Grain prices were mixed this week as strong demand supported wheat, while scattered showers and an improving weather outlook pressured corn. For the week, September wheat recovered most of last week’s losses with a gain of 10 cents, while the nearby corn contract moved 16 cents lower. Soybeans, however, revealed the full impact of improving weather as the September contract settled with a weekly loss of 63 cents. Nearby meal prices followed suit giving up nearly $20 per ton. In the softs, cotton traded in a sideways fashion as the December contract shed 14 cents per hundredweight. In the dairy market, September Class III milk declined by 15 cents while the October contract was unchanged. Over in livestock, October cattle lost $1.38. Nearby feeders advanced by $1. And the October lean hog contract posted a weekly loss of 85 cents. In the financials, the Euro gained 9 basis points against the dollar. Crude oil advanced by $2.25 per barrel. Comex Gold declined by $11 per ounce. And the Goldman Sachs Commodity Index gained more than 5 points to settle at 642.65.
Pearson: Here now to lend his insight on these and other trends is one of our regular market analysts, Jamey Kohake. Jamey, welcome back.
Kohake: Thank you, Mike.
Pearson: Let's get right into this, this week. As we take a look at the wheat market we did see a nice rebound this week. What was driving that? Primarily export news?
Kohake: The demand market is good right now for the wheat sector. There is also a lot of spread action versus corn, long wheat, short corn, that move to new highs for this move this week as well. But the bigger story in wheat has been with China. They have lost somewhere around roughly 20% of their crop. So there's all these expectations, forecasting going on that China will be a big importer of wheat. Also the seasonals have turned a little bit more bullish as well. We're pretty much done with the hard red winter harvest and seasonally we start to see a rebound then. But if I was going to pick one grain to get long on it would be wheat based off of demand. The wild card is going to be the U.S. dollar. You saw that tick there mid-week. I don't think the dollar hangs on long-term but it is something to watch out for. But I do like buying wheat on breaks. I would buy the $6.60 mark off the December Chicago contract.
Pearson: And hold for what sort of a high end do you see in the wheat market?
Kohake: I think $7.00 would be pushing it right now just because there's a lot of weakness in the other grain pits and I think it would be hard to really sustain a rally on wheat on its own right now.
Pearson: But it would be wise to get in there on a break, sell off when we get a rally, starts to get a little toppy?
Kohake: Yeah. Mm-hmm. But watch demand, it's all demand right now and the long-term picture does look pretty supportive.
Pearson: Now, when will we start seeing purchases from China to fulfill their 20% that they're down?
Kohake: I think it will start here soon, continue all the way through winter. It's a longer term picture and it's a bullish picture long-term and get the dollar to weaken up as well too, increase some new demand out of Egypt as well and we could really be having a nice wheat market, you know, this winter again.
Pearson: And things will have turned around from this last year when exports were a little light.
Kohake: Exports were light and we didn't attract any business at all worldwide.
Pearson: Alright, well maybe we'll see a change there. Now, as we take a look at the corn market we did see corn continue the sell off this week. Again, primarily driven by weather.
Kohake: Yeah, it's the same old news pretty much with corn and with beans. No threatening weather at all in the forecast, no reasons pretty much at all for the funds to start to cover their shorts. Funds are short roughly 120,000 contracts right now. And without a reason why, you know, for a new catalyst to get out the trend remains down. We do have a decent sized report coming out in ten days. I'm expecting a little bit of short covering late next week, maybe push it back to the $4.80s, $4.90 area but the rallies right now are going to be short-lived. It's all going to be short covering. I don't see a whole lot of new money coming in right now. I think it's probably early fall when that happens when we know more about acres, we know more about crop size. But the market looks to be right now just wanting to stretch the rubber band as far as possible and see what happens. And it looks like we're heading to $4.50 here soon.
Pearson: $4.50. So, now, from the producer's perspective, maybe they haven't sold all the bushels they were hoping to market this summer, best bet just to wait. I mean, do you think we'll end up seeing $4.50 as a floor? Might see a rebound depending on harvest?
