, or at least what the charts call it. We spent a lot of time trading like this at $520. Value is determined by the volume traded in that area. $565 has had a lot. Have we moved our value area from 520 to 560? Too early to tell. The algo type selling strains the market but doesn’t represent it. The industry’s next move will. Just remember, business isn’t dead.

Daily Bulletin:
 
The Commitment of Traders:
About the Leonard Report:

The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.

Brian Leonard

[email protected]

312-761-2636

27 Jan 2025
Agriculture, Corn, Cotton, Education, Futures, Grain, Hedging, Market Commentary, Market Updates, Research, Risk Management, Soybeans, Uncategorized, USDA Report, Weekly Prices rcmagserv 0 comment

AG MARKET UPDATE: DECEMBER 10 – JANUARY 25

A lot has happened in the corn market since our last update, from a new administration taking office to a surprise USDA report. The final yield and stocks for 2024 came in well lower than previous USDA estimates leading to a solid rally for a market that needed it. The USDA lowered the final average yield to 179.3 bu/ac, down from their estimate of 183.1 bu/ac in November. The market had been priced in for a 182+ yield so as you can see in the chart below the market responded appropriately. The market popped higher to reach new 6-month highs following the report and has continued higher with funds having long positions in the market.

Via Barchart

Soybeans’ also got a bump following the January USDA report. The USDA lowered the US crop from 51.7 bu/ac in November to 50.7. The yield cuts worked through to ending stocks but did not completely match as demand numbers were slightly trimmed with harvested acres raised. The Biden administration did not help out the SAF industry on their way out as bean crush plants remain in limbo on its future as a less eco friendly Trump administration takes over. What was projected to be a huge win for soybean growers now is a cloud that you do not know how long it hangs around before it rains. South America’s yields were barely changed with their forecasts now the most important thing to the markets (outside of President Trump starting any trade wars).

Via Barchart

Equity Markets

The equity markets have had a volatile end to 2024 and start of 2025 but overall seem to be in a good place as Q4 earnings start to come in. A wave went through the market with Chinese DeepSeek coming out with an opensource AI model that is much cheaper than anything in the US. This caused tech stocks to plummet to start the week with Nvidia losing over 15%. With no immediate tariff action by the Trump administration the market sighed some relief as this administration appears to be taking a more measured approach than in President Trump’s previous term.

Via Barchart

Other News

  • The USDA’s revisions lower were both surprising in a positive way and frustrating how they were so wrong on the data the market traded for the last few months when farmers had to sell.
  • The Trump administration had their first spat over deporting illegal immigrants with Colombia president Petro while mutually threatening tariffs over the handling of the situation.

Drought Monitor

Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].

 

23 Dec 2024
Agriculture, CME, Education, Futures, Hedging, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: A FLARE FOR THE DRAMATICS

Recap:

” A flare for the dramatics.” That’s how the market was described last week. It was meant for futures but can be easily fit the cash trade most of the year. Here all in or all out mentality drives prices more than supply and demand. The fact that this commodity has been in a range now for over 2 years, but the trade can get chopped up, shows us just how difficult this market is to navigate. At the end of the day, the price always represents value. The main takeaway from last week was that this market is working to redefine the trading range higher. If you look back over the past few weeks, many cash items were back near their lows. That’s not a consolidation higher, but it’s not a confirmation of value. The futures market better defines the overall market as it is a broader indicator of prices and attitudes. Last week we saw a rally of about $40. Yes, it was all in one day and actually all in a matter of minutes, but the fact that it didn’t give it all back tells us that the value area is higher. If all economics remain the same the market has suggested the new value area to be $560 up from $520. The buy zone has moved up. The sell is the premium offered when out of line.

Technical:

It’s hard to find a mirror today’s chart pattern in any markets. The looming gap down to $540 will keep most technicians out of the market. The idea mentioned above of a new value area and how this market trades technically are opposites this week.

The roll has allowed a long algo to trade again. That will be the key to direction this week. That said, with rising open interest in the commercial longs and in the fund shorts, I’m worried more about the downside more than the upside during the holidays. Again, the roll will bring in buying. The best trade of the week is to shut off the computer and come back on January 6th.

Daily Bulletin:
The Commitment of Traders:
About the Leonard Report:
The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors. 

