A reversal in grain prices recently attributed by many analysts to a weakening dollar was offset this week by harvest pressure.

For the week, December wheat lost nearly 3 cents, while the nearby corn contract moved a penny lower.

For the second consecutive week, November soybeans lost 30 cents, while the nearby meal contract fell more than $8 per ton.

In the softs, cotton moved lower again this week with the December contract posting a loss of $1.10.

In the dairy market, nearby Class III Milk futures advanced 6 cents, but the deferred contract was down 27 cents.

Over in livestock, December cattle lost 67 cents. Nearby feeders were off 15 cents. And the December lean hog contract was down exactly $1.00

In other markets of interest, the Euro gained 109 basis points against the dollar. Crude oil declined 43 cents per barrel. Comex Gold gained more than $55 per ounce. And the Goldman Sachs Commodity Index ended the week exactly where it began at 495.50.

Pearson: Here now to lend us his insight on these and other trends is one of our regular market analysts, Jamey Kohake. Jamey, good to have you back.

Kohake:Thanks for having me.

Pearson: Let’s talk about this whole world situation. Warren Buffet buying Burlington, northern Santa Fe. That seems like a vote of confidence in the carrying of not just grain but coal too.

Kohake:That’s pretty much what he said too, that this was a long-term investment on the U.S. economy for ten, twenty, thirty years out, that the markets will stabilize and he can make a return on his investment.

Pearson: All right. Well, that’s what it’s all about and it’s all about in his business and agriculture too. Let’s talk a little bit about worldwide what’s going on. Are we strengthening the world economy? Obviously unemployment numbers in the U.S. came out. It’s a lagging indicator, they tell me, so it’s not something we really focus on. And it looked like some of the numbers were actually encouraging. GDP was out this week. It was also fairly encouraging for the United States. Worldwide are we seeing the same thing?

Kohake:We are seeing that in some of the more emerging economies parts of Brazil, Russia, India and China, the brick countries seeing some growth there. I think we’re close to top in here yet, maybe a short-term bubble in some of these markets. And it’s getting in overcrowded trades. Some awfully, awfully bullish people still talking 11,000, 12,000 Dow. And I think as we came to the close of the year, you probably will see some profit taking, see some money come off the table. The funds have put $40 billion in the markets since summer. There’s talk of another $40 billion for next year, but I think they will take some profits first.

Pearson: All right. Well, let’s talk about the grain markets, and let’s talk about one of the big factors we talked about in the open of this segment, and that is cheap dollar, which continued cheap this week. Is there a bottom in sight and is that still going to leverage ag commodities higher?

Kohake:I think it will longer term. That is the big play for the funds. Sell the dollar, buy the grains as an inflationary hedge. The dollar looked more range bound to me, 75 to 77. I don’t like getting short where we’re at right now, but I would look at it up around 77 as we finish the year off. And if we do break 75, I think that’s what pulls corn back to $4 and beans up over 10.5 again.

Pearson: So we may get another chance so people shouldn’t get too long faced if they miss some of these selling opportunities here of late.

Kohake:Right. I don’t think so at all. I think it’s going to get very volatile as you finish the year out. Are the funds going to take profits? Who tries to out guess how they’re going to do it?

Pearson: What about gold? Is it done or is it going to keep going higher? What’s your thought?

Kohake:I would take profits. If I was long futures, long calls, I would go ahead and get my money and get out. The big news there was India this week, they bought 200 million – 200 metric tons of gold this week and that pushed it to roughly $1,100 an ounce, and then we backed off of it. It’s a bevel, in my opinion, a short-term bevel.

Pearson: All right. Well, let’s talk specifics. Let’s talk about the wheat market first. There’s some concern about the amount of winter wheat the government has planted. The soybeans still weren’t out of the field. There was a little bit of concern about that but overall plenty of wheat around the world.

Kohake:Right. Wheat is the most bearish commodity on the board – the grain board for me. World carryout is large. Domestic carryout is large. We’re not exporting a large amount. We’re still lagging there. We’re 31% behind last year’s export pace, so I would sell any rallies right now in wheat as possible. If you get over $5.20 in December, $5.40 in March, I would be a seller. In the meantime, you could sell calls just to generate some income.

Pearson: All right. Let’s talk about the corn market, then. Obviously the slowest harvest almost in history and certainly in modern times. You have to go back to the 60s to find this kind of slow harvest progress. Picked up a lot this week. We has some good weather throughout the corn belt and we’re going to see a big increase. So now the corn is going too start to come to town. It’s very wet. It’s causing some problems. Near term what’s your outlook and what’s your outlook long term for corn?

Kohake:Near term I’m a little bit bearish yet right now. We’ve got a beautiful forecast here this weekend, first part of next week. I think you’re right that we should be up around 45% to 50% on Monday’s report on the harvest progress. I think we’ll make a huge amount done by Wednesday, of course. I would be selling December anywhere up over $3.90 if that’s even possible right now. March up close to $4.00 would be a great sell. I think longer term you ride these down about another 25 to 30 cents is all right now. Then look and see how the funds are finishing the year out too and see if you need to take profits. I think the funds will be back in buying grains longer term, and we will be back to levels where we can resell – where we were at before.

