Pearson: Here now to lend us his insight on these and other trends is one of our regular market analysts Jamey Kohake. Jamie welcome back.
Kohake: Thanks Mike.
Pearson: The big piece of economic news out this week was the minutes from the Federal Reserve. Could you help us unpack that? How did that impact the trade this week in the outside markets?
Kohake: It spurred some profit taking. A lot of nervousness. The big talk that came out of that meeting is when is a tapering going to start. When we slow down the bond purchasing of 85 billion dollars a month and Bernake did not give out any clear signals or clear hints but a lot of speculation that it could be this fall. Even maybe closer to their August meeting. There is a meeting in June and then again in August. The S & P had a big down day reversal that day and lots of traders calling the highs are in. I am not there yet. I am not saying it is over with. Obviously the line in the sand now is 16.8- of the September contract, but I think we can come back up and retest it one more time and see what is up there. But is going to be a shaky market all summer and I think that 1700 dollar mark will spur some heavy profit taking again.
Pearson: And the market is pretty much going to be depending on what guidance the federal reserve offers it sounds like. That is going to be the determining feature.
Kohake: Yes of how much money would come out based off of that. Without it the market stays supportive like it has been the last several years and I am still thinking the trend is up and just - there will be shores flushed out of here soon.
Pearson: Well let's talk about how may have affected the other markets. We did see a price rise in gold. Was that directly related to potentially pulling back QE?
Kohake: A little bit of that. Also a spillover from the currency sector as well. Gold has seen some profit taking, some heavy selling. Specs are actually short gold now. I think we have to get about 14.90 August to really do any type of short covering to see any money flow in. Until then I am bearish until we get back above that mark. I think the market is just weak right now.
Pearson: And you mentioned currencies. We did see the dollar take a little bit of slide this week down from the lofty highs we were in last week. What is driving that?
Kohake: A lot of long liquidation. A lot of spread - versus the euro. The key number for the September dollar is 85. If we get above that I am really bearish raw commodities, grains, ags, metals everything. We slipped back a little bit this week like you were saying and back into more of a neutral zone right now. The euro as well is a nice trading range 130 topside to sell into and 128 is the bottom. So the euro looks to be a little better traders market right now.
Pearson: Well, let's take a look at the grains. As we mentioned we did have some good export news on wheat this week. Can you talk to us a little bit about how that is going to impact5 the market here this next week?
Kohake: Yes. China bought quite a bit of wheat this week and that did spur some short covering. I am still bearish wheat right now. There is no major weather concerns worldwide. There is no supply problems worldwide either. So, I am bearish looking to sell 775 December wheat. That is up close to some key moving averages and like to get it short up in there until we could run into some more dire situations somewhere weather or supply wise.
Pearson: Because as of right now we are looking at a fairly large world supply even if American production is curtailed.
Kohake: That is correct and also world prices are cheaper than ours are right now and so we need to, you know find that level where we can remain competitively longer term.
Pearson: And that level is going to be harder and harder to find if that dollar gets into that 85 range.
Kohake: Yes, exactly. That is why I think if the dollar would get above 85 it would turn the commodities very bearish.
Pearson: All right. Well, let's take a look at corn. We are continuing to see that inverse relationship on prices old crop versus new crop. We did have a bit of good new crop news again on the exports to China this week. Can you talk to us a little bit about what your thoughts are this summer on old crop and then what producers should be doing with their new crop?
Kohake: Old crop I think remains supportive down around 640. We keep banging this 660/665 mark and selling back up to 640 again. The 660 to 680 area roughly that is the gap area from the March USDA Report. We can't get it filled. We keep - up in there, coming right back down. I think July corn is fine longer term. We do have some tight supplies. There is very little farmer selling going on. So, I think that stays in that range of 640/680 area. I would be a seller at 675 to 680 if we would hit that.
Pearson: And now looking at - on the old crop again basis has been historically strong all summer. Is the market anticipating that to stay strong should producers continue to look for basis to carry the weight to get them up to that seven dollar range on old crop corn?
Kohake: I think they do here short term. We have seen that spread widen out up over a $1.30 area/$1.25 this week July versus December, and I think that remains very, very strong. I would add on down around $1.20 area and even down around closer to a buck just based off that tight basis and tight supply situation.
Pearson: All right. Well, let's take a look at new crop. What are your thoughts there? Where do you see a level of support for producers?
