Weather in South America and purchases by China helped move the grain markets in a mixed fashion. For the week, December wheat moved 2 cents lower and the nearby corn contract moved 15 cents lower. Reports of Chinese purchases and rain in Argentina pushed soybean prices higher this week as the January contract settled Friday with a gain of 32 cents. Nearby meal prices kept moving in step moving $8 per ton higher. In the softs, cotton lost a little of last week's gain falling 12 cents per hundred weight. In the dairy market, January Class III milk lost 66 cents, while the deferred contract moved 73 cents lower. Over in livestock, February cattle lost $1.32. Nearby feeders gained $3.15. And the February lean hog contract posted a weekly loss of $3.45. In the financials, the Euro lost 48 basis points against the dollar. Crude oil lost nearly $3 per barrel. Comex Gold declined by $7.20 per ounce. And the Goldman Sachs Commodity Index lost more than 15 points to settle at 633 even.
Pearson: Here now to lend us his insight on these and other trends is one of our regular market analysts, Jamey Kohake. Jamey, welcome back.
Kohake: Thanks, Mike.
Pearson: Glad to have you here. It's a big week. We're still in December. No compromise has been made with regard to the fiscal cliff. What effect do you see that having on the market?
Kohake: Really just a choppiness, sideways non-directional market pretty much. The sentiment is that the government, Congress, will get something done but it's probably going to be the week of Christmas. So I'm expecting another week to probably ten days of this range bound type trade but the feeling is we should get something done, the market should hold together and still be supportive. The market moved a little bit today. That was more off the jobs report. The Dow futures jumped about 60 points off the low right after the report came out but did have an adverse effect on commodities as the U.S. dollar sharply rallied and did spur some profit taking there as we finished the week off.
Pearson: Now, we've seen the dollar bouncing back and forth the past couple of weeks. Do you see that continuing? Is that tied to the fiscal cliff issue? What is going to keep changing that?
Kohake: It's more tied to the debt limits being possibly raised or going to have to be probably raised sometime closer to February. And I think that is bearish. The dollar should weaken up, get back below 80 again and be supportive. But here right now it's just kind of a back and forth non-churning type trade. But I would be selling sharp rallies on the dollar up over 82, 82.5 area and look for a retest back below 80 sometime after the first of the year.
Pearson: All right. And what do we see happening in the metals?
Kohake: I see metals being supportive. I still like buying sharp breaks in gold as a long-term play. Short-term I think it's just going to be more choppy here too, more sideways. We did break this $1700 mark here this week in the Feb. But long-term metal buyers I'd still buy the breaks as I expect the dollar to remain weak.
Pearson: All right. Let's talk grain a little bit. Let's talk the wheat market. Where do you see wheat headed? It's been an interesting ride here the past few weeks.
Kohake: It has. I was really disappointed myself in the wheat market this week. We had a big purchase from Egypt last weekend, had a little bit of fall through Monday morning and that was it through the rest of the week. The key with the wheat or the factor with the wheat market has been the dryness across the whole Midwest. Argentina wheat belt has been too wet. They may have some quality issues. But the market hasn't been reacting that well at all. But I still like wheat from the long side. I like buying Kansas City, selling Chicago in spreads as the Kansas City belt is extremely dry. And I still look for wheat to be supportive. The key is going to be to get the exports to stay steady, stay strong, get an uptick there and wait and see if that happens. But we're competitively priced finally in the wheat market. I think it's just a factor of getting the fund money back in.
Pearson: And is the fund money going to stay out until this fiscal cliff thing is resolved? Or are they just waiting to see where the weather goes?
Kohake: I think more fiscal cliff. It's a money flow deal with the funds, equities over in raw commodities. But I think the wheat market stays supportive here short-term. There's no widespread rain in the forecast at all and I still think wheat turns upward.
Pearson: Any price points you're willing to throw out there?
Kohake: I still think Kansas City could rally 40 to 60 cents to the upside until we get some relief. Some of the wheat areas, South Dakota wheat driest in a generation, down across Kansas extremely dry, no rain, there's no snow coverage at all so it's a serious, serious factor. If we can keep exports up strong I think there's plenty of upside yet in wheat.