Pearson: All right. These funds were supposed to reallocate. Have they reallocated? Have they sold corn and beans and wheat and moved over into other commodities? Has that happened?

Kohake:Deutsche Bank repositioned some of theirs. There’s been some speculation that other funds have too. It has not moved the market. They’re getting ahead of maybe some regulations by the feds to reorganize. They’ve gone from grains to livestocks, but it hasn’t been a big market mover.

Pearson: So your thinking on corn is a little pressure near term, got the harvest going, maybe a bounce up, and then we’ll see what spring brings?

Kohake:Right. That’s right. Near by short-term bearish. Look for another 20 to 30 cents down. By the end of the year, I’d look to see what the funds are going to do first part of January if they’re going to make a seasonal rally into planting season, often inflation type trade.

Pearson: Should bring good progress this week on soybeans as well with this good harvest progress, and hopefully some better drying conditions for the crop. So what about bean sales?

Kohake:Same thing there. I would be selling futures on a rally. I would not be selling cash right now. The basis has started to widen out just like corn. You can see some of that in some of the contract months from January versus March, January versus July. Look for that to widen out as more grains come to the elevator, same as corn. Basis is widening out. I would just come there and just sell the board as a hedge short-term. November 2010 has been a great sell up around $9.90 to $10.00. I still like that. And in the nearby too on a 30 cent rally back up, sell into that.

Pearson: So, again, get a little more aggressive on the soybeans?

Kohake:I would for the short term right now. I think we’re going to be up over 70%, maybe 80% the first part of next week, done with harvest. And I don’t see anything out there right now besides a dollar going back towards 75 next week that should attract any buying right now.

Pearson: And South America, what do you think they’re going to do?

Kohake:I think they’re planting awfully well right now. Parts of Argentina is over 30% planted. Brazil is a little bit behind, but there’s no big surprise that their crop is going in.

Pearson: All right. So you have potential big crop down there. Acreage battle next year? Is it going to shape up to amount to very much?

Kohake:I think you can have a little one. I think you also have to declare wheat in there as well with some type of battle coming into this longer term. But I think the key is going to be sometime around January, $7 beans and still playing around with $3.90 corn.

Pearson: All right. Let’s talk flip side here on livestock and where do you see the fed cattle market going? The board hasn’t given us a lot of direction. The cash market has been a little better. Where are we going on cattle?

Kohake:It was a very surprising trade this week. Had a nice rally going until Thursday and then we started to see a little bit of profit taking. And Friday we saw a lot of sales come back in. Cash traded early in the week surprisingly Monday and Tuesday at $88.00. We finished the week off close to $86.00, a dollar lower than last week, so we kind of wrecked the futures market. I would sell rallies here as well. I like selling the April up around $91.00, $91.50 next week, just get a bounce up into that area. Supplies are still very tight now through Christmas. Get past Christmas, supplies do get larger. So any type of rally between now and Christmas, I would be locking in, putting a floor beneath the market and locking in the profits.

Parson: So, the fed cattle market, you want to take advantage of any gains you’ve picked up. Longer term – I mean, take me out for – this is not an easy deal to get a calf ready, so we’re talking a couple year gap here. Next year, 2010 into 2011, will we see beef prices strengthening?

Kohake:I think you’re going to see more of a historical type trade, high 70s, low 80s. And I think a lot of that is going to depend on too of this grain market of how much more money the funds power pour in longer term. Are they going to keep it up here around $4.00 corn now instead of $2.50 in the past as an average? You know, I think that’s going to play into these longer term cattle incomes as well.

Pearson: All right. Let’s talk about the hog market and what you see happening in pork prices. IT just seems like this is the – I don’t want to say the expansion but the continued production in the face of reduced demand that we’ve seen in history as we’ve ad this shift to this vertical integration in the hog business. These guys just don’t want to see – they want to see who blinks first.

Kohake:You’re kind of exactly right, Mark. We did get a little bit of better news this week. China is saying that they are going to open their border back up, but they weren’t buying any pork to begin with, so it’s not that big of a deal. It looks like Russia and Mexico are going to continue to be our biggest importers of pork. I’m in the same boat here with the beef as I am with the pork, selling rallies right now. Any type of dollar and a half, two cent rally in the hogs, I would sell into. I did not like the way we closed on Friday. If the cattle would see more technical pressure on Monday, I think the hogs will follow it, and look for a quick $1.50 down in the hogs next week.

Pearson: All right. So, near term you’re not upbeat at all in this hog market?

Kohake:Not near term at all. We’ve had a nice rally. The market is overbought right now and I think we’re just due for a quick correction. You can come out and do some of these deferreds and still lock in a profit and that’s what I was doing late on Thursday and Friday.

Pearson: All right. Some of those deferred contracts, they’re still strong. Take advantage of those and at least lock in or at least reduce your loss.