Kohake: Surprisingly the market is still very bearish. There are not pricing any weather premium at all in the market. They are still roughly 10 to 12 million acres yet to be planted up in the northern part of Iowa, North Dakota and the market does not seem concerned at all as we get near the prevent plant dates. I am a little bit bearish too yet. The market is trading below the 50 day, 100 day and the 200 day moving averages. Technically that is bearish. So, I am still selling into new crop. 550 is the mark that I would like to get up into and sell into. I have been using the 100 day as a stop. I am not going to stay married to my hedges all summer long. I think we will see a weather scare and could possibly push 570/580 but I am selling 550 right now until we get more weather.
Pearson: Now as far as indicators for producers the thing the market has been keeping an eye on these past few weeks has been crop progress. Now that we are roughly caught up with our five year average or close to it what are the events that folks should be keeping an eye out on to see what could affect the market? Are there any big reports coming up that people need to keep an eye out for?
Kohake: We will have our monthly supply and demand. That won't be that much of a move over for the new crop. The new crop will be weather and these last few acres. I think there could be possibly, you know a million to two million acres that may not get planted and the market does not seem to care about that nor has it yet to price it in. So, I think that is the big kicker right there is where does this - I mean how fast does this last 10 percent/15 percent get planted.
Pearson: So before the market is going to take that into effect we are going to have to get close to prevent plant dates for those northern - the northern tier of the states that haven't planted. Is that what is going to be the driver there if those acres do make a difference?
Kohake: Yes, I think that will be the driving factor. Can we push; you know 550 area or are we going back towards 5 bucks again if we can get you know most of it done next week or not.
Pearson: Ok. Well let's take a look at soybeans. Soybeans - old crop soybeans had a busy day yesterday on Thursday. Can you talk to us a little bit about what is happening in the old crop market with the tight supplies and the relatively strong demand we are seeing?
Kohake: Yes, it was a wild ride this week. A gut wrencher for guys that place spreads or even just play the outrights with the July contract. Spreads moved out July versus November $2.50 wide. Up 40/50 cents on Wednesday/Thursday and then collapsed back to even. Some wild news. Chinese crushers rumored to be caught short. Farmers selling and - very heavily at the $15 mark and the commercials obviously got hedged up there as well too.
Pearson: Now on the farmer selling at the cash sales that $15 mark seemed to be a psychological line in the sand for a lot of producers to get their beans to market. Is that going to hold going forward? Are we going to need to see that $15 level to keep getting beans out of the countryside do you think?
Kohake: I think we will need to keep pressing higher to pry the last few beans that could be lying around somewhere. I am not sure where the beans are. It is a dire situation for the crushers. I did think - I do think farmers did get a little bit surprised, the ones that may not pay a lot of attention to the basis or to pricing, just a week ago $1/$1.50 over futures and you go to price you know Thursday or Friday this week and it is off November now, November futures, not off the July. So kind of a big wake up call for some guys there but I do think they pry any more loose yes, they will have to be plus 15 coming into summer.
Pearson: So advice for producers with beans still in the bin hold on and wait and see if this strengthens?
Kohake: Yes, I would hold onto it. I would even wait to see what happens once we get into first - day with the July futures contract. I think that beans could wild then and give better pricing opportunity late, late June, first part of July.
Pearson: Ok. Now looking at new crop what are your thoughts there for producers?
Kohake: I am bearish new crop as well too. I would love to sell a 1280. That is the 200 day moving average. I would love to get up in there and get short. We are trading around 1250 right now but I think there is plenty of downside for the beans. I think we will see a few more acres. There is not big situation weather-wise in South America. There are some port strikes off and on that have supported the nearby July but the new crop nothing dire yet maybe some late planting. But I think you can get 1280 - 200 day moving average ought to be a seller you know look for some big profits.
Pearson: Last week we saw Informa come out with their acreage estimates and they were estimating 77 million in change acres in soybeans. Do you think as we get closer and closer to this prevent plant date that is going to climb? Are we going to see continued acreage over that 77 million do you think?
Kohake: I think we will end up 78/78 1/2 myself. As long as we stay wet for this coming week which looks like we probably will most areas I think planted. But I think there is up to 2 million acres of corn that may not get planted that will go to beans.
Pearson: That will go to beans. Well let's take a look at cotton. Cotton has been on a rollercoaster ride. We have been talking about the Chinese influence in that market with their buying and holding. This week we saw a two dollar slide. What is happening in cotton?
