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Market Analysis: Jamey Kohake

posted on September 27, 2013

A record crop, demand uncertainties and concerns over next week's quarterly stocks report moved the grain market slightly higher.  For the week, December wheat gained 37 cents, while the nearby corn contract moved 3 cents higher.  Despite positive weekly export numbers, anticipation of the quarterly stocks report moved the nearby soybean contract sideways with a gain of only a nickel.  Nearby meal prices posted a gain of $6.70 per ton.  In the softs, December cotton continued last week's rally and added $2.11 per hundred weight.  In the dairy market, October Class III milk lost 15 cents, while the November contract moved 4 cents higher.  Over in livestock, December cattle rallied $2.32 cents.  Nearby feeders rose $4.17.  And the December lean hog contract posted a weekly gain of $2.05.  In the financials, the Euro lost 3 basis points against the dollar.  Crude oil fell $5.34 per barrel.  Comex Gold gained $6.70 per ounce.  And the Goldman Sachs Commodity Index dropped almost 5 points to settle at 635.25.

Market Analysis: Jamey Kohake

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, Michael.

Pearson: We did see a down week on Wall Street.  Was this related more to Washington or was this a sell off from a little bit of excitement over the Fed last week?

Kohake: I think a little bit of both.  Like you're saying, we are back to pre-Fed levels in the equity markets.  There is a lot of uneasiness out there with the debt limit coming up next month.  The CR, continuing resolution fight ongoing right now.  And then, of course, I think the big one, the tapering.  The Feds did not taper at all last week, it looks like they may now be ready to in December.  But all that big rally with the Feds now we're taking it all back off.  Seasonally this is a bearish time of the year.  I like selling rallies.  I like selling the December S&P at 17.25, get a little bit of a balance to sell into.  We've also had a lot of fund liquidation.  It's end of the month, it's end of the quarter.  So just a very slow trade the last week and a lot of profit taking.

Pearson: Alright.  Well, let's take a look at the grains.  We are up this week on wheat, 30 some cents.  Is that going to continue or are we just following corn higher?

Kohake: I think wheat can separate itself here short-term.  Great week, like you're saying, saw an uptick in exports and that is going to be the key here longer term is the export number.  We've got a short crop down in Argentina with their early freeze.  Russia and China have a short crop as well.  China's wheat is at an all-time high so the expectations are a lot of wheat to be moving into China to support our market.  I think we push up towards $6.94.  We had a great close today above the 100 day moving average, that was at $6.78 area so I think we're looking right at $7.00.  The funds are short so this thing could get very, very explosive if we can keep the export number very, very high.

Pearson: And now one of the stories all summer in the wheat market has been the great global supply.  Has this Argentine freeze affected that in a big way?

Kohake: It could longer term and also the Russia/China situation as well where we're actually back competitive again on the world markets.  Just here a couple of weeks ago the talk was we need to sell off more, we're too high priced.  Now we're fine because China is at an all-time high pretty much.  We've got a very weak dollar as well based off the same situation with equities tapering, debt limit talk.

Pearson: So that $6.94 you think we'll hit it soon?

Kohake: I do.  I think we could be pushing upwards of $7.00.  We've got a report out Monday morning, stocks report, see how that plays out.  If it's supportive, yeah, I'm looking right at $7.00.

Pearson: Now, taking a look over at the corn market we do have some harvest reports beginning to come in.  By and large the reports seem to be a lot more favorable than farmers were anticipating.  Is that starting to filter into the market?

Kohake: It hasn't very much.  Like you were saying, the small sample that is coming in is pretty decent, better than I think what was expected based off the weather this summer.  But the key number for December has been $4.44, $4.45, those lows there, we're off to the races maybe $4.20 or $4.30 area but we can't seem to get through that off bearish news.  That signals to me maybe we need to see some profit taking, retrace a little bit higher and then come back down again.  I think the top side could be $4.70.  If we get something supportive Monday off the carryout number but I see this market more as range bound until we get about a third or 40% of the way through harvest once we know more information.

Pearson: Now, how should producers be playing this market because the American farmer has been very long all fall?  A lot of them don't have much sold.  How should they be protecting themselves rolling into harvest?