Brian Leonard

[email protected]

312-761-2636

10 Dec 2024
Agriculture, CME, Corn, Education, Futures, Grain, Hedging, Market Commentary, Market Updates, Research, Risk Management, Soybeans, Weather, Weekly Prices rcmagserv 0 comment

AG MARKET UPDATE: NOVEMBER 18 – DECEMBER 10

Corn has had a good month but needs some more help to get over the $4.50 hump that it bumped against after Tuesday’s Dec USDA report. The bullish trade leading into the report was hoping the USDA would find better numbers for ethanol and US exports, but they underestimated the demand numbers with the US ending stocks coming in 168 million bushels below estimates for US stocks. World stocks were also lower by 268 million bushels. While these stocks numbers are still very strong, they have tightened enough to raise the floor for the meantime while corn could trade between $4.30-$4.55 heading into the new year.

Via Barchart

Soybeans’ last few weeks of trade between $9.80 and $10 has not provided much bullish optimism. There were no surprises in the Dec USDA report as large South American crop expectations and the US bean carryout doubling from 2023 are still bearish influences. Soybeans have a tough road ahead as South America is on pace to produce another record crop, and the incoming administration will likely not be biofuel friendly in the US. With all the recent investments in biodiesel and sustainable aviation fuel, there is a cloud that hangs over those areas that we are not sure if it is nothing and will blow over or a storm that may linger.

Via Barchart

Equity Markets

The equity markets have continued higher with some recent weaknesses in the largest stocks while strength in the market has broadened. Analysts are beginning to release their outlooks for 2025, while plenty still feel good about the market do not expect another year of 20+% returns like we saw in ’23 and ’24 (so far) after the down year in ’22.

Via Barchart

Other News

  • The Assad regime in Syria is over. Israel and Hamas appear close to reaching a temporary ceasefire. The fallout of both will be watched by energy markets as many questions will emerge in the region.
  • There was a slight cut to US wheat stocks, but world stocks are as expected, and comfortable as low Russian cash prices continue to reflect their ample supplies.

 

Drought Monitor

Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].

 

25 Nov 2024
Agriculture, CME, Futures, Hedging, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: Coming into the week we were expecting a sloppy trade

Recap:

Coming into the week we were expecting a sloppy trade. With a later Thanksgiving and the recent run up, a technical correction was not out of the question. The problem is that lumber futures have a tendency of unwinding gains in a hurry. That’s what we saw in January futures from Wednesday on. There was no change in market conditions to warrant a rollover so what caused the steep selloff?

The lumber market has changed. There will be times of tightness exclusively caused by supply reductions. JIT from here on out will keep you undersupplied in a trending higher market. That said, the standard operating procedure will remain the same in 2025 with the boss calling for no losses on excess inventories. That’s a receipt for price spikes. Most will agree that it will be harder to buy something in a rallying market. What holds many back is the fact that once the cycle is over there is no support. That is what we are experiencing now. The futures market can settle back towards its original value. With the cash and futures prices so close, I would not expect the futures to return to 560. The discovery period of the next level should be higher. The issue I see is that there are about 15 trading sessions left between now and the new year to gain some momentum. It might be the algo/fund buying or the cash trade picking up again. This is a tough environment for price discovery. Buy the mistake.

Technical:

The market was able to fall to the 595.15 retracement point. The major support point is the 50% mark at 586.25. The RSI is 44.50% and the stochastics are heading lower. Both indicate a market that had pressed higher than value and now is giving it back. If this was a court of law a new precedent of 623.50 is on the books. The 200-day moving average is 566.70.

The key takeaway is how to trade the basis. There needs to be a recalibration of the model. $40 or $50 basis is still great. The issue is when. The first spike could be followed by another so now you are managing the futures. It looks like the trade switch could be one that the trade makes money on the cash side now. All these are signs of a change in trend. We are still in a sideways market. The trend is only a minor factor in the overall trade. If you have too much wood, hedge it.

Daily Bulletin:

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

The Commitment of Traders:

https://www.cftc.gov/dea/futures/other_lf.htm

About the Leonard Report:
The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors. 