Kohake: China they are the same story like you are saying. They have been very quiet in the cotton market and that spurred some long liquidation. We have also seen some decent moisture moving down South especially into Texas cotton field areas and that has brought the market down. If December cotton would close consistently a couple days below 83, I think this thing could get uglier to the downside quick. And also have to worry about what we talked about earlier with the US Dollar Index how high that could shoot. But anything below 83 we bust out of the range and it looks ugly technically.
Pearson: Technically do you see a support level below that 83?
Kohake: I think you could get flushed down to that 81 area quick. Just cotton is a violent market, a no mercy market and I think it could get ugly.
Pearson: Be careful.
Pearson: If you are in trading in cotton. Well let's take a look at livestock. We have been on an interesting ride cash market versus future market in live cattle these past few weeks. Is that continuing? Are we still seeing that wide spread between cash and futures?
Kohake: We are. The cattle market is still the same old story pretty much since Christmas. It has just been a blood bath with the futures feeder cattle and the fats. The August feeder cattle carrying a huge premium to the index there. Saw a wild ride this week a couple two dollar a day moves and just a violent ride. But yes the live cattle we are trading you know nearby around 119, cash at 125. The question is are the spring lows in or is this a summer high? That is what I get asked pretty much all day long. I think the futures market is supported in this area 118/119. I am not looking to sell into it at all. I think if you are looking to get short like August you got to be up around 121 1/2 to 100 day moving average. I think the cash market comes on down even further and the futures stay flat and the merge up somewhere around 121 eventually. But I don't see any major relief at all for the cattlemen right now.
Pearson: This continuing until we get some significant demand in place or export news? What would it take to really pop this market out of these -
Kohake: Surprisingly the exports were decent this week and have been. Box beef record highs. We had big booking for this three day weekend. The problem is we have got cheap chicken. The trade is very, very nervous we are going to see that demand shift over there this summer and the demand will back off and that is what we are trying to price in at right now.
Pearson: Certainly people looking for a more affordable protein looking at chicken. Now as we look at live cattle are we going to see those same fundamentals carried over into feeders? Are they just going to be riding coattails here or are we still looking at primarily feed markets?
Kohake: A lot of spill over there here very short term. More will depend on here you know come late June/July with the corn market affecting the feeders. If you go back to the first part of January this feeder market has just been a bloodbath and I think we are getting a little bit over done and looking for some shortcut-. But I don't think we are going to see a 38 or 50 percent retrenchment yet right now. I think it is just a short term two to four cent bounce and we go more range bound short term.
Pearson: Range bound through the early part of the summer?
Kohake: The early part of the summer yes. Until we see what is going on with the corn crop.
Pearson: Ok. Now as we look - as we are talking about more affordable sources of protein we look at the pork market, they have been competitively prices compared to beef. Are we seeing that carry forward into the markets? Are we seeing producers being able to make any money in pork?
Kohake: Not any money right now pretty much at all for the pork guys. It has been pretty bloody there as well too. We got a record amount of stocks on hand we saw this week with the cold storage. We saw an early week rally and the cold storage slowed it down and pretty much eliminated new buying. Hogs, I think are more range bound. I think you buy the breaks. You get down around 80 for the October, get around 89/90 for the August, I think you take a shot at getting long or selling deep out of the money puts. But I wouldn't limit myself on any new spec money for the long side at current levels. Look for some little more hedge pressure off of the cold storage.
Pearson: Ok. And that is just - that is going to be a continual bearish factor all summer again until we get demand or export news to come back?
Kohake: A little bit of both, yes. I think the hogs are in a little more better shape then the beef market is right now. I think hogs are more range bound and the breaks be bought in a little bit heavier.
Pearson: Ok. Well let's take a look at crude oil with the little bit of a slide in the dollar, we did see a little bit a of a drop in the crude oil prices. Was that a direct linkage or are we looking more at a lessening of demand helping these crude oil prices fall a touch?
Kohake: Demand is backing of and we got ample supplies too with crude right now. I am bearish crude. I would like to sell July up around 98 if we could get a correction up into that area. But I think the energy market especially at the pump, I think is putting a short term high and we will see demand slow down and back these prices off a little bit. I don't think we are going 50 cents lower at the pump but I think short term the market has peaked and looking for some long liquidation.
Pearson: All right. Well, thank you so much Jamey. Appreciate you being here with us tonight.
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 web site. 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 web site. Be sure to join us again next week, when we’ll examine efforts to preserve America’s agricultural heritage by saving seed. So, until next time thanks for watching. I'm Mike Pearson. Have a great week.