Pearson: All right. Let's talk corn a little bit. Corn down this week, again, all over the board in the past few weeks. Where do you see corn headed?
Kohake: Corn has been in a wide range, about a 40 cent range, $7.30, $7.70 for the March. We got close to the top side this week but couldn't punch new highs pretty much off a lack of fresh news. Exports are pathetic right now, there's nobody buying much corn, got close to the top side sell some profit taking. I think you saw rallies here short-term coming into year end. Be out ahead of the January crop report. But I think exports pick up. I'd look for more down side. Look for like $7.22, $7.25 area March next week. Very, very soft close today in the corn market but I don't see anything right now to bring new money in corn to push it to new highs for the move.
Pearson: Now, you talk about exports being weak and they've been weak since we started seeing these record prices and they're staying weak. At what point are the export buyers going to get back into the game?
Kohake: Well, what we've seen solved this week was Taiwan going down to South America for a purchase earlier in the week and that was roughly about $25 a ton cheaper than our corn. So that is one ballpark figure we have to get more competitive priced with. But we are seeing a little bit of demand destruction occurring and has occurred. The market was inverted through harvest, nearbys higher than the deferreds and we've seen the March-May go back to pretty much option even a penny spread at times during the day session. So we are seeing some demand destruction, seeing the basis back off a little bit, seeing ethanol back off so I think there's al little more downside here short-term.
Pearson: And with regard to the basis, do you see that weakening as we roll through December and into the spring?
Kohake: Just through December here short-term. I think a lot will depend on what happens in the January crop report, how bullish, how bearish that is, end users have to big up then or not. But here short-term a little bit negative. I also like the new crop side, the Dec '13, to step into some shorts up there around $6.60. If we could somehow get some short covering there, get a rally they could take a short-term sell there and maybe take off then to around $6.20 again.
Pearson: All right. Let's talk soybeans. The soybean market, exports have been continuing. Where do you see soybeans headed in the near future?
Kohake: We've been on over $1.00 rally on beans, a nice, nice rally. Could not get through $15 here late this week and saw a round of profit taking plus a dollar risk firmer but yet you're exactly right, exports have been strong. China was in them for roughly half of the weekly allotment this week. Their crushing margins have turned positive and I think that will continue to be the factor for them buying beans from us. But longer term I'm bullish. We need to see more from South America I think before we get through $15 and hold there. Southern part of Brazil very, very dry. Argentina areas, some of them too wet. But I think we need to get through the end of the year, get a better picture of how many acres are actually planted and what the crop looks like before we start talking $16 beans again.
Pearson: So you see bullish through December up to that January crop report?
Kohake: Yeah, I do and I like being long beans on breaks. I don't like being long up here $14.80, $14.90. I like to see a setback to right around $14.20 for the March and try to get long in that zone. We've been on a nice rally and I'd like to see it set back a little bit further and relieve the charts, technicals.
Pearson: And basis wise on soybeans, how has that been trending recently?
Kohake: Strong, still strong. We're over $1 positive down in the Gulf and I think the bean basis will stay strong. The balance sheets are extremely, extremely tight worldwide and domestically with beans, same with wheat domestically and worldwide so I think it stays strong.
Pearson: All right. And so for producers out there, what price points should they be looking at for '13 beans?
Kohake: '13 beans I'd like to get up around $13.80, Nov '13 start selling there. That's sharply higher than where we are now but I think we can get there, get some weather down in South America to be bullish and sell into that. Old crop sales you could lay some off up here at $15, leave a little bit behind, just see what happens closer to spring. But yeah, $14 and $16 we'll be looking at.
Pearson: Capture the profits while they're there and see where it goes from there. All right. Let's talk livestock a little bit. We saw the live cattle fall a little bit. Where do you see live cattle heading? What is driving that?
Kohake: Seasonals, Thanksgiving, Christmastime a little bit bearish seasonally. We also saw the cash top out about two weeks ago. We're lower again here this week. But just seeing that spur long liquidation, spur fund money out of the market. I'm still a little more bearish here for next week to ten days on cattle, looking for some more downward pressure. But come after the first of the year I'm bullish cattle, live cattle and feeder cattle and that's just being off the supply side, numbers are too tight, really fall apart and stay down. So I'd like to see about a 2 cent setback, come in and start selling some deep out of the money puts closer to the end of the year.