Brian Leonard

[email protected]

312-761-2636

18 Nov 2024
Agriculture, CME, Corn, Education, Futures, Grain, Hedging, Market Commentary, Market Updates, Research, Risk Management, Soybeans, U.S. Dollar, USDA Report, Weather, Weekly Prices rcmagserv 0 comment

AG MARKET UPDATE: OCT 29 – NOV 18

December ’24 corn rallied back to the $4.30-point last week, matching its recent highs from the start of the month. Corn’s 40+ cent rally from the August lows has been very welcome as harvest wrapped up and bins were getting full. Corn struggled to hold this level of trading for long a few weeks ago but with the December contract getting ready to expire and all the focus shifting to March the markets need some help to push to the $4.50 mark. Funds are long 550 million bushels of corn, the largest long position in 21 months. The November 8th USDA report had the ’24 US corn crop at 183.1 bu/ac, avoiding the fears of the USDA finding an even bigger crop and raising yields that would’ve sent the market lower. Exports have been solid but within expectations as post-election trade will involve countries positioning themselves ahead of the new Trump presidency.

Via Barchart

Soybeans recent rally was quickly given back with January soybeans trading just over $10. The recent lows in the $9.75 range appear to the where support is showing up as it has traded down to that range a few times but keeps bouncing back. The USDA had the US soybean production to 51.7 bu/ac, below the 52.8 bu/ac estimate the markets had priced in. While the market got an initial bounce from the report the fact that another trade war may be on the horizon with record bean yields in the US and South America, the supply and demand story is not friendly in its current state.

Via Barchart

Equity Markets

The equity markets rallied following the presidential election and have since given some back. While Trump is seen a market friendly, the “who will benefit?” is a big question mark as tariffs and promised lower government spending will have widespread effects. Republicans will control the house and senate but with some senators not high on Trump, he likely will need some help to do everything he wants (think Manchin and Sinema with Dems).

Via Barchart

Other News

  • South America is off to a good start with another record crop expected with the expanded acreage.
  • Cotton has had a rough 2 months after falling below 70 cents with the recent low of $0.6626 squarely in the crosshairs.
  • The USD has moved higher topping 106 following the election.

Drought Monitor

Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].

 

04 Nov 2024
Agriculture, CME, Education, Futures, Hedging, Housing, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: It was a very healthy week for both cash and futures

Recap:

It was a very healthy week for both cash and futures. As a combination, it was the best week for price movement all year. The key was the market went higher on its own. There was no outside noise to push it. It was all demand driven. That leads us to three simple scenarios. The first is that the market is still underbought and will stay tight. This could be the case as the “off the market” mill is back in the game. A slow buy could drag the market higher since we’ve had a few years for the buy side to be engrained with less is more. The next scenario is that the market is searching for a new trading level, which would be higher. Futures may pull back and wait for cash but shouldn’t break sharply. Maybe good selloffs followed by rallies. Finally, the typical futures trade. Here, futures drop at least 61% back, often in a quick second.

My first thought is that the reduction in production is noticeable when demand picks up and then fades into the background as the market slows. We have a good handle on the industry’s inventory capacity. Without a logistics issue, capacity will always put a top in the market. Today’s question is whether we should remain confident in the numbers when supply is limited. The trade is content to stay the course. No one has seen any demand creep yet. This run is only a shot over the bow.

A critical factor in this industry is interest rates. Most haven’t noticed, but since the Fed cut on September 18th, the 30-year mortgage rate has risen by 80 bps. Going into 2025, the builders will negotiate the marketplace at a 6 to 7% rate. The Fed is looking for a 3.5 to 4% nominal rate, up from 2%. That will keep the 30-year locked above 6%. I go back to my “check the boxes” strategy. The multifamily guys will find a way to make the higher rates work. There is a ton of money in this sector that likes condos and apartments. They don’t like to “divest”. They value this sector. Our multifamily guys should look for an uptick next year in bidding. I’m not sure SYP isn’t already signaling things are getting better there.

Again, this is a multifaceted industry. The financial drivers go well beyond the mills and distributors.

