Shortly after the shutdown ended, the Agriculture Department scrapped plans to release its October supply and demand estimates, opting instead to release an updated report in November. The trade shrugged off the girth of data and grain prices improved modestly. For the week, December wheat gained 14 cents, while the nearby corn contract moved 8 cents higher. Soybeans pulled out of their recent slump as the November contract settled Friday with a weekly gain of 25 cents. Nearby meal prices followed suit with an upward move of $6.70 per ton. In the softs, cotton moved slightly lower as the December contract declined by 26 cents per hundred weight. In the dairy market, November Class III milk lost 9 cents, while the December contract moved a nickel lower. Over in livestock, December cattle lost 45 cents. Nearby feeders declined by nearly $2.50. And the December lean hog contract posted a weekly gain of $1.45. In the financials, the Euro gained 12 basis points against the dollar. Crude oil lost $1.20 per barrel. Comex Gold advanced by $46 per ounce. And the Goldman Sachs Commodity Index gained just over 1 point to settle at 639.45.
Pearson: Here now to lend us his insight on these and other trends is one of our regular market analysts, Darin Newsom. Darin, welcome back.
Newsom: Thanks for having me back, Mike.
Pearson: You've got to be excited, the shutdown ended, you get your USDA reports back, Darin.
Newsom: Oh absolutely. You know me well. I can't hardly wait until we start getting all of those numbers. No, that's okay.
Pearson: What has been your impression of the markets as we've traded through this shutdown?
Newsom: I think it's been good for the markets. I think it has actually allowed us to see what the markets can do when there's not all this interference and when there's not all this noise interrupting things. We've seen real fundamentals instead of made up fundamentals moving things. We've seen things like harvest, actual yield reports, we've seen weather. We've seen traders coming in for whatever the reason might be. We've seen exports actually start to move things again. The markets have behaved how they probably could behave all the time if we just didn't have the reports coming in to muck things up every once in a while.
Pearson: Well and it sounds like it's going to be a while before we're back to all the reports so you might still have some time. But, speaking of exports, we did see exports moving wheat today, in fact, up 19 cents, a change on the day. What's going on in the wheat market?
Newsom: The wheat market has been showing some strength. Technically it turned the corner here a few weeks back. If we look at the spreads, and again the spreads are the best indicator of what is actually going on in the fundamentals, we've been seeing the carry whittled back, particularly in the old crop Dec-March winter wheat markets. So it was indicating to us that there was some activity being done. Well we start to get some of the confirmation with the numbers coming out now. The market seems to be on a bit of a roll. Now, the only problem is the news is just now catching up with what the market has already done. It's starting to move towards a bit of an overbought situation. It wouldn't surprise me, yes, we could have a little bit more push in the winter wheat market right now but at some point I think it's going to stabilize. I think it could top out short-term and then start to come back down, still longer term bullish though.
Pearson: So how should we be trading this market bearing in mind the longer term bullish --
Newsom: If we look at the spreads they're neutral at best, neutral to maybe a shade bearish. So if we get this rally and let's say we add another 10, 15, 20 cents we feed the market, we sell some of the new crop into it, certainly nothing wrong with that. I don't really want to hedge out into say the March or May contracts right now in winter wheat. The carry is just not strong enough. So if we're going to put hedges in place, wait for basis to appreciate just go in the December contract. Let's play this a little bit, let's use this rally to our advantage to get some crop sold.
Pearson: Major market movers in wheat to keep an eye on, still weather out of South America going to be the driver?
Newsom: I think the weather, particularly in Argentina, is certainly going to be one of the drivers and as we look forward to new crop, visiting with my brother today it was 70 degrees in central Kansas yesterday, it snowed today and it's supposed to be 70 degrees tomorrow. This isn't overly good for the crop that's just been seeded and particularly that that's starting to come up, just a real mix of weather at this point.
Pearson: Alright, so the market will be taking all that into consideration.
Newsom: Absolutely. July is going to start showing that concern as well.
Pearson: Alright. Well, let's take a look at soybeans. We did see a bit of a run up today or this week in beans. What changed?
Newsom: Nothing. Beans need to go up. Beans are probably one of the more bullish commodities out there. We had a buy signal, we got a long-term bullish signal on its monthly chart in August, we've got an inverted forward curve, in other words, the nearby contracts are higher priced than deferred contracts, indicating that the commercial side of the market just still doesn't know where it's going to get the supplies it needs to meet demand. This is a market that needs to go up. Now, the problem it has is all the other markets out there keep dragging it down, kind of putting a lid on the buying enthusiasm at this point. But I think, again, you take all of that away beans would probably be ready to run.
Pearson: How should farmers out there this week in the combine handle the beans coming off the ground?