Kohake: Yeah, I think we could. It would be the October time period I think when that would start, when we have some more factual basis or a better picture of do we have a 14 or 15 billion crop size? I think we're about a 13.7, 13.9 right now. But we need more I think before the bulls come back out and try to push this thing higher. But for producers look at the March. There is a little bit of carryout into March. If we can get a short-term bounce up to $5.00 in that I would take a short-term sell there as well. Also watch the red December, December '15 contract if you're a producer, get back up, you know, that $5.10 mark I would take a sell there. We broke the $5.00 mark here this week in the Dec '15 so it needs to be watched as well real closely.
Pearson: Now, as you mentioned, we've got the report on the 12th of this month. Any advice for producers as we get into that since it probably will be another risky report?
Kohake: It will be a market mover as usual. I would hold shorts. I don't like, you know, selling $4.60 right off the bat come Sunday night or Monday if that is the case. I would, you know, maybe hold off mid to late week to see if we can get some profit taking coming into the report and try to lay some more off then. But the market is oversold, the trend is down, there's nothing in the forecast to change the short-term picture right now. But I would hold off chasing this thing lower just based off technicals.
Pearson: Okay. Alright. Now, as we take a look at soybeans we've lost $1.10 on the board the past two weeks. Is this a downturn that -- can we see the bottom from where we're at today do you think?
Kohake: Well, it was an ugly trade today technically. We broke the spring lows, $11.85 and triggered some stops. Not a ton of stops but it did trigger that. It's the same picture here as in corn, just nothing on the horizon weather wise to attract any fresh money. And I think we'll get back to $12.00. A guy could sell into that here short-term. But it's the same thing with corn, a lot of uncertainty. I think we're going to get a decent play off beans with the acreage number being readjusted. We'll see in ten days. But here right now we stay below 85, techincals are bearish and it looks like we could be pushing towards $11.40. That is the double bottom low back in June of 2012. So that could be, you know, the longer term extension down too. But beans are obviously an August crop, a lot of uncertainty yet so we could see $12.40 area to sell back into. But we need a catalyst, we need some weather or the trend is down here with the corn market.
Pearson: Alright, now as we look at the demand picture for soybeans, we talked about that's been -- there's been a good story behind beans all year. What are you seeing demand wise, particularly from China and Asia at large? Does demand look strong for the rest of this year?
Kohake: It looks steady. China has been buying. I think they will buy more here on this break that we have seen. Same way with the corn, I think we will attract fresh export business down here at these levels. But the problem is there's just no new money coming in. It sidelined -- it's a low volume trade here the last few days at times and there's just nothing new at all to attract any short covering. The export business is mostly routine and the weather just has most of the money scared right now and sidelined or you're short and it's just kind of a lackluster trend is down and get out of the way pretty much.
Pearson: Alright, and we're looking cool and wet for the foreseeable future on the most recent forecast? Is that what you've seen?
Kohake: 10 to 15 day is below normal temps, normal rain so yeah, there's not anything out there besides this coming report a week from Monday, you know, that could shake the market up. The market is oversold and it would be a prime time to really start to flush some shorts out if there is a bullish number there.
Pearson: Alright. Now, one of the things -- has the trade started to consider the threat of an early frost? I've heard producers talking about that recently. Is that starting to weigh on the market's mind at all?
Kohake: It has not yet. I think that will come Labor Day time period when guys who might want to start to buy some calls, you know, lighten up some shorts maybe depending on what the forecast does look like. The crop is obviously late, especially the corn, so yeah, there is time out there to be able to get a fall rally yet off of weather.
Pearson: But knowing that there's not, for producers again, same question as in corn, maybe they don't have all the beans they'd like marketed. Knowing that $11.40 could be the next technical bottom would this be a selling opportunity?
Kohake: I think if you push back towards $12.00 area I would do something there. I think beans have more time, you know, than corn to really get nervous about, see a new forecast the next three or four days, if there's any heat at all in the picture. Funds are still long beans and so I think they will defend their positions a little bit better than what is going on in the corn market right now.
Pearson: Alright. Now let's take a look at the livestock market. We did see live cattle sell off a little bit this week on the Mercantile Exchange. And we've still seen the cash market holding steady at about $119. What does the future look like for fat cattle?
