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: We have got a lot to talk about today. There has been a lot of chatter both in the ag markets and in the broader markets and I think we will take a look at the broader markets first. As we look at the continued sell off in gold, give us your thoughts there. What should we be anticipating in the gold market?
Kohake: You are exactly right. It has been a wild ride. Forty dollar moves seem to be the norm the last week/week and a half. We did see a little bit of short covering mid-day today, closed the week off pretty decent, but it was mostly end of the month, end of the quarter, short covering get me out type trade. I think the market is completely over done. I think you could bounce the August up to $1300 and take some profits there. I would be trying to pick a bottom. But it is a wild market; I would use stops and be careful there is still all this uncertain area out there about QE3 tapering. You know are we going to scale back around Christmas time? Is it after that? It just still has these outside markets shook up. Bonds are another example as well. They have just been all over the place.
Pearson: What is the best way for people out there to negotiate in this era of uncertainty?
Kohake: With a hedge?
Kohake: Bonds. That would be the best hedge for producers. Hedge your interest rates. To have an ARM or wanting to lock something in. Get short in the bottom market.
Pearson: All right. Now let's take a look at crude oil. That is another market we have been trading pretty well in a set channel. Do you expect that to continue?
Kohake: I do. I think more range bound. I would take a shot at selling some naked calls if October got back to 98 area. Fundamentals are extremely bearish. Supplies are pretty ample right now. Demand is steady but nothing spectacular yet for summer driving season. So, yes I think rallies are going to be camped and if Oct goes to 98 I am going to sell some of those 106 calls.
Pearson: All right and now as we look at the dollar - it has been on the move recently. We have been moving up. Do you see that continuing?
Kohake: I don't. We've bounced at four points. I would sell the Labor Day Contract up around 84. I think it is turning more into -- bound type deal there as well. But a lot uncertainty in Europe still. I think they are close to another meltdown this fall maybe. So, the currency market will remain wild but I think here short term the dollar moves between you know 82/84 range back and forth.
Pearson: All right. Now let's get to the heart of what has been driving the ag markets today. What has been the talk of all the traders? We had the Quarterly Stocks Report and the Annual Acreage Report from USDA, the survey. Breakdown to us, help us unpack a little bit what was said in the Annual Acreage Survey and why was it suck a shocker particularly in corn.
Kohake: Yes, big movers there and in the new crop bean contract as well. The survey done June 1, I think a lot of surveys obviously weren't completed in time or didn't get calculated in but pretty much came in unchanged from March and lots of carnage. Wild ride took off 23/25 lower most of the session. Stocks number which has been the - the wild card the last couple years surprisingly was a little bit bullish and that supported the old crop beans especially, the July corn was supported off that too most of the day, but the acreage number was a surprise, you know guesses are running from two to three million less and it came in unchanged. And the big talk has been Northern Iowa, Southern Minnesota, Quad Cities area, how many acres are lost and guys up in there saying get out of the office, come drive around and obviously there is some rain but it was June 1.
Pearson: Right. Right. So, we did see changes from June 1 to today and those possibly weren't reflected in the report.
Kohake: Right and they have already, you know done a survey 14 states, said the beans are ready, I think the corn will be resurveyed as well, but 14 states as of right now will be resurveyed with the beans.
Pearson: All right. Now let's take a look at the wheat market. We did see a sell off this week both in the beans -- wheat contracts, excuse me. Talk to us a little bit about what we are seeing in wheat.
Kohake: Surprisingly we did see a decent export number but we're getting a lot of hedge pressure from Kansas City over into Chicago. I like selling rallies. If you get the Christmas contract back close to seven bucks, you sell into it. We're still a tad bit too high on the world market. So, I think we could correct a little bit lower yet. Especially get spillover from corn and press on lower, but I am a short term bear yet. I think we are still a little ways away from attracting a whole lot of new fresh business on a steady count.
Pearson: Is it going to take us to get through harvest before we start seeing prices tick up?
Kohake: Yes, a little bit. But I think more demand as well - the pop up. There's not any problems worldwide either with the weather. Weather seems pretty decent pretty much everywhere right now. A little bit of heat out west but nothing too much. Wheat is kind of trading tandem with corn right now. So, I think just new demand on the horizon would attract some shortcut room.