Newsom: It's the tough question because you look, again, at the inverted market, the Nov-Jan, Jan-March, March-May, May-July and if you look at that Nov-Jan you say, okay, you've got to sell into this, you've got to unload everything and sell into this, but you've got to take the whole thing into account. I mean, we're talking all the way out through the July contract after the South American crop will probably already be in and if it's still inverted what it's saying is there's still a great deal of concern over lack of supplies, lack of global supplies. So I think you feed the market a little bit at a time, you don't necessarily get into a hurry selling this thing, you set a target, you sell a few here, sell a few there, keep doing it as the market wants to go higher, keep feeding this inverted market. You want to hold some back because we have not completely dealt with the tight situation coming out of '12-'13 and it doesn't look like it's going to improve that much, at least through the first half of the '13-'14 marketing year.
Pearson: Alright. Now, would this be a good situation for farmers -- I know storage is at a premium -- unload the physical, reown on paper? Is that a thought?
Newsom: You can't. The problem with reowning on standard futures contract is that only takes advantage of half the market, you're going to miss out on basis appreciation. So really the only way to capture both a gain in futures and basis is to hold the physical commodity.
Pearson: Alright, something to keep in mind when you're weighing what to put in your bin.
Pearson: Now, let's jump back to corn. I did jump right over that. Where do you see the corn market headed? We are now into harvest solidly, we're getting a good idea of yields. How is the market interpreting this?
Newsom: Well, the interesting thing is we throw out all the trash called USDA reports and corn has reverted back to its old characteristics of long timeframes of going nowhere. And it seems like it's perfectly comfortable doing that again. We've got a carry in the market. We've got a very solid carry in the market right now so what this is saying is put the corn in the bin, hedge it against the Dec. When the Dec-March widens out the carry and the Dec-March widens out roll it to March, roll it to May. Then look for an opportunity to sell as basis appreciates, the classic storage hedge. Corn doesn't really act like it wants to go anywhere right now. Now, maybe possibly this winter we get some changed signals in the corn market and maybe we start to see a bit more bullish outlook but for right now it's just one of those put it away, hedge against it, roll those hedges as needed out to the deferred contracts when the carry looks good and then wait for basis to appreciate. It's very, it's a pretty simple market to read at this point.
Pearson: And you talk about changed signals, or changing signals as we roll through winter. What possible signals could be out there? Do you think we're going to pick back up some of the export business we lost last year?
Newsom: It is possible because we've got a weak dollar right now, U.S. dollar index and I know a lot of the clips that we've just gone through is talking about the fiscal situation and all of that. Now, the dollar is trending down but it's a question of how long this is going to last. You know, the stock market is a question. And so if the dollar comes down and if other countries, if importing countries start to see this as an opportunity to start picking up some cheap U.S. corn and it looks like there's going to be plenty of cheap U.S. corn to pick up here over the coming months, that could certainly start to add to our export ledger. Right now I'm still a little doubtful that we're going to get back up to those demand levels that we saw a few years ago. There's still so many questions regarding feed demand, export demand and as of the last couple of weeks even ethanol demand is back on the table again. So we'll have to see how all this plays out. There's really nothing in the market saying corn is going to be bullish anytime soon. So we just have to sit back and play this old way of marketing, this old marketing technique.
Pearson: Now, you mentioned ethanol demand. We talked last year about the rumored EPA report cutting the RFS mandate. Have we heard anything more on that now that the government is back in session? Do we expect confirmation?
Newsom: I actually have not heard anything about it yet and the market has not acted like something is coming down the pike. I mean, we actually saw the Dec-March carry weaken a little bit this week, it's testing resistance to the 12 and a quarter cent level. It moves beyond that and what it would actually indicate is that we're seeing some more bullish, a little bit more bullish outlook coming into the market. So still not overly bullish but less bearish than it was before. So we've got to watch those spreads very closely. That will be a tip off if something is actually going to happen.
Pearson: Alright. The market will know.
Newsom: The market will tell us what's going on better than anything else we're going to see.
Pearson: Alright. Well, now let's take a look at cotton. Cotton has been a market that's been all over the board and it's been relatively stagnant the past couple of weeks. Talk to us about what is happening in cotton.
Newsom: Well, right now there's really nothing happening, as you pointed out, it has been stagnant. As with many of these commodities we have not seen the commercial buying coming in. It's sitting back. We've had some global events going on and that still didn't spark the interest, still didn't spark the buying interest. We saw a little bit of non-commercial short covering provide support over the last couple of weeks but that evaporated. So it just, very similar to corn, we seem to be in this holding pattern right now until the next big news item breaks, until one side or the other really steps in and says we're interested in this now or we're just really going to sell this and drive it down. So we have to wait to see who plays their hand next.
Pearson: And is the market anticipating China to be that player? They were the story all spring, they've been sitting on the sidelines. Are we waiting for them to jump back in?