Pearson: All right. Now, on the cash side we saw retail beef prices pushing close to all-time highs here two, three weeks ago. Where is that headed as we look to the New Year?
Kohake: It should back off very short-term. The weekly cash numbers have backed off $2 to $4 so that should relieve some of the retail price coming into Christmas. But I think they'll retest that again coming into the first quarter, funds are bullish, traders are really bullish just looking at the supply side after the first of the year.
Pearson: And then on the demand side do you think the economy is strong enough to sustain those high prices?
Kohake: I don't longer term and exports too I'm nervous with that because that's really been the driving factor, pork and beef the last two years just about it ahs been the exports. But I think we'll go ahead and retest those highs in the cash market and see what happens. But sustaining that I don't think it's possible right now.
Pearson: All right. Let's talk feeder cattle. You're bullish on feeders. Where do you see feeders going?
Kohake: I think you could put in another 3 to 5 cents on by spring, not right now. They held together pretty well late this week off the corn and seeing some profit taking. But same here, if you could drop them down before Christmas 2 to 3 cents I would look to get long. I think we can push close to $150 area.
Pearson: All right. And do you see the feeder market staying strong through spring, summer of next year based off supply?
Kohake: Just based off supply close to eight year lows roughly. Pasture is very, very limited off the drought obviously. So I think feeder cattle do have a bullish scenario longer term going.
Pearson: Now what happens -- there's been talk of this -- what happens if we are heading into yet another year of drought? What kind of effect do you see that having on the cattle?
Kohake: It's going to be bullish because you're going to probably be talking $8 corn again if that's the case and replacements right now obviously aren't there. You do it back to back years it's going to pretty much put the smaller to medium size guy out of business again.
Pearson: And so we should keep an eye on the weather here as we look through --
Kohake: Yeah, look for weather. If you're a cattle guy have the long-term hedge on, be long calls or be long the board on breaks to give you some protection if you can make money here around $7.00.
Pearson: All right. Well, let's talk hogs a little bit. Hogs we've had a decent run up, sold off this week. What is driving that?
Kohake: Yeah, we sold off late this week. It's kind of the same story as cattle, seasonals turning a little bearish, cash looks like it has topped out as well for this year and we've seen demand back off a little bit late this week. I think it will back off even more next week. That's just seasonals, a nice rally, seen some long liquidation. I think there's another 1 to 2 cents downwards and I'd look for some consolidation coming into year end.
Pearson: All right, and cash market for hogs? How's that?
Kohake: It's backed off here this week and I think it will back off again next week. I think it's topped out here this year. But hogs kind of the same fundamentals as cattle out into next summer, very, very tight supplies. You go out and look at the summer hogs roughly trading already hundred dollar out there and so I'd watch that if you're a hog guy with the corn and your break evens.
Pearson: All right. There's one thing I'd like to talk to you about, we talked about it last time you were on and that is crude oil. Where do you see crude moving as we get through this winter season?
Kohake: I'm bullish coming in after the first of the year, February time period. Right now we're range bound. I don't see much out there unless there'd be a big surprise in the Middle East again with the uprising there. I've been doing a lot of strangles in the market, selling some $78 puts and $110 calls right into spring just letting the time by you get ate up. But I think after Christmas I would look to get long that and also too for producers look to start locking in some diesel. We've seen a little bit of a break there late this week and seasonally between now and the end of January would be a great spot to start forward pricing.
Pearson: All right, great thank you so much Jamey. That wraps up this edition of Market to Market. But if you'd like more information from Jamey on where these markets just may be headed visit the Market Plus page at our website. You'll find expanded market analysis, audio podcasts and streaming video of our program as well as links to our Twitter feed and Facebook account all free at the Market to Market website. Be sure to join us next week when we'll examine dramatic growth in the market for gluten free foods. Until then, thanks for watching. I'm Mike Pearson. Have a great week.