Pearson: Here 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 Mike.
Pearson: It has been an interesting day on Wall Street as we have seen a number of stocks hitting year highs and record highs. Talk to us about what is going on in the equity market as we end 2013.
Kohake: Yes, we are finishing on obviously a big time bullish rally through this whole entire year. There has been nowhere else to go with any cash and so it has all been piled into the stock market. Since the tapering occurred up six days in a row and looks to continue into next year but I go back to there is nowhere for us to go with cash and the money keeps pouring in.
Pearson: So as long as the stock market it is the compelling investment of choice that is just going to keep it afloat.
Kohake: Yes, as long as interest rates stay low, CDs return nothing, checking accounts return nothing, commodities are very erratic and investors like the stock market to diversify a little bit more.
Pearson: Now as we take a look over at the commodities the wheat market has been a tough thing to cheerlead about for the past couple weeks. If you are a seller this week we saw another four and a half cent slide. Where is this wheat market headed?
Kohake: Selling did slow down finally but it has been a complete blood bath $.75 sell off. Roughly $6.75/$6.80 down to just shy of $6.01 this week. -- supplies have been the major factor. They have kind of dampened our exports at times but we did see a good number finally this week in the export a sheet. It didn't spur much short covering today but like you said it is a holiday time trade, not much going on. The market is oversold obviously right now. I am not adding additional shorts. I am looking for a correction like a 50 percent retracement up around $6.35 to maybe sell into them. But it is too over done right now for me to sell into. I am hoping the $6.00 mark holds and we will see some short covering coming into the new year.
Pearson: See if maybe if Monday's with this export news behind us can maybe get that -
Kohake: Some short coverings out.
Pearson: All right now as we look to the up side $6.30 was the number you were talking about?
Kohake: Thirty/thirty-five area. About roughly at 50 percent retracement.
Pearson: -- producers planning for harvest is this a good time to be making sales? Should you hold off? How is '14?
Kohake: I would hold off right now. If you haven't done any selling I would not chase the market right now. It is too over done for me and would wait for some type of correction. I think we will see some short covering. The big end of year crop report is January 10th, two weeks from today. So, I think we will see the funds lighten up a little bit coming into that report. Also, we have seen the U.S. dollar weaken up too. If we can get the dollar back below 80, I think that would even put some support under export number and hopefully spur some short covering.
Pearson: All right and get those export customers purchasing again. Now that is a story that has been talked about in corn particularly has China has been a buyer of U.S. corn and lately they have been turning away loads due to GMO contamination as they call it. Talk to us a little bit about how that is affecting the market sediment.
Kohake: It had some long liquidation in the market but we still haven't broke out a trading range that we have been in top side right at the 50 day moving average right around $4.38 for the March. Bottom side at $4.20. I think we continue to swing that range until the January crop report. We are going to see some fund rebalancing occur coming into the New Year. Rumors are right now about eighty thousand contracts will be bought. I don't think that is a big market mover but it is something to watch out for but here like wheat today corn had a huge export number. Didn't do much to the trade today but it continues to provide support on breaks. I still think the $4.20 mark holds right now. The $4.00 mark holds longer term as long as exports stay where they are at right now.
Pearson: Now as we take a look at new crop we have got a lot of guys as we enter the New Year beginning to take a look at their margins. How does the selling situation look for new crop corn?
Kohake: It doesn't look very good at all. A lot of red ink across the Northern Plains, big cash --. University of Illinois put a report out on Friday anywhere from a $30 to $50 per acre loss compared to $60 to $80 to $100 an acre gain the last couple of years that we have seen. The numbers that I like are $4.68 and $4.72. Those are some good keep pinnacle - numbers selling to. But those are numbers that work for most people but that is where I would be a seller at right now.
Pearson: Wait until we see a rally, touch one of those points and then maybe if you need to make some sales.
Kohake: Right start to nickel and dime with some future contracts and then hopefully cut your weather rally spring to lock more in.
Pearson: You bet. Now talk to us about soybeans. That has been a compelling story all fall and into the winter and we lost about $.17 this week.
Kohake: Yes, that was a big mover this week despite the holiday time trade $.20 ranges were pretty much the norm again. The big news here was DDGs getting rejected from China. They went from corn over into DDGs. Saw a big sell off in the meal that spilled over into the beans and spurred some long liquidation there. I think beans are still in a sell mode right now selling rallies for me. There is no major threatening weather down in South America. There are you know tips of Southern Brazil that are dry but the ten day forecast looks a little bit bearish to me that it came out today. So, I am trying to sell rallies out in here. Been looking for that to turn on lower here through January.
Pearson: And a rally you are going to be looking at that $13.20/13.30 mark?
Kohake: I like the 30/35 area to sell into.
Pearson: Ok. Now as we again take a look at new crop '14 how are things looking there?