Newsom: I think so. This week we did see that there was some economic numbers coming out of China, which most countries would die to have but everyone is saying these are bearish numbers coming out of China, and you never really know the accuracy. It's like any other country, you don't have any idea of the accuracy of these numbers. But I think that kind of tempered some of the buying interest that we'd seen over the last couple of weeks that possibly could have sparked a little bit of a rally. I think that kind of cooled that off a bit.
Pearson: Okay. Alright. Well, now let's take a look at livestock. Cattle market -- as we talk fat cattle, bit of a rally the past few weeks, this week we turned a corner. What is happening in the fat cattle trade?
Newsom: Biggest thing is seasonality, we're heading into say mid to late fall now, we've kind of crossed that mid point of fall and we're starting to look ahead towards winter. That is usually a more bearish time in the cattle market. We're not really seeing a great deal of buying coming in. The cash market is holding together but it's really not saying that we're going to push this thing a lot higher at this point. So it looks like to me that the whole thing may be a little bit tired, the live cattle market may be a little tired, it's had a nice rally and it could just be time for it to set back a bit.
Pearson: When we talk set back is there a range you think it could set back into or do you think we'll hold steady here in the --
Newsom: I'm not looking for a huge selloff because, again, I think the long-term outlook is still a bit more bullish as we head back towards the spring. So I don't think the market itself wants to come back too far. But certainly giving back 33, 50% of the previous rally if we look at the Dec contract or even the Feb off of its recent rally I think that's --
Pearson: It would put us into that $130 range.
Newsom: Yeah, possibly.
Pearson: Lose a buck or two bucks.
Pearson: Now, let's talk feeders. That has been the rocket ship. It has really had people enthralled the past month and this week, same story, we tapped out on Wednesday. What happened?
Newsom: The biggest thing in the feeder cattle and any type of market like this when you get a straight up move it leaves this vacuum underneath the market. So once you exhaust the buy orders there's nothing to fall back down to so you've got to come back a long ways to start to find buy orders again. Maybe the non-commercial side outdistanced itself from the cash market and so when you get that sort of gap then it has to fall back a bit. And so that seems to be where feeder cattle are right now. I'm not saying that they're bearish but it does seem like they're going to have to pull back to try to find some buy orders again.
Pearson: And the cash market has been staying exceptionally strong in feeder cattle. So bearing in mind that, how far back could we slide?
Newsom: I wouldn't look, I mean, the numbers could be large. We could be talking two or three bucks. But in the grand scheme of things giving back a third of the rally that we've seen really isn't all that large and you're absolutely right, cash market is strong, we've got a solid look at the futures, the futures spreads look like there's going to be plenty of support over the next couple of months. So, again, it's not something I think the market is all of a sudden going to turn bearish but I do think it needs to pull back to find some renewed buying interest.
Pearson: Now, folks in the feeder cattle industry, in the hog industry, as we're watching these stagnant corn numbers would this be a time to step in and maybe address some feed needs?
Newsom: I think so because at some point corn may try to follow soybeans because that ratio spread is going to get out of whack. Right now is the time when there's plenty of corn available and basis is relatively, basis has come down from where we were say a month or so ago, a month, six weeks ago. So if you want to start loading up and getting some corn on hand to feed over the winter, maybe into early spring certainly may not be a bad opportunity to do that.
Pearson: Alright, let's take a look at hogs. We saw a bit of a jump this week, $1.45 in the hog market and the hogs have been plagued with uncertainty throughout this government shutdown not having the USDA numbers. Now we're going to be getting those back. What's your thoughts on hogs?
Newsom: I still like the hog market. I mean, it's hard to say they're going to go a great deal higher because they've had such a stout rally. But unlike cattle and more like feeder cattle they do have the support of the commercial side of the market. The cash side still remains strong. So it looks like this market, if it does pull back a little because of the uncertainty or these "solving of the uncertainty" I still think they're going to remain well supported. So I don't look for a lot of downside in the hog market, I think it's going to stay relatively stable up at these prices until we see some sort of cash market change, some sort of longer term commercial outlook change.
Pearson: Is the PED, PERS virus still playing a part in the market's calculations for hogs?
Newsom: You know, I haven't heard as much about it. I think it came up a couple of weeks ago again. There was some chatter about it. Buy by and large it's not something that I've heard as much about. Doesn't mean that it's not going on because sometimes I miss out on a lot of that news. But I just haven't heard as much about it as I had in the past.
Pearson: Alright. Darin, one quick question before we let you go, crude going to continue to fall?
Newsom: It should. It's that time of year when crude oil comes down. The spreads have been a disaster, the Nov is losing all kinds of ground to the December, it just doesn't have any support right now.
Pearson: Alright. Thank you so much, Darin, appreciate you being with us.
Newsom: Thank you, Mike.
Pearson: That wraps up this edition of Market to Market. But Darin 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. And be sure to join us next week when we'll examine efforts to harvest America's first acknowledged crop of hemp in more than five decades. Until then, thanks for watching. I'm Mike Pearson. Have a great week.