Technical:

Jan had a $41 run from last Friday’s lows to the highs this week. That’s big. The stochastics were the first indicator of a possible rally. The other oscillators followed. Last week, I commented that the outside spec trade would see lumber as a buy. I’m not sure how much they participated, but we saw a big push through a small hole. Coming into this week, the signal is to sell. With a January RSI of 82.77% and a lag to the rally, they will see weakness and room to the downside. My point is that the futures market is overbought. The cash market isn’t.

Note: the driver in this market is SYP. Follow it for the trend.

Daily Bulletin:

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

The Commitment of Traders:

https://www.cftc.gov/dea/futures/other_lf.htm

About the Leonard Report:

The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.

 

Brian Leonard

[email protected]

312-761-2636

29 Oct 2024
Agriculture, Corn, Dow Jones, Futures, Grain, Hedging, Market Commentary, Market Updates, Research, Risk Management, Soybeans, Weather, Weekly Prices rcmagserv 0 comment

AG MARKET UPDATE: OCTOBER 4 – 29

Corn has been range-bound the last 2 months between $4 and $4.40. With no weather issues during harvest following a very dry end of the growing season, the market did not get any unexpected help to push it higher. Mexico continues to buy US corn at a fast pace, appearing again in the export reports. With no major problems starting the year in South America and smooth sailing to the finish of US harvest there does not appear to be anything to give this market a boost. Expect technicals to play a major role in the direction of the trade for the near term as the fundamental trade will be reliant on harvest news.

Via Barchart

Soybeans weakness over the month has lowered it with corn. Beans do not have any bullish news on the horizon as they failed to rally through technical resistance. With the election next week, a tariff war with China would hurt beans in an already depressed market as we have seen in the past. Funds are very short and will need a catalyst to get them to change course, which currently is lacking. Bean harvest is 89% complete which means there won’t be much opportunity for unexpected bullish news moving forward.

Via Barchart

Equity Markets

The equity markets continue higher as the biggest week of earnings kicks off. The Fed is expected to cut rates again by the end of the year, but inflation and jobs data are sending a mixed picture. The 10-year US treasuries have moved higher since the rate cut as the market is questioning whether or not the Fed will get it right.

Via Barchart

Other News

  • China announced that total grain production this year would be a record 700 million metric tons. As China continues to increase domestic production of edible commodities while continuing to invest in South America the US needs to find a new partner to replace their demand as they continue to try and be less reliant on American agriculture.
  • Crude Oil has been volatile but has moved lower this week as possible easing tensions in the Middle East as cease fire negotiations restart.
  • With the election results potentially being unknown for a few days following November 5 there could be some volatility in all markets.
  • The October insurance averages are $4.16 1/2 for corn and $10.06 for beans as of 10/29. The February insurance averages were $4.67 for corn and $11.60 for beans.

Drought Monitor

Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].

28 Oct 2024
Agriculture, CME, Education, Futures, Hedging, Lumber, Market Commentary, Market Updates, Research, Risk Management, Weekly Prices rcmagserv 0 comment

LEONARD LUMBER REPORT: Lumber is a very complicated commodity

Recap:

Lumber is a very complicated commodity with the most moving parts of any I have dealt with. That said, it is a commodity and commodities trade value. Lumber is only $20 either side of a trade and can’t get there. If you look at a weekly chart you’ll need a microscope to see the trading ranges for the last 5 weeks. Someone said last week that this market is coiling ready itself for a blowup. I said the same thing 12 months ago. I’m hoping he is closer to right than I was. My point is that the market is draining all the excesses caused by Covid a few ounces at a time. The shutdowns just aren’t showing up in a way that can cause a panic. It looks like more of the same.

A few recap points.

A mill reported a 3rd quarter loss last week. Let’s take a step back. Futures contracts are designed to protect the producer in a falling market. Mills presences will actually put a floor in prices. We have little mill participation today. I’m hoping they take a deeper look into the financial design of futures.

All week I heard complaints about certain items not being available. It is not a free-flowing cash market out there. Now, yes, there are some cheap and available items, but for a flat market things are getting tight. Unless it’s a basis trade, this is a tough place to sell futures. The funds are rolling and exiting. The report this week is up to Tuesday, so it missed the 3 strongest days for the week. It all comes down to momentum. Outside money creates momentum in the lumber futures market. Shutdowns, fires, and strikes all have a very limited effect. The algo and the funds are today’s day-to-day drivers. The lack of that push keeps us flat. Now, it may be defined as flat, but I wouldn’t be short.