Kohake: I think a guy has to be in a sell mode there as well. Numbers do look a tad bit better for some guys to sell the new crop beans. I think $11 beans you know futures minus the basis do work for some people and I like selling there 70s/up in the 80s somehow going to pop up in the market. But it is all pretty much South American weather right now. Exports are good here again this week but I think get your - numbers and be in the sell mode until South America turns a little more drastic weather-wise.
Pearson: All right. Things to keep in mind as we roll into 2014. As we take a look over on the livestock side looking at the cattle market we did have an interesting day in fat cattle. We touched an all time high for the most active contract touched $135 and change today. Where is this fat cattle market headed?
Koahke: Longer term I am still bullish out into early springtime. I think we could you know push high $130 cash. As on here is saying $139 and still stick by that. Yes, what a wild ride today. I mean cash was all over the place two dollars higher and 20 minutes later three dollars higher and then reports of four down in Texas higher. Just all over the place and had a good rally going. But I think you buy the breaks $133.10 in the Feb, $166.10/166.20 area for the feeders and look for a re-test of the old highs yet and new highs to hold.
Pearson: Now as we watch this cattle market intensify we are counting on tight supplies which we know we have. We are counting on the U.S. economy to continue to strengthen. Where does the export situation fit into that fat cattle market?
Kohake: It is still a very big chunk of the pie and we are going to be back in Asia again. So that should help out here you know get that ball back rolling and like you were saying tight supplies under playing everything.
Pearson: Now where in Asia - what has changed in the Asia situation?
Kohake: We are back negotiating with Japan again and hopefully get that export door open.
Pearson: Now as we take a look at the feeder cattle market we did see a little bit of a move up this week. How does the market look for feeder cattle?
Kohake: Looks great. I am still bullish here too as well and I don't see corn doing much. So, I think the feeders will stay supported off of that and look for a retest old highs to even new highs by sprint.
Pearson: So you are looking for the $169/170 as we get into spring?
Kohake: Yes, right now the August feeders are right around you know $169/170 area. I am targeting $174 area out into there, but if that were to occur I would be a pretty aggressive hedger.
Pearson: Now as we watch since we have seen a bit of a rally this week chances are we might see some technical selling here, at what level should we be looking at to make some purchases?
Kohake: I like the $166.10 area for the March is where I would be a buyer at a $1/$1.50 area set back somewhere in there to get long. Hopefully you can get some profit taking next week that finished a year out to see the market back up a little bit and try to reload then.
Pearson: All right. Now as we take a look at the hog market. We saw a bit of a sell off today but we did have the USDA Hogs and Pigs Report. Talk us a little bit about what we saw in that report.
Kohake: Yes, it wasn't a big huge surprise to me. Pretty much a one percent drop across the board. Early calls are 50 higher. I am not sure if that can hold or not. There hasn't been a whole lot of bullish news here lately for the hog market. Ample supplies here for the nearby. -- have really feel out bad and you know just seeing the market turning - lower. Seasonals are turning into a buy, so we will see some buying coming in off that but the market it a little bit oversold too on the daily charts. I am actually looking to pretty much exit the last few shorts on another break lower. If you are going to sell off next week start to back off shorts and sell some puts. I like selling the Feb 83 strike puts on a set back next week.
Pearson: Ok. Now in the report you said we were about a percent lower across the board. Is that really what the trade was anticipating as we watch this hog herd fluctuate with folks putting on more weight, growing the sow herd and then also dealing with the PED?
Kohake: Right and the support will come from the deferreds like you were saying that - with the PED virus. I think the trade will still be you buy the June, - the Julys, you know sell the April or Feb against it eventually. That will still be a pretty heavy spread to watch out for next year.
Pearson: Ok. So we are looking at buying in the 83, selling around -
Kohake: I like to sell them as puts 83 - Febs around a $1.20 and just you know looking for the Feb futures to hang around 85/87 area.
Pearson: Ok. Now let's take a look over at the crude market. A lot of folks crossed the country saw gasoline prices spike here heading into Christmas and again here in the past day or so as we talk R-Bob and crude what does the future look like?
Kohake: It is bullish here right now. Hundred dollar crude again on Friday at times, but the strength is really not in the crude market. It is spill over mostly from R-Bob. The amount in the gas market as been on fire. Very, very tight supplies out on the East Coast and that buying has spilled over into the crude market as well. I think crude can go 101/101.50. That is your next major area of resistance once we close above a 100 and I think short term there still is some more upside especially with the dollar being week.
Pearson: All right. So if we are consumers looks like we might have high gas prices for awhile.
Kohake: Yes. Here short term I don't see them back off at all.
Pearson: Jamey Kohake, 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 web site. 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 Web site.
And be sure to join us next week when we’ll examine the impact of drones on precision agriculture. Until then, thanks for watching. I’m Mike Pearson, wishing you a happy – and healthy – New Year.