Kohake: Yeah, the $119 trade this week was disappointing. The asking price is up around $1.22 early on, the $119 did pull some money back out of the market. Show lists were big, weights are up, four pounds compared to last week, seven pounds compared to a year ago and a year ago the weights were a record. And so all that kind of overhanging the market. Boxes too are back to where they were back in February. And so that all kind of weighed on the market. The market did get a little bit oversold, we did see a little bit of technical balance late in the week. I don't see cattle doing a whole lot right now short-term. I think we're range bound at $124, $126 for the October contract, bounce back and forth in there. Longer term a little more bullish but here short-term I just don't see a whole lot happening.
Pearson: Just not a lot of upside and there's no real event on the horizon that could spark us to get a new surge in demand is there? I mean, there's nothing out there that the trade is watching to see if we can get these prices juiced.
Kohake: We could get some maybe a little bit more demand from Asia, Japan, something like that. But right now I think the more excitement is obviously in the feeder pits. They've been on a $10 rally and so the money a little bit has flowed over into there. But the cash market mainly just being steady, I don't see a whole lot happening right now in the cattle. Longer term I'm still bullish.
Pearson: Alright. Now, you mentioned feeders. Let's talk about that because feeders have been a compelling story for the past six weeks really, feeders have been on a tear.
Kohake: Even the last few months.
Pearson: Yeah, where do you see that headed?
Kohake: Longer term I'm still bullish feeders. I would not get long up in here. I would like to see November pull back around $155, $160 -- $155.60, $156 area to get long. But I think this is a longer term bullish story. We've had some decent rains down in northern Texas, you know, last 30, 45 days, they have been replenished in a lot of that area and the corn market obviously being the big factor there. But I like the feeders. I would buy breaks here short-term.
Pearson: And now if we keep, if this corn market does continue to fall, if we get down to the ranges you talked about, that $4.50 range, even sub that, how much upside does that give the feeder market knowing that cash fats are still at around $119?
Kohake: Yeah, I think the talk will be back to where we were before. There will be $160s running around in the newsletters and talk all over. But I think we'll need some demand to sustain it. But look to get long on a pull back, I don't like buying up here at $158, $159 area.
Pearson: Alright, just let it buy on a break as we get down as you mentioned $156, $155.60, down in that neck of the woods. Alright. Now, as we take a look at the hog market, that's another market that has been on a pretty nice run here the last couple of months. This week we saw a pull back. Where do you see hogs headed? Have we topped out on the hog market?
Kohake: I'm a little bit bearish on the hogs. I like selling the October up around $85.90. That's one of my more favorite trades right now. I don't see the cash market hanging in longer term. We did have a decent trade this week at times, cash looks to be mostly steady starting out next week but I don't think the cash holds in here longer term. I'd look to be selling rallies. One thing a hog producer does need to look out for are these deferred contracts out of the first and second quarter of next year. There's a lot of expansion talk with this cheaper corn market so don't fall asleep and just trade nearbys, watch these fall, spring contracts.
Pearson: Know your margins and if you can lock in a profit that far in advance take advantage of it.
Kohake: Take advantage of it and don't let this slip by on here with this corn market being shaky here probably for another three or four weeks.
Pearson: Now, how low do you see hogs getting looking at the supply-demand scenarios out there? What have you heard?
Kohake: I could see October slipping down around $80, $81 area. I know that a big move but a little bit bearish out into the nearby hogs here short-term. There's been some talk out of Chicago talking the $70s. I'm not that bearish yet. I'd like to see, you know, grain prices and the demand here this fall but selling rallies I think is a good idea here in the hogs short-term.
Pearson: Take advantage of it. Now, let’s talk a little bit about the dairy market. We've been, again, range bound as we look at milk prices. Where do you think milk is headed?
Kohake: I'm a little bit bearish here too, Mike. I like October milk up around $18.90. That is roughly the 100 day moving average, $18.80 area and I'd sell into that. We saw the June milk report this week, it was bearish but it looked to be factored into the market. So I would kind of toss that out the window right now and just go back to selling rallies here short-term.
Pearson: Sell the rallies and be prepared as you were saying earlier.
Pearson: Alright. Well, thank you so much for being with us, Jamey. Really appreciate you taking the time. That wraps up this edition of Market to Market. But we'll continue the discussion online and answer some of your questions in our Market Plus segment on our website. You'll find 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'll examine the government's latest numbers on agricultural trade. Until then, thanks for watching. I'm Mike Pearson. Have a great week.
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