Pearson: All right. Well now let's crack into the corn here for a second. We're still seeing the September contract traded as new crop corn. Can you talk to us a little bit about what to expect with that as we look at the September contract?
Kohake: Yes, I was a little surprised that it pretty much traded right in tandem with Christmas new crop contract today. I think we are going to have a late harvest and very, very tight supplies coming in to obviously late August/early September. So, I would think you would see a lot of commercials, specs try to come in and try to spread that buy Sept and sell Dec, and I will be looking at that too next week as a trade. But here today it got partly lower with the new crop contract. July hung in very, very tight basis levels, you know we are trading over seven bucks on the river and I think that is here to stay. There is not much grain or wasn't much grain being sold at 680 and now we're trading with 660. So, I think we need to get closer to seven bucks with this front month July to send through delivery now to prices some grain lows.
Pearson: Basis is going to have to be carrying the weight as the board slides.
Kohake: Yes, that will pull it up higher. You got July to delivery, like I said, and you have got 720 cash and 660 in change futures. So, I think the futures got some room to run yet.
Pearson: Now as we look to the futures producers are out there watching this USDA Report, watching the 23/25 cent slide in corn, is - would the best advice be to wait and see if these numbers get revised? See if the market cools off and bounces back? Would this be a good time to look at buying in the Dec contract?
Kohake: Not ready to buy yet. Just because we had a really soft close today, not much action, coming in late in the day and bottom picking your - nothing like that. I am not hedging - initiating new sells down here around 515. This is where we were back in May and so we have kind of erased all of our losses or all of our gains during the last two months. I think you have got to correct it back up close to 560/570 yet. Even just where we came from, give them some time, lot of uncertainty yet, a lot of weather and like you were saying let's see if we can resurvey these northern states and see what happens then. But yes, I am not initiating any new hedges at 514.
Pearson: Right. Wait and see because we could have a weather scare yet this year. There could be a lot of things to boost new crop corn.
Kohake: Right. If you are short let's stay short you know hold hedges, but I wouldn't be coming in Sunday night and hedging the farm off.
Pearson: All right. Now as we look at the demand situation for corn, how are things looking for ethanol plants in particular as we mentioned earlier in the show and feed needs, what are we seeing there on the demand side?
Kohake: They are trying to buy as much as they can right now because I think they know we are probably going to see higher basis levels, firmer basis levels come August, late August. They are trying to purchase as much as possible now and I don't blame them. Tight supply is obviously you know being the key but I think it is here to stay but I think some of them will scale back, shut down in August, but producers need to watch these prices. They are awfully, awfully good sell prices if you have any corn laying around.
Pearson: All right. Now let's take a look at soybeans. We did see a slide again this week in new crop beans. Old crop bean as you mentioned earlier strong support after today's report. Talk to us a little bit about what we are seeing there.
Kohake: A lot of spread action just like we have seen in corn, and I still like the spread in beans August versus November. Tight supplies are tighter here then they are in corn and if you can find a good entry point there let's just spread into it.
Pearson: What sort of entry point should they be looking for?
Kohake: Oh, I think you get 20 cent correction, if you can get one; you buy into it from where we closed at today. But for the new crop contract for producers there, if you are short stay short until we get back above $13. The acreage numbers here are pretty much the same as March too and get back 1290s and initiate some new sales and just run a stop closes over 13. But down here where we are at right now I would wait for a bounce to sell into, same thing lots of weather, NAS doing their resurveys. A lot of this is factored in right now with this increase of acres and I think it would take a big surprise from NAS to shove it down to 12 or whatever. Trend is down here short term but just hold shorts and see what happens.
Pearson: All right. Now as we look at what the market is trading the 77.7 million acre figure that USDA came out with today, how did that compare to market expectations?
Kohake: There is a lot of analyst ranges running from 700 to over a million increase. But I thought that was a tad bit too high because I think some of the corn everybody thought was lost went straight to beans. It was too wet and went to prevent plant. But they were expecting kind of a bearish number there. The market did react bearishly but it was more off the anticipation that we were going to see a million increase.
