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Market Analysis: Jamey Kohake

posted on November 15, 2013


Market Analysis: Jamey Kohake

Pearson:  Here now to lend us his insights on these and other trends is one of our regular market analysts Jamey Kohake.  Jamey, welcome back.

Kohake:  Thank you Mike.

Pearson:  We have talked on the show a lot about corn so far so let's switch gears.  Let's talk about the stock market.  We are still hitting records in the equities.  Give us your thoughts on where that could go going forward.  
 
Kohake:  I am still actually a little bit bullish in a holding pattern yet right now despite putting in you know record highs over ten times this year. Really the issue with the stock market continue to push higher is with pension funds, 401k is where do you go?  You cash out there is really no other option right now for the large investor and so I think that is what is keeping it propped up.  

Pearson:  They can't all buy farm land.  

Kohake:  Right.  Exactly.

Pearson:  Now with regard to the equities is Janet Yellen placement as head of the FED, is that supportive going forward do you think?

Kohake:  Yes it is.  She pretty much said this week in her testimony to the banking committee that she is going to continue quantitative easing pretty much as far as the eye can see.  That is supportive to the stocks like you were saying and also to the metals market.  So, I think the breaks will be bought in their - into year end.

Pearson:  But it hasn't been incredibly supportive to commodities as of yet as we watch the wheat market continue to fall this week.  Tell us a little bit about where that could go here in the near term.

Kohake:  Yes.  You look at a daily chart it has been really, really ugly.  The lower prices have attracted some exports, nothing major to support the market.  We are actually at a market year low right now and the market is oversold.  So, I am not advising anyone to go ahead and add fresh shorts right now.  I would sell March Chicago up around $6.80 but we've got rolled supplies that are very ample right now.  Not a lot of wheat is being purchased from us.  The winter wheat crop is going in at a fantastic pace and quality.  Just a beautiful crop so far.  So, I think you saw rallies in wheat here short term.

Pearson:  For folks with their winter wheat crop in the ground as they look towards harvest next year forward selling?  Any price targets out there we should be looking for?

Kohake:  Yes, thirty cent rallies.  I would base it off the March Chicago same as KC but there is just no weather issues at all right now to, I think, to get into to sustain rally to push back above seven.  Australia’s crop is looking fine.  South America's crop is looking fine and -- get some type of catalyst I think you can continue to sell rallies right now.  

Pearson:  Sell rallies.  Sell rallies amidst a longer term down trend?

Kohake:  Right.  Let it rally $6.80 still March Chicago, you know run a stop over $7.00 but I think until you run into some situations especially Down Under usually gets some scares, South America you got to stay short right now.  

Pearson:  All right.  Well now let's take a look back at corn.  The big news that did come out today was the EPA sort of codified their stance that they are going to cut the RFS back next year from roughly $18 and change to $15 and change billion gallons.  We didn't see much effect on the market.  Talk to us about how that could have an impact through the rest of the year or if it will.

Kohake:  Yes it was pretty much priced into the market maybe moved a penny you know going to the close instead of two lower or three lower to four lower but not a big mover.  It was pretty much factored in.  I think the timing of it was terrible.  We got you know obviously a large crop, large carry out and we do it on a year like this where I think if they wanted to adjust it we could have done it last year, the year before when we didn't have a crop.  A shorter crop and supplies were tighter but it what it is.  The corn market looks very, very weak to me still.  I would be selling rallies here up against this week's highs and I would also be looking out into December 2014 crop and getting edged up out in there up around $4.90 if somehow we could get a rally up in there.  But same here is kind of -- there is just not a lot of fresh news, the crop seems to be getting bigger, look for the December crop report to be bearish as well, more than this month's and I look for the market kind of hover in the low fours.  I think four dollars does hold right now if demand stays where it is currently.  Exports were huge again this week and I look for them to stay supportive.  If they do stay up I think the $4.00 mark holds in check right now.  

Pearson:  Now with this price of corn as we are hovering in this low fours where does that put us on feed demand?  US DA put a big number out there for feed and residual use in their latest report.  With four dollar corn does the market think we could hit that number?

Kohake:  I think as of right now I think it could be you know ramped up a little bit from the USDA.  Obviously we are going to have a smaller hog herd, cattle supplies are tightest since the 50's, so I think maybe a little bit over done there but I think everybody is going to try to get as much bought for a price they can that are on the end user side.

Pearson:  Ok.  Now let's take a look over at soybeans.  We did have a nice little rally earlier in the week.  Settled a little over $13 for awhile and now we have been selling off.  Talk to us about what is happening in the soybean market.  

Kohake:  Yes, we saw a 60 sent rally roughly over the last two weeks.  We plowed through a 50 day, 100 day, 200 day moving averages and then saw a nice, nice rally back through the $13.00 mark.  But here late this week what we saw was basis levels starting to weaken on the soy meal side, the meal side.  We also saw margins in China from their - margins lighten up as well too and that spurred some profit taking.  We slammed through $13.00, slammed through the moving averages and now we're setting back on a 200 day starting out next week. I think beans are more range bound right now $12.75 up to $13.20 for the January contract.  Exports were right on the low end of the estimates this week but China was the big buyer again.  But I think today's sell off was a little bit over done, it was Friday, a lot of money on the table and I think we will start off down 30 next week.

