The running of the bulls continued on Wall Street for the rest of the week as the Dow settled at record highs in four of five sessions. Grain prices, on the other hand, declined. For the week May wheat lost 24 cents, while the nearby corn contract moved a nickel lower. Soybeans bucked the bearish trend this week as the May contract gained 28 cents. Nearby meal prices followed suit with an upward move of nearly $6 per ton. In the softs, cotton also traded higher as the May contract gained $1.48 per hundred weight. In the dairy market, March Class III milk advanced by 19 cents while the deferred contract moved to 5 cents higher. Over in livestock, April cattle lost $2.40, nearby feeders were off nearly $3.00 but the April lean hog contract posted a weekly gain of 90 cents. In the financials, the Euro lost 17 basis points against the dollar. Crude oil rose by $1.27 per barrel. Comex Gold advanced by $4.60 per ounce and the Goldman Sachs Commodity Index gained more than 5 points to settle at 647.90.
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: Thank you, Mike.
Pearson: We're glad to have you here. It's been a big week on the broader market, particularly in equities. Four days of record high closes on the Dow. Where is this going? What is driving this market?
Kohake: I think it's just a continuation of the Bernanke rally that we've seen in the last few years, print more money, less is more, companies now they've laid a lot of people off, record profits and earnings are big and rallying off of that.
Pearson: So from the market's perspective, was this better than expected jobs number kind of a mixed blessing as it might cause the Federal Reserve to begin thinking about pulling the quantitative easing sooner than expected?
Kohake: That was the talk early this morning this might be step one. Bernanke has not singled or signaled that at all that that is on the horizon. 2014 at least right now is still the talk of rates, slowdown on the easing side too. But with the housing numbers better I think it's got to be a baby step at least until we can at least maybe slow down hopefully by the end of the year with it and support ourselves.
Pearson: Okay, all right, so kind of transfer the bull market from running on quantitative easing to running on true strength in the market.
Kohake: Yeah, and we're probably going to see, you know, a sharp setback when that does happen but the market will be overdone, technically due for a setback. The reaction today with the outside markets was the dollar. It ran away hard initially, up 70 some points right off the bat and the bond market was down hard. But surprisingly that did not have a big influence with the raw commodities, it was just on its own for a change.
Pearson: Well, let's talk about the dollar a little bit more because that's been on a lot of people's radar recently especially in these past couple of weeks as we've seen it rally. Are we getting close to the level that we should be concerned about exports for the rest of the spring?
Kohake: I think we're getting close. I think $84, $85 or $82 and change right now but we're on roughly a three point rally. The Euro has sold off roughly 6 points. Italy has turned into a disaster with their presidential elections and the dollar has obviously traded the inverse. I think it's something to watch. It makes me nervous longer term but the grain markets, the metals, the energies have not really reflected at all in their pricing with the surging dollar.
Pearson: Well, let's talk about the grain markets. Let's start with wheat. We had a breakout day on Wednesday. We saw the wheat market sort of collapse on itself. Can you talk to us about what happened there?
Kohake: Yeah, we've had some decent moisture down south. I mean, it's not widespread hitting the whole plains but there has been moisture. The market has been in a broad sell off Chicago and Kansas City. And more rain in the forecast for this weekend. That forecast got confirmed as another leg lower. Dollar is rallying too. Exports, surprising though, were decent this week. There wasn't a big sell off there, not moving much wheat, it still looks good. We saw the monthly report today with the stocks. It was a tad bit bearish but not a huge surprise. We closed the week out okay but it's a weather market right now and the market needs to be sold into on rallies. I like July Chicago up around $7.30, new crop up around $7.50. If that weather would change back into a more warmer, drier scenario I think you have to sell rallies.
Pearson: So just keep an eye on the weather. For the producers out there, that is what is going to drive us here in the near term.
Kohake: Weather and exports, demand worldwide and hopefully we can stay competitive and, you know, get I think Egypt back in the market would be a major key. They have been quiet. Their financial situation is a disaster over there. Their currency is in a freefall and they've just pretty much been buying hand to mouth.
Pearson: And their currency in a freefall, the dollar on the rise, that's not going to help our producers.
Pearson: But hopefully eventually things will turn around and they'll become a buyer.
Kohake: Yeah, with our sell off hopefully the lower prices would offset some of that exchange rate increase.
Pearson: Peaks of interest and hopefully get some buyers on board. Well let's look at corn because corn followed suit on Wednesday. We saw a little bit of a sell off there in the corn markets, turned it around today. Where do you see corn going in the near term?
Kohake: I see it still range bound, Mike. $6.85 old crop May bottom side, $7.12, $715 top side. We did close about a $7 today this week so hopefully use $7 as support now and keep trucking right along next week. But the key here is just like the wheat market exports, they're terrible right now, they were terrible again on the weekly numbers this week. Ethanol backed off again this week. So I don't see corn doing a whole lot right now but staying in that range. Cycle lows do come into effect two weeks from now so I think we'll see one setback coming into that, technically back down maybe low $6.90 where we were early Friday morning. But if we can get some fresh exports going I think we can push through that top side at $7.15 and be able to go $7.30 area and keep the bull market in effect.
Pearson: Well, and you're talking about exports, we did have the supply and demand estimates come out today from USDA. Was there any big news there on the corn side, anything market moving?
Kohake: There wasn't. It was unchanged on the carry out. The trade was expecting a little bit of a bearish number so it was a little bit supportive. But it did close out the week very strong. Right now our prices are about $20 to $25 too high on the world market. And that is part of one factor why we're so slow on exports. The good thing is it is taking about 60 days to move grain out of South America so countries are still coming to us a little bit. If it wasn't for that we'd probably be trading 30, 40 cents lower. But we're still hanging in. Basis is strong. It is an inverted market. You want to sell off the May and farmer selling is very, very slow right now so I think the basis will stay very, very strong for producers.
