Grain prices posted modest gains in the wake of the report Friday, but not enough to offset losses in previous sessions. For the week, March wheat lost 9 cents, while the nearby corn contract moved 27 cents lower. Soybeans reacted bearishly to the Supply and Demand Report as the March contract posted a weekly loss of 22 cents, while nearby meal prices declined about $6 per ton. In the softs, cotton couldn't escape the carnage this week as the March contract lost 30 cents per hundred weight. In the dairy market, March Class III milk gained 26 cents, while the deferred contract moved 18 cents higher. Over in livestock, April cattle lost $2, nearby feeders were off more than $4 and the April lean hog contract posted a weekly loss of $2.63. In the financials, the Euro lost 300 basis points against the dollar. Crude oil declined by $2 per barrel. Comex Gold fell by $3 per ounce. And the Goldman Sachs Commodity Index fell more than 2 points to settle at 677.20.
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: It's good to have you here. It's been an interesting couple of weeks in the broader market. We saw the Dow touch 14,000 last week. This week there was some news, the dollar, we saw the value climbing in the dollar. What is going on there? What is driving that?
Kohake: Right. We saw the dollar get back above 80 late this week. It came from Dragi in Europe saying that he wants to kind of rebalance the risk with the Euro. And that was kind of a quasi-verbiage for we're going to weaken the Euro up which should be bullish to the U.S. dollar index. So that was why we got above 80. The key will be to stay above 80 next week and use that as support now. I do like selling the Euro, 135.90 area. I know that is sharply higher than where we are now but if we can get a day or two of rally next week I would get short the Euro.
Pearson: So, as of right now we've got the EU and Japan both actively trying to weaken their currencies as compared to the dollar.
Kohake: Yeah, I wouldn't say Europe is as active as Japan as yet of printing money like we have been but it could be longer term down the road. Dragi has got the rumors out.
Pearson: As we look for export news as it relates to the grains, is this move going to have a significant impact on future exports?
Kohake: It could longer term. It won't much right now. Low 80s isn't that big of a factor. You get 83, 84, yeah you could slow wheat down or corn down but here right now it shouldn't be that big of a factor yet.
Pearson: Okay. So something to keep an eye on as we go forward.
Kohake: Yeah, especially too specing with gold or silver, with crude as well to keep that eye on as well.
Pearson: Okay. Well let's look at wheat. Let's talk about how the wheat market has been moving. What did we see in this Supply and Demand Report today and how is it going to impact the market?
Kohake: It was supportive what we saw together and we actually I thought held together halfway well considering where we're selling the soy complex. But what has been going on in wheat though is exports are pathetic, there's not much wheat moving at all. Egypt has been a big buyer historically of wheat. They are financially in a turmoil right now. So they're just buying pretty much hand to mouth. Argentina and Russia are rumored to be looking for wheat. There's no confirmation of it. So we're kind of just sitting back, grinding lower, the easiest path has been lower and that's what we have seen. I would look to start to build a long position about 15 cents below where the market is now. We got the tuner today technically below the market and I think you could use that as support to buy into. We just need some fresh exports and I think you'd see a nice correction.
Pearson: So if we see this market continue to slide then we get that news that Argentina or Russia, you think there is some bullish sentiment there if the market conditions change a little --
Kohake: Yeah, we need a catalyst, we need the catalyst to exports or some more dryness, we have some scattered rains across the plains, nothing major but yeah, just some type of new catalyst that would bring us some new money and I think pocket 30 cents.
Pearson: All right. Now looking at production here in the U.S. on the plains, there's been all sorts of talk about how poor the crop is looking out there with this ongoing drought. What are you hearing? Is that having an impact on the market yet? Or are we still just waiting to see?
Kohake: It has. I think it is in the market right now. It could get worse and see a rally where we were. But it is factored in right now. It's bad. South Dakota worse in a generation, southern plains very, very, very dry especially down around the panhandle as well. But that is in the market right now. We need exports. Weather is kind of in the market.
Pearson: Well, and as long as we're talking exports let's look at corn. There's another story there. We haven’t had any exports all winter and that has continued. Where do you see corn going from here?
Kohake: I see corn as a range bound trade. I see $7.08 good support in March up to about $7.40, $7.45. Get through the $7.50 mark, good resistance, we need exports and there's not much out there now besides routine business. Next week China is on their lunar holiday break so it could be another depressing week volume wise again for the ag. So I don't see much happening next week. But for an end user, a spec trader, $7.08 March is where I buy at, put a stop close below $7 and look for a bounce back to $7.30.