Pearson:  You think we will probably start open flat?

Kohake:  Flat to maybe a little bit lower but I think this 200 day does provide a lot of support starting out next week.  The key will be demand here as well but just like corn I like getting hedged up out into the 14 November contract as well here too.  $11.90 will be a great spot.  I think we are going to see larger acreage next year and I think a lot of the fringe acres will be beans and I think guys need to get hedged up earlier than usual out on these new crop contracts.

Pearson:  Now is the market anticipating this export demand even though we saw low end of expectations today.  Are they expecting that to continue throughout the marketing year?

Kohake:  I think bean demand will stay very, very good up around the million area that we need every week to keep the market supported and I think that will be the big catalyst -- through the winter.  

Pearson:  So as long as we keep seeing those big numbers we can expect that $12.75 to $13.00 range?

Kohake:  Yes.  Exactly.

Pearson:  All bets are off if those were to fall apar.  

Kohake:  Yeah. It's a demand market right now for corn and in beans. The demand disappears, it could get ugly fast. We slammed through last week's lows before the USDA report.  

Pearson:  Let's look at the livestock markets. Again, we're still seeing some nice solid activity in the fat cattle market, up $1 this week right around $1.33. Where do you see us going in fat cattle, are packers paying up on the cash side?  

Kohake:  Packer demand right now is pretty weak, but if there is one market that a bull is looking for in ag, I think this is the only one, the cattle market. Supplies are tight. Feed lot supplies are tight. Imports are down. I think we rally into year end. You can play it two different ways. You can do both spreads buy like December you know sell an April or June against it. Sell some puts but I think the market stays supported and we retest the contract highs on pretty much all the contracts.  

Pearson:  We do have some pretty good carry in the fat cattle markets until the June contracts? Until mid-summer. How is the cash trade tracking? Where are we at seasonally with the cash trade?  

Kohake:  132, 133 this week, pretty much steady what the market has expected. You know, bulls are expecting 135, maybe 137 to come this winter. Obviously a wild blizzard would help out, but I think just fundamentals alone are supportive as well, too, to help out. Look at the placement number it, the last two months, the bull spreads indicate that that should work as well, too. I think there's more up side here in the cattle.  

Pearson:  Now, does that carry on to the feeder market? We're still seeing record high prices for feeder cattle. Do you expect that staying strong?  

Kohake:  I do. I'm a bull as well here, too, coming into year end. Supplies, like I said, are the tightest since the '50s, and I think the funds are going to continue to buy into the cattle.  

Pearson:  Now, we're currently in the mid-160s.  We have been there for a couple of months. How high can we go? How bullish are you?  

Kohake:  I'm thinking 68, 69 that area, get close to the 170 mark. I think we're going to try to make one more big push through the contract highs coming to year end.  

Pearson:  Advice to producers while we’re dealing with all this cash on the table in the cattle market.  

Kohake:  Right. I don't want the hedgers to get greedy and forget about their production, say, well, we’re going to new highs, forget about it. I think you still lock your margins in and if you have to reown later some calls or futures, do it that way. I'm still a margin guy on the hedge side and still like locking profits in.  

Pearson:  Are you looking to reown on paper, is there any targets during the down trend that folks should technically look to reown at?  

Kohake:  80 cents lower from where we closed today. I think you could start to sell puts. Get puts $2 to $4 out of the money and start that way. About 80 cents lower where we closed at today is some decent support.  

Pearson:  Okay. Let's take a look at the hog market. We're still selling off in hogs. Down another 2 and change this week. Where is this going?  

Kohake:  The hog market is getting oversold. I think there's more downside longer term for the nearby contracts but not exactly right here. I think we have a little bit of correction back to the upside and then start back down. We have seasonal weakness right now. Weights are up. Iowa/Minnesota weights are eight pounds higher roughly than where they were last year at this time. So that has spurred a lot of this long liquidation. Open interest was down by roughly 22,000 contracts over the last ten days. Funds are long. They're getting out. But that's just for the nearby contracts where I'm bearish at. You get into spring, summer you got this -- virus back out there. So, I am staying away from getting terribly short out into you know next summer by theses nearbys, I'm still bearish and selling rallies.  

Pearson:  But there's a possibility for a correction to the upside?  

Kohake:  Right.  Pearson:  How high?  

Kohake:  88 for December. I would sell some more or get short of December would pop backup into there. You can also look at bear spreads, the opposite what I said in cattle, sell nearby, buy the deferred playing the -- virus and the ample supplies for the nearbys.  

Pearson:  Now, as we take a look at the energy side, crude oil has continued to fall. We're down now to the mid-90s. Where is crude going?  

Kohake:  ¸I'm a little bit bearish here. We're in $93 to $96 range for the January contract. I think we'd be pushing lower if it wasn't for the products, especially R-Bob. R-Bob supplies on the East Coast are the tightest of the year right now. If it wasn't for that, we'd see more spillover weakness in the crude. But I think you can get down around 90 this winter, funds are long and come year end we could drop 2 to 4 bucks pretty quick.  

Pearson:  Jamey, thank you so much. 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. And be sure to join us next week when we'll examine the Obama Administration's plan to reduce the amount of ethanol in the nation's fuel supply. 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