Kohake: Yeah, if you have on-farm storage I would fill the bins up and lock your doors shut until January, February and March.  There is carry from December out to March.  It's not exactly full carry but there is enough out there to pay some bills.  So I would store corn right now, look at forward price sometime the first quarter of next year.

Pearson: Alright.  Now, as we take a look over at the soybean markets we did see another little bit of an increase this week.  How are soybeans shaping up across the country?

Kohake: Very small sample done here as well.  I would say the yields here are more erratic.  I've heard some stuff out of eastern Iowa, kind of what was expected, pretty pathetic.  I've heard some stuff out west, very, very good.  I think 42, 41 is probably where the number is at right now based off the early numbers.  But beans have seen an 80 cent setback roughly.  Corn was on a 40 cent setback this week on some days.  But the funds were long.  Beans, they have liquidated based off this last shower, last rain we had about two weeks ago, a lot of talk that the last 20-30% of the beans are planted late, could actually be pretty decent and there was a lot of money pulled out on that.  I'm a little negative here short-term still just based off of we need more information.  We've got a report out Monday here too but I think this market could longer term maybe slide to $12.80, $12.90 for November.  That's where the 100 day and the 50 day moving averages are.  You could slide back down into there and you'll reload based off of how good or bad a harvest is.  But right now it's still range bound, we need more information.

Pearson: Now, you mentioned Monday's report a couple of times.  What is the trade anticipating to see in corn and beans come Monday?

Kohake: I'd like -- the trade would like to see right around 125 to maybe 135 area for beans, 675, 680 number for corn.  I think the numbers should be supportive but I think it will probably be short-lived and be right back to harvest progress.  Forecast looks great for next week, 70s, low 80s, clear window past Saturday afternoon to get started again.

Pearson: Alright.  Now, as we look longer term, you mentioned you're a little bit bearish short-term, as we look longer term we still do have a very tight domestic supply situation.  Is this another example of bin it until January, February, March?

Kohake: This is, in my opinion, completely different than corn.  There's no carry at all in the beans.  If I was combining beans, did not have them priced I'd take them straight to the elevator and sell them, look to reown them later with some option strategies or futures.  There's no incentive right now to store beans at all.  I would unload them.  If you've got to reown them do it later.

Pearson: Okay.  Now, we do have some big stories, we take a look over at the meats.  As we look at the fat cattle market we're up $2.00 this week, the cash trade is up again this week.  Where is fat cattle headed?

Kohake: Getting a little bit overdone technically but the market is still fundamentally strong.  I'm still bullish longer term.  It's been a very impressive, solid trade that we've seen.  I'd like to see December pull back to down around $130.50, $130 area, maybe try to get long there.  But I'm not chasing speculative longs up in here where they're at right now.  But yeah, the cash market is strong, fundamentals are strong and longer term I think you're still $2.00 higher by first quarter of next year.

Pearson: Choice box beef still staying high, consumers still willing to pay the prices being asked for beef?

Kohake: Yeah, demand is still there even with the feeder cattle market nuts here in the last three weeks.  Very, very impressive meat trade.

Pearson: Okay.  And that is going to continue.  Does the market think we're going to continue to see strong beef demand throughout the fall?

Kohake: I think so.  The way the numbers look right now feeder cattle are getting a little bit overdone there.  It has been a very, very impressive trade.  $6.00 we ran into 50 day, shot up straight like a rocket and haven't looked back since.  $6.00 rally like I was saying, would not chase it here either though for a couple of dollar setback to get long.  But it's a demand driven market, supplies are tight, fundamentals are strong, demand is good and I think there's still more upside longer term.

Pearson: Now, how long would you be long?  If we get that couple dollar setback say, talking feeders, say we get that set back where would you look to buy?  Mid --

Kohake: 63, 64 area, look for 66, 68, see what happens here too with the grain market.  Corn has helped out drastically with the feeder cattle market with the 40 cent setback there.  So see what happens here with harvest, you know, with the corn and how that could support the cattle as well too.