Pearson: All right. Well, speaking of exports being slowed in Brazil, let's talk soybeans. Soybeans, the export news has been really supporting that market all spring. Where do you see beans headed?
Kohake: I'm still bullish. Old crop beans I still like the old crop, new crop spreads in both corn and in beans. Like you were saying the export number was good again this week. I like to see a little bit of a setback down around like $13.45 for May. That is roughly the 200 daily moving average and try to buy in off of that. But I think the old crop beans are fine. I look for a run up over $14 to be able to sell some more old crop physical into.
Pearson: All right. Now where do you see new crop headed?
Kohake: I like it too. I think you can sell $12.93, $12.98 area and sell again up around $13.15, hopefully get one of those sales done before the end of the month with the big acreage report. Like to get one sale ahead of that so there's not the big, big surprise. But I do like the supportiveness of the beans, carry out very, very tight, USDA probably won't go much lower below 100 so I think we're probably maxed out there. But very, very tight supplies and I look for beans to stay supported.
Pearson: Beans stay supportive, basis going to stay very solid probably throughout the summer until we --
Kohake: Commercials down south are saying they can't get a bushel bought. They're bringing beans in talking from Minnesota. There's very little bean movement across the entire Midwest.
Pearson: All right. So just keep an eye on the rallies, keep an eye on those price points --
Kohake: Yeah, I think you get, yeah, above $13 in the new crop and $14.20 in the old sell into it and re-own it later.
Pearson: All right. Let's look over at livestock. Again we saw a downward week in the cattle market. Talk to us about live cattle. What is the news there, USDA furloughing inspectors? Is the market taking that into consideration yet?
Kohake: It is. It is kind of sad. We get kind of turned around for a day, day and a half and it feels like, okay, we're going to retrace half, three quarters of the way maybe back to where we were then this nonsense comes out and wrecks the market and hangs over for three days and everybody is back depressed again. Hopefully we get that shaken out in here this week, we get back to trading some fundamentals next week. Packers look to be short bought for next week. Very, very small cash sale this week. I think you push the June back up around $126, I think that's about it, $127 maybe and we stall out there. The key is still going to be demand, export business, for it to pick up I think to be able to hold rallies yet right now.
Pearson: How does the export picture look worldwide, worldwide demand picture? Is it looking stronger? Are things trending in our direction? It's been a rough winter for beef producers.
Kohake: Yeah, I don't see it longer term being the factor it was the last two years where our exports just went through the roof with pork and in beef. I see a down tick. But if we can get the dollar back, you know, around $80 or so, $78 again I think we'll be okay. But just a lot of uncertainty. It seems like every time a couple years or so the beef market gets going, you get some type of outside news that just ruins it and we're trying to fight through this furlough stuff right now.
Pearson: And that is the down side news hanging on to the market right now.
Pearson: Well let's talk about feeder cattle. With the corn being range bound feeders are also pretty well range bound it seems, been on a bit of a slide.
Kohake: Been on a slide, they've been leading the sell off in the meat market, feeders break first and then the live cattle and the hogs go with it, it seems like pretty much every other day. I like the April up around $144, $146 to sell into short-term. We need the cash market to really perk up and hold for back to back weeks, not one good week and then we're back next week falling out of bed again. I think you saw rallies short-term. Hopefully we can hold these recent lows and spur some short covering. But we need some fresh demand there as well too with the cash market.
Pearson: Now how does the demand picture look on the feeder side? I mean, are we seeing guys -- what's going on there?
Kohake: It's tight still. I mean, we're the tightest since the 50s, feeder cattle supply wise, but that is built in the market. That's old news and everybody is trying to buy into it and a half dozen times getting flushed out and all that, the money game. So right now it's just kind of slow down in the meat market, fund money is left, Barclay's big hedge funds said they're done with ags pretty much, they were loaded up in corn and cattle and hogs, they got out. Goldman Sachs has liquidated a bunch. A couple of weeks ago the funds liquidated, two weeks ago, $4 billion in one week. So we're seeing a lot of outside influences besides just a cash market being range bound as well too, just the funds have gotten tired and they're getting out, they went to stocks.
Pearson: And they're going to stay out of commodities until we've got a good story for them, a good profit-making opportunity to bring them back in.
Kohake: Yeah, cheaper price is a reason why, they think the stock market has peaked out and they can get a return there and they say feeder cattle are cheap, it's beating the story up again tight supplies and do it all over.
Pearson: All right. Well let's talk about hogs. Hogs did have a bit of improvement this week. We saw about a 90 cent gain in the hog market. Where are things going from here?
Kohake: I think there could be one more slide down, not new lows but to maybe go back down a buck or so. We've been lower five out of the last six weeks so finally did see a little bit of short covering this week. The market got grossly oversold, it was a blood bath and finally midweek we got some short covering Thursday and traded two bucks higher and finished the week out okay on the nearby April. What we need is cash market to firm up, cutouts to firm up, the cutouts to go first and the board to follow it sharply higher but we need that to happen. Cutouts are at the lowest since last fall but one good thing about that though, the opposite side is broilers, they're the highest ever. So hopefully that can attract some demand and we can kind of pull ourselves out of here.
Pearson: Great, so things to keep an eye on as we look to the future in the livestock markets.
Kohake: Yeah, another two cent rally hopefully.
Pearson: Great. Thank you so much, Jamey, really 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. Now, before we go we'd like to remind you that many public television stations across the country are conducting their annual fundraising activities. So if you value the information and market analysis you receive each week on Market to Market, please contact your local PBS station to make a pledge. We appreciate your support. And until next time, thanks for watching. I'm Mike Pearson. Have a great week.