Pearson: Now, as we talk about the Supply and Demand Report for corn we did see a little bounce today. Was that just spill over? What was happening in the corn market?
Kohake: A little bit of spread liquidation, long beans, short corn being liquidated. Corn number a little bit bearish but nothing major, actually held in pretty well. We have seen a beating come into the new crop contract, got it slammed mid-week. I think it is range bound as well at $5.50, $5.80. The number seems kind of depressing but that is right where we were last year at this time as well. So not a big surprise there. But I think if producers wait until we get to March, get this crop insurance month over with I think we'll have higher prices in based off of weather and the dryness here as well.
Pearson: So hold off on marketing any of your '13 crop --
Kohake: I would, yeah, I would hold off for the new crop stuff. I think we can get $6 plus yet but I think it's going to be early to mid-March once we get through February with the crop insurance numbers being figured.
Pearson: And it is probably going to be weather driving the corn market in this early part --
Kohake: Yeah, weather and how big or small South America's crop would shift demand to us if they do have a short crop.
Pearson: All right. Let's talk soybeans. It's been a huge market swing these past couple of days in soybeans. We saw it today, a 22 cent drop today. What is going on in soybeans? How did this report affect that market?
Kohake: Everybody has been long wheat, it's kind of been the bull market of the ags here the last few weeks, that and the meal market. And we've been trying to get through $15 all week long and haven't been able to do it. Surprisingly the report this morning domestically was bullish but Brazil came in a little bit larger on estimates there, flushed everybody out, broke stops, broke the moving averages and just ran everybody out of the market. The sentiment right now by the trade is that Brazil's larger crop estimates can make up for the smaller crop in Argentina. And what is where the bearishness came from.
Pearson: How much of the selling today in the past couple of days was emotional -- is this some gains we're going to take back as we have time to really soak in this report? Or are we going to be now trading down in that low to mid $14 range or even lower?
Kohake: I think the old crop is fine. I think it will be bought into. I think $13.44 is a good spot and down to even in the teens is even better support if we could get down there next week I would be long again. Exports have been still very, very stout for the beans, look for that to remain that way as we get further along into the harvest in South America. They are about 15% as of last week. But everybody was long. Funds sold about 11,000 contracts on Friday. And once we start breaking support moving averages got broke it was just a sell-a-thon.
Pearson: Snowball selling as the market descended.
Pearson: Now looking at what is coming out of South America, what is their delay in terms of from harvest to getting exports out the door of the country? Is there a significant time delay?
Kohake: There is a time delay, barges are backed up right now. China has moved some of their barges down there already in anticipation they can get it cheaper than us. But yeah there is delay. Transportation is still a major, major problem down there getting it to the port and then getting it moved out. The next thing we're probably going to see on the horizon is strikes coming out of South America. It seems like every year at harvest there is a port strike somewhere so I would start watching those rumors and see how that plays out. But I like the old crop, still buying it. New crop, just like the corn got slammed this week, we're down over 60 cents at one time on new crop beans. I'm holding off on it as well. Once we get through the February, March time period see if we can get part of this sell off back to sell into.
Pearson: And, again, weather is going to be the prime driver in new crop beans?
Kohake: Weather, acres as well -- are we going to get our 99 million acres or not or are we going to see a little bit of a shift yet?
Pearson: All right. Now as far as producers looking, we saw decent prices on new crop, your advice is really just stay out of the market until we get things settled.
Kohake: Yeah, I don't like this term level of prices. You get closer back to $6 in corn I would take a short-term sell there. You would retrace part of today's losses in beans halfway up you could play short-term sell there just to get through February. But I think once we get through February I think we'll see a rally to be able to sell into. There's just not much in February, historically it's kind of a dull month, easiest path is lower right now.
Pearson: Slow news, markets just selling. Let's talk cotton just real quickly. We've seen a couple decent weeks of jumps in the cotton market and then today we have, or this week we had the 30 cent sell off. What's going on in cotton?
Kohake: Broad-based selling caught up, we went on a nice rally too and saw some tech selling. I think you still buy the breaks in the old crop, July down around 80.60. I like that to stop close below 80 and I think we will remain supportive down there as long as the dollar doesn't get too hog wild above 81 or 82. But it takes the acreage game there, less acres and look for it to remain supportive.
Pearson: So fairly bullish fundamentals in cotton regardless of what China has got stocked away.
Pearson: All right. Things to keep an eye on there. As we look to livestock, similar story there, huge sell off across the board on livestock this week. Walk us through what is going on with live cattle.