Kohake:Right.

Pearson: All right. Buying feed right now, Jamey. We’ve got about five seconds.

Kohake:20 cent pull back I would look at it in the corn.

Pearson: All right. So, again, pull back, you’d do it. Jamey, as usual, appreciate your insights. That’s going to wrap up this edition of Market to Market. If you’d like more information from Jamey on where these markets just may be headed, visit our Market Plus page at our Web site. You’ll find streaming video of our program and you can also download audio podcasts of our Market Analysis and Market Plus segments free right there at the Market to Market Web site. Of course, join us again next week when we’ll follow more than 350 members of the greatest generation on their honor flight to the World War II Memorial in Washington. Until then, thanks for watching. I’m Mark Pearson. Have a great week.

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11:04

Pearson: Welcome to the Friday, November 6, 2009 version of Market Plus. We're glad you've joined us here at our Market to Market Web site. We've had a lot of requests for information about corn and soybeans just because of the odd harvest year that we're having. It's running so slow, it's running very far behind our normal record pace, in fact, for slowness getting corn and beans out. Now, we picked up a lot of ground the last five days thanks to good weather and some good drying conditions throughout the corn and bean belt but now we've had stories of the elevators shutting down because they've got too much wet product whether it's corn or beans, we've had people trying to shift exactly where they're going to haul this product that they are racing to bring in and that brings up a lot of issues. You plug up the lines of processing and pretty soon you start running into some problems. I would imagine cash problems are going to be the first thing we're going to hit, Jamey, the cash market. You're saying that's already happened.

Kohake: Right, we've seen the basis start to widen out, seen the carry widen out, the price between the futures contracts especially in corn to go back close to fully carry again and I think we will be there here probably by the end of the week at a full carry difference, about four to four and a half cents difference between each contract But I think it's pretty simple, pretty obvious, we saw the screen coming on line, there's no reason to bid up for any more, we're at late August versus September when there were no combines rolling.

Pearson: The pipeline is going to get jammed up here pretty good. So, with corn and soybeans -- soybeans have been real laggers -- I've talked to a lot of producers who for the first time in their career they have had soybeans rejected or reduced in price, over 15% moisture by as much as a buck, over 14% 50 cents, they've never even seen that because we typically have a problem drying down soybeans in the field. So, it's been a strange year. Price wise we've had some good opportunities for those people who were able to combine.

Kohake: That is right, those guys got to take advantage of it. I think you still lock in some decent profits in here, November 2010 at $10 I think is a great sell and also getting this front month January, March which I would be selling off of 30 cent rally, take back today's losses and I would sell back into that again.

Pearson: So, November 2010 at $10 you think that's a good place to sell soybeans.

Kohake: Short-term probably I think you could ride it down to $9.30, $9.40, add 60 cents onto your bottom line right now and then wait to re-sell it again next spring or next summer.

Pearson: All right, again, these are pretty aggressive merchandising or cash futures positions to get into. Do you want to sell 2010 corn?

Kohake: On the board, on the last show I said $4.19, did that. I sell more at $4.39 and am sitting pretty well, about 20% sold on paper in the cash markets for next year.

Pearson: So, your thoughts are barring a weather situation prices are going to be lower?

Kohake: I do, I think on Tuesday's report the numbers will be larger than the USDA's were last month but not as big as what Informa came out with the other day. I think this report is not a bad deal but I think as a whole the crop is there and we're going to see the pipelines get full, like you're saying, and it will just grind the prices on lower.

Pearson: With the USDA crop production report coming out Tuesday morning it seems to be a discounted report and it's going to be as of November 1. It's been a world of difference weather wise, harvest progress wise than what is happening on the 1st of November.

Kohake: That's right. The report that everybody will be looking at is the January report to see what the final report is. Here next week a little bit of weather and we're going to be watching the dollar, gold and crude and see if the funds are back active again like they were last Monday and Tuesday or if they're going to sit on the sidelines and just hold what they have.

Pearson: Crude has been a big indicator on what the grains are going to do. What is your thinking now on crude oil?

Kohake: I think crude is a range bound trade, 76 to 81, 81 I think you take profits, 76 you put a long hedge back on, a little bullish inventory report this week, 3.1 million barrels on line, less than the previous week, the market sold off on it. The play there to crude is off the dollar. The dollar is lower, crude is up a dollar. The dollar is higher, crude is off 80 cents. Just back and forth.

Pearson: And you're feeling the dollar will be under continued pressure?

Kohake: Well, longer term I think so. I wouldn't get short here at 75.80, 75.90. I would up around 77.00. It's just a too crowded trade and everything you read, you see on TV are just bearish, bearish, bearish the dollar and it's too easy of a trade so I think it will end up getting flushed out and you come in and sell after that.

Pearson: All right, well we'll see what happens. As usual, Jamey, we appreciate your insights and we appreciate you joining us on Market to Market and, of course, here on Market Plus. From all of us on Market to Market, I'm Mark Pearson. Have a great week.

04:39