Technically, we are married to trying to push to a new high in futures. Cash hasn’t recently allowed it but that too is moving up. In November the last high was 538.00. Today, its 200-day moving average sits at 554.07.

Daily Bulletin:

https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf

The Commitment of Traders:

https://www.cftc.gov/dea/futures/other_lf.htm

About the Leonard Report:

The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.

 

Brian Leonard

[email protected]

312-761-2636

07 Oct 2024
Agriculture, CME, Corn, Futures, Grain, Hedging, Market Commentary, Market Updates, Research, Risk Management, Soybeans, USDA Report, Weekly Prices rcmagserv 0 comment

AG MARKET UPDATE: SEPTEMBER 12 – OCTOBER 4

Corn’s rally back to $4.25 has been welcome heading into harvest as South America’s weather started off a little weary but have added rains to the upcoming forecast. The US drought to end growing season does not appear to have impacted the corn crop very much. Export demand has picked up putting us ahead of the USDA annual projections. The recent rally has taken corn above other major exporters which will likely lead to slowing exports unless South American weather becomes more of a concern. Harvest has gotten off to an average start with 21% harvested as dry weather shouldn’t cause any problems in the next week.

Via Barchart

Soybeans faded to end the week as harvest progress and pressure lead to profit taking after the recent rally. The biggest news related to soybeans, non harvest related, is that congress seems to be working on bipartisan legislature to address the importing of used cooking oil while still collecting tax credits. The American farmer wants this loophole closed to force biofuel producers in the US to use domestic production. This will lead to millions of more bushels used at crush facilities in the US throughout the year with a major question of, what happens to the bean meal? The longer congress and the lobbying associations take on this legislature will lead to more frustration among farmers across the country so with it being an election year I would be careful with what gets “leaked” by parties involved. The end of year drought across much of the US likely led to a smaller crop as pods did not get the moisture needed for max fill. Bean harvest is slightly ahead of expectations at 26% to start the week of Sept 30.

Via Barchart

Equity Markets

The equity markets continue to roll hitting new all-time highs as Fed rate cuts and the likelihood of a soft landing becomes higher. The market has broadened out but the biggest names (Nvidia, Meta, etc) are still doing well. With rates lowering over the next year expect money that has been getting 5%+ in fixed income to begin to move back into the market. Chinese stimulus prompted a large rally in Chinese stocks this week as they try to get their economy going again.

Via Barchart

Other News

  • The Fed announced a 50-basis point rate cut this month, cutting rates for the first time since the Pandemic. More rates are expected into the end of the year.
  • Tensions in the Middle East escalated as Iran launched attacks on Israel. Israel is expected to respond but how and when remain unknown, with attacks on oil fields a possibility crude oil rallied over the week.
  • Hurricane Helene caused massive devastation in the United States Southeast over the weekend causing loss of life and destruction of major infrastructure. The total amount of damage is still unknown, but it will take the mountain communities a long time to recover.

Drought Monitor

Via Barchart.com

Contact an Ag Specialist Today

Whether you’re a producer, end-user, commercial operator, RCM AG Services helps protect revenues and control costs through its suite of hedging tools and network of buyers/sellers — Contact Ag Specialist Brady Lawrence today at 312-858-4049 or [email protected].

 

Disclaimer

RCM Ag Services is a registered DBA of Reliance Capital Markets II LLC. Trading futures, options on futures, and retail off-exchange foreign currency transactions are complex and involve substantial risk of loss and are not suitable for all investors. Loss-limiting strategies such as stop loss orders may not be effective because market conditions or technological issues may make it impossible to execute such orders. Likewise, strategies using combinations of options and/or futures positions such as “spread” or “straddle” trades may be just as risky as simple long and short positions. There are no guarantees of profit. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. You may lose all or more than your initial investment. You should not rely on any of the information herein as a substitute for the exercise of your own skill and judgment in making such a decision on the appropriateness of such investments. Opinions, market data and recommendations are subject to change without notice. Reliance Capital Markets II LLC shall not be held responsible for any actions taken based on this website or attached links. Parties acting on this electronic communication are responsible for their own actions. Past performance is not necessarily indicative of future results.