Kohake: Technically just seeing the market melt down. Same as the grains, a lot of moving average being broke, a lot of tech selling off of that, support levels being broke. Cash market this week $1.25, that is I think going to be disappointing for next week. I think you still buy the breaks based off the supply side of the market especially in live cattle. I like April at $130.40 area and looking for a bounce back to $134. $134 is a 200 day moving average, I think you could see it bounce back up into there. But we're going to have to see the selling slow down in the feeder cattle market as well and the hogs and just build a base here and see some new money come back in.
Pearson: And new money coming in, we're looking at outside fund traders basically to get excited.
Kohake: Spec money gets spilled over from the equities at times but to me the cash market stabilize, hold in here, get some new demand to pick up and see a rally off of that.
Pearson: Now as we look longer, as we look through the summer and into the fall what are your thoughts on live cattle there with this tight supply situation?
Kohake: I'm still bullish there, especially if demand keeps up or better than where it is currently right now. I think you still see a $4 to $6 rally to sell into for the fall. But right now technically the market is very, very weak and it's just like the grains, we need a catalyst, some new demand, cash market to perk up and I think you would see some new money come in.
Pearson: And we talked about needing a catalyst not this week but the week before we had the cattle on feed report being traded and the news out of Japan, they're accepting older beef and that didn't seem to really be able to pull us forward. Is the Japan news longer term going to have --
Kohake: Longer term we'll be supportive on that but I think those reports, the two cattle reports plus Japan just show how tired and weak the market is technically. We've only got one day of spill over off of each report and if we're as bullish as those reports were that is very, very disappointing and I think that is what scared some money -- you get one day, get me out and I'll buy in two to get them later.
Pearson: So hopefully the market will digest it, we'll get some other catalysts going forward and we'll be --
Kohake: Yeah, I think so for sure. That is why I like the April a little more of a setback at $130.40.
Pearson: Let's talk feeder cattle. We had another sell off in feeder cattle this week as we have seen corn prices trade a little bit lower. What is going on in feeder cattle? Just spill over from --
Kohake: Spill over from broader based markets, tech selling, charts there are weaker than the live cattle charts are but we've seen the deferred contracts really get beat up this week as well with the lower corn trade. I just don't think there's another $1, $1.50 down in the feeders, just technicals, I think it will go down and re-test the recent lows, we're so close to it now why not and then start back up again. Longer term I think we're fine. We're just flushing everybody out right now and starting pretty much back over again.
Pearson: So as far as touching those lows timeframe wise, next couple of weeks re-testing those?
Kohake: Next week, I think so. I think demand or volume will be light again next week, news will be light again and easiest path will be lower starting off next week.
Pearson: Folks will be looking for reasons to get out and taking the prices. All right. Well, let's look at hogs. Same story in hogs. Walk us through the hog market.
Kohake: Seasonally this is a bearish time period for hogs. Bellies fell out of bed this week down over 20 cents at time and packer margins are weak right now and that spurred some long liquidation and some tech selling as well. I like being long hogs on this break myself. I like April at $85.40 and look for a run up back here on $87, 200 day moving averages up there, I think you just run up there, stall out and just see what happens with the other ags as well. But I think we're getting close to bottoming here and I would look to sell some puts or buy that April $85.40.
Pearson: And that's where we're probably going to bump into that resistance is up around that $ 87 level.
Kohake: $87 area, 200 days up in there.
Pearson: And you think we've probably got again, we'll be waiting probably through early summer to begin to see us testing those levels? Or is that more in the near term?
Kohake: I think the next two weeks or so, that area. I think we'll have a lot of this bearishness factored in with the better weather, with the packer margins being weak and I think that should be a factor and I think bellies should stabilize as well next week and just see a little bit of bottom picking come in. I think we're back putting new highs in just starting the week off lower, buy into it and then maybe retrace to $87 within two weeks.
Pearson: Recognize that this is a good time to enter that market.
Pearson: Real quick, Jamey, what are your thoughts on crude oil as we roll into the spring?
Kohake: I think the risk is to the down side. The only reason we've been supportive for the last two weeks roughly is because of RBOB being light on gas. We've had about four refineries shut down on the East Coast, a shortage of fuel on the West Coast and it's shot gas prices the highest ever of early February. I think crude gets back to $95.
Pearson: All right. Thank you so much, Jamey, appreciate you being here with us today. 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 explain why America's first major high speed railroad could be the end of the line for some California farmers. Until then, thanks for watching. I'm Mike Pearson. Have a great week.