Pearson: And roll on through.  Now, what are we hearing as far as retention numbers as people try to regrow their herd now with lower corn prices?

Kohake: Yeah, we should see something next spring but this rally here right now is based off of what we had in the past where the feeder cattle numbers tied it since the 50s, guys down south lost pretty much their herd last spring with the weather and there's just nothing out there pretty much and the market is rallying off of that with the cheaper corn.

Pearson: Now, we've been talking about that for the whole year, really that's been the talk of the cattle market.  Fundamentally it should have been rallying really last December we all anticipated.  Why is it kicking into gear right now?  What is driving it today, this past two weeks?

Kohake: I think it is more corn and the cash market has really started to move as well too.  We kind of got caught here with some seasonal weakness in the fat cattle through the summer from last spring, July time period, seasonally kind of bearish, kicked that off to the side, get back to lower corn trade and we've seen money pour in there and it hasn't looked back.

Pearson: Now, as we continue to climb if we get up into that $1.68 territory is that still profitable for feedlots to feed $1.68 feeders and then try to market them even at $130, $132?

Kohake: $132 you could for Feb time period or $1.33 in change here this week but it's going to be tough too I think longer term depending on what corn does.  That is going to be the key, your inputs.  But this thing could get wild and I think it will.  It's going to be a fun play here through the winter months.

Pearson: Now, we're talking a lot about corn.  Is the market still anticipating a very large corn crop out of South America? I know we're looking a lot of beans, corn also increasing?

Kohake: Yeah, not as big as beans though.  Probably have a record amount of beans planted down there for this coming year and it will be a weather market down there as well.  The key here the corn market is going to be can we get 14 billion domestically?  And what happens with demand?  Is Mexico going to continue to be a big buyer?  Does South America overlap us here come period of March or not and see how that plays out.

Pearson: And then also the question of the RFS, renewable fuel standard, and what happens with ethanol going to be playing out over this next year.  Now, we did have a big report out today, quarterly hogs and pigs report.  The hog market has been on a roll most of this summer.  The trade was anticipating lower hog numbers.  Talk about where the report put us and what do you anticipate come Monday?

Kohake: Yeah, the report came in a little bit bearish looking for a softer opening Monday, 50 cents to $1.00 lower are the early calls right now.  The marketing number was the key there.  And hogs, like you're saying, at 52 week highs, been supportive off pretty much reiteration of news that we already knew about but the funds bought into it, the PED virus, Smithfield got their deal finalized this week and then some money ahead of the hog and pig report thinking it might be bullish.  Hogs are overdone up in here.  I think they could set back $2.00 to $4.00 just on fund liquidation.

Pearson: Back to the mid to low 80s --

Kohake: Yeah, 85.5 for the Christmas contract is where I would look to and I think this could be maybe the first stepping stone that the highs are in here short-term and the fund liquidation could start real slowly.  I would like to see the kill number pick up right around 435,000 a day right now, I'd like to see us get up around 450,000.

Pearson: And that would put us more in tune with historical slaughters or at least last year's.

Kohake: Yeah, around 1.2 plus, 1.2 million for a week but getting that back up into some decent areas, see some fund money pour out over a couple week's span I think you'd set back pretty quick.

Pearson: Now, as we look longer term we're seeing the hog herd increase rather quickly.  How low could the hog market go if the numbers come back quick?

Kohake: I think you could still see 7s in front of the hog number coming into spring.

Pearson: Alright.  Thank you so much, Jamey, appreciate you being with us today.

Kohake: Thank you.

Pearson: That wraps up this edition of Market to Market.  But Jamey and I will continue our discussion and answer some of your questions in our Market Plus segment on our website.  You'll also find audio podcasts and streaming video of our program as well as links to our Twitter feed and Facebook account exclusively at the Market to Market website.  Be sure to join us again next week when we'll examine the impact of the quarterly grain stocks report.  Until then, thanks for watching.  I'm Mike Pearson.  Have a great week.

Tags: agriculture analysis cattle commodity prices corn cotton dollar economy feeders gold Jamey Kohake live cattle markets Mike Pearson soybeans wheat