Pearson: Ok. All right. So just keep an eye on the new crop. What levels again were you looking to buy?
Kohake: I like selling 1290s and running a stop close over 13. Hold shorts now until we get closed back above 13 as well. One last thing here on the new crop beans same with new crop corn, be looking at the red contracts, you know the November 14 and 1290 as well. In the Dec 14 up around 585/590 area. Short term those are a short play as well for hedgers.
Pearson: All right. Now let's take a quick look at cotton. We saw a big sell off last week and the sell off continued this week down 63 cents. What are we seeing in the cotton market? What is driving that?
Kohake: Very soft market. Firmer dollar. China is slowing down as well too. Their economy not near as strong so they are not buying as much cotton. I like selling December up around 87. If we get a bounce up into there. Plus there is no threatening weather down South. There is a forecast of rain across Texas this weekend. Just really no major heat. The heat dome, heat -- clear out West and just no major threatening concern yet and plus China's economy is soft.
Pearson: Ok. Now let's take a look at livestock. As we look at the live cattle number we have heard reports of Russia buying a lot of live cattle out of the West and the Northwest. We did see the market continue to improve this week on live cattle. Is that a trend that you expect to continue?
Kohake: I don't. I think it was a short term type deal. It was an impressive, you know four cent bounce but if you look at the volume we - it looked good until noon pretty much every day this week and then the market would fizzle out going into the close. It was more short covering. It wasn't guys getting long, funds getting long; it was kind of just get me out type trade. Cash came in light trade again here this afternoon again at 120, pretty much steady from last week. So, I like selling October up around 127 are if you can get back up into there. I would get short but it was a nice balance but it was short covering. It wasn't new money coming in off any new demand news. Nothing like that.
Pearson: All right and as we look at the feeder cattle market, talk to us a little bit about what we are seeing now in feeder cattle. We have seen another solid run up in feeder prices.
Kohake: Yes. Lower corn trade, higher feeders, five cent rally here lately that we have seen. I think it is going to depend on corn next week. I have got a short week - a short trading week coming up so watch the corn. But I think the corn would stall out, go sideways, 157 would be a good sell for November. You know look for just a two to three cent correction. But here short term next week depending on what corn does Sunday night/Monday if we are going to test five bucks or not there.
Pearson: Ok. That is the five dollar number is what producers should be watching therefore in corn.
Kohake: Yes, if we can hold together these lows from May or not I think will be the key next week. Hold 515 area and I think the cattle will stall out - you see some profit taking there.
Pearson: Now how do things looks on the demand side as we look at live cattle and therefore feeders, what are we seeing on demand for cattle? Is that starting to pick up at all with this warmer weather have you heard?
Kohake: It has a little bit and I think will increase even better but then you have the supply situation coming this fall with a little tighter numbers as well. I am just a little bit negative here on the front end and you get out into deep winter, I think they remain a little more supportive. But exports were decent, really decent this week for both pork and in beef. So, they are keeping up there worldwide.
Pearson: Ok. All right. Well, that is good new. Sort of a break we have been looking for in the cattle market producers have. Now let's take a look at hogs. The hog market again still sticking around a hundred dollars. We have had a nice little run up there. What are your thoughts in hogs?
Kohake: Toppy. They did have a late sell off today but it was mostly end of the quarter, end of the month type deal. But I think a guy; a trader needs to be looking at getting short soon up in these hogs. We had a nice rally based off discount futures being a discount index. That brought new spec money in and pushed the market higher. I don't see the cash market really surging much more and pulling the futures up. So, I am looking to see rallies here short term.
Pearson: Sell rallies as we approach. What sort of levels would you be selling?
Kohake: I like 88.50 for October even to sell calls - some 92/94 out into there, but we have seen a surge in the product and that is what really has been the key. July is in with 1.5 points of the index. So, I think that is enough and see some profit taking.
Pearson: Things to keep an eye out for. Thank you so much Jamey. That wraps up this edition of Market to Market but if you would like more information from Jamey on where these markets just maybe headed, visit our Market Plus page at our website. You will 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 again next week when we will examine the outlook for agricultural trade. Until then thanks for watching. I'm Mike Pearson have a great week.