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Market Analysis: John Roach

posted on January 24, 2014


Grain markets traded modestly higher this week.  But that may because for celebration among wheat growers as their commodity had its first winning week since November.  For the week, March wheat gained 2 cents, while the nearby corn contract moved 6 cents higher.  Soybeans' time above $13.00 proved to be brief as the March contract settled with a weekly loss of 32 cents.  Soybean meal followed suit giving up $8.80 per ton.  In the softs, cotton continued its rally as the March contract advanced by more than 40 cents per hundred weight.  In the dairy market, Class III milk traded in record territory this week as the February contract gained 47 cents, while the deferred contract was unchanged.  Another big week over in livestock as the April cattle contract settled with a weekly gain of 80 cents.  March feeders advanced by more than $1.00.  And the April lean hog contract rallied more than $2.00.  In the financials, the Euro improved 15 basis points against the dollar.  Crude oil advanced by $2.00 per barrel.  Comex Gold gained $12.40 per ounce.  And the Goldman Sachs Commodity Index gained nearly 10 points to settle at 625.70.

Market Analysis: John Roach

Pearson: Here now to lend us his insight on these and other trends is our senior market analyst, John Roach.  John, welcome back.

Roach: Thanks, Mike.

Pearson: We talked at the start of the show about the selloff in the Dow these last two days of the week.  Give us a little insight into how that might have an effect on the commodity markets.

Roach: I think it might have an effect on a few different markets.  First of all, cotton, which has been strong because of relatively tight supplies except for the Chinese supplies.  Worried -- the worries that came into the stock market was that the Chinese economy might be slowing down and if the Chinese economy slows down that really has an impact quickly over into the cotton market.  So that might be the first one.  We have a sell signal in cotton going home on Friday.  So if you're needing to make some sales or thinking about making some sales this is probably a pretty good time to do that.  We really are interested in selling new crop cotton whenever we can get it back up over 80 cents.

Pearson: Alright, and we ended there, just a little above.  Now, let's take a look over at the wheat market.  We saw it hold steady this week, gained nearly a penny.  The question everybody is asking, is the bottom in, in the wheat market?  Are we finally competitive worldwide to see some export growth and some demand build back up?

Roach: Well, we're definitely competitive.  After several months here of being beaten in all the export business we're competitive there and we're seeing some business that is taking place.  The supplies on wheat worldwide and in the United States are really not all that burdensome.  We certainly had a very big crop.  But when you look at the ending stocks estimates they're not all that burdensome, particularly in the United States.  So there's room for this market to move higher if we can change the psychology a little bit.  In addition to that, winter wheat growing in this country has had some really cold weather to deal with, without very much snow cover here recently, the same thing in Russia where they have had less than normal snow cover and very cold temperatures.  So there's a couple of different things out here to give the wheat market a rally but we sure have had a hard time getting it going.

Pearson: Now, you mentioned the colder weather, the potential for winter kill both in the U.S. and Russia.  Have either of those things caused you to put a sell signal on any of the wheat contracts out there?

Roach: We really haven't been a seller of wheat since back in November around our last big rally we had and then the market just fell away from us and so we really haven't had what we thought was a decent selling opportunity although any day would have been a decent selling opportunity when you look back at the chart to see how much the price has declined.  So we think the market will give us some better opportunities than what we have right now.  We're hoping that these bottoms will hold and spur some rally from here.

Pearson: We might see a bit of a correction --

Roach: We sure hope so.  We still have the specs very heavily short in Chicago and so we're just hoping here that we'll see a short covering rally and maybe even a little bit of worry about crop size.

Pearson: Alright.  Well, now let's take a look over at the corn market.  We have seen corn hold above the place it popped to after the January report, $4.36 right now. Where does the old crop corn market go from here?

Roach: The old crop corn market is also coming into its own.  We're seeing good export sales in the sales report today.  And we have very few competitors in the world right now that have available supplies.  Most of the competitors have sold through their supplies or well into their supplies.   The South American crop is smaller because of smaller acreage and the shipping capacity there is going to be dedicated to soybeans rather than corn.  So we become the number one market here and we have started to see basis values over on the river reflecting that increased demand.  So we think that the corn market has made its wintertime low or is close to having made its wintertime low and we expect to see some recoveries into the spring as people start to focus out ahead.  The supplies this upcoming year, the demand is going to be very large and we're going to have to have record supplies in the world again this year in order to supply that demand.  So we think that the corn market will have some better days ahead and we're looking for some opportuni9ties to make sales on rallies.

Pearson: Alright.  And that being said, looking at the recent price movement, both old and new crop, you don't see any selling opportunities today?

Roach: No, not today.  We had a bounce up that we triggered a sell signal.  We're close if we get another surge back to being willing to make some sales.  We're not willing to make sales today.  We're going to wait for a little more of a bounce.

Pearson: Alright.  Well, now let's take a look at soybeans.  Flip side of the coin there.  We saw soybeans being a good market to watch all winter, kind of a Cinderella story, the past week really we saw it being to sell off. What are your thoughts on old crop soybeans?

Roach: Well, old crop soybeans have, in the United States, been getting the benefit of no soybeans available out of South America.  So we have been meeting the market's demand for the last several months.  But the South American crop, the Brazilian crop is in the process of being harvested.  There may be up to around 5% harvested.  That crop is making its way to the port.  That is going to become major competition to us as we look down the road in the next month to six weeks.  So we're hoping for one more surge back, one more rally back in the beans and at that point we're going to get real serious about cleaning out the bins unless you want to gamble on a weather problem on into the summer.  We just had a sell signal on beans a week ago today and so we were able to trigger some sales.  We've been able to trigger some sales.  So we've had opportunities but we think those opportunities are about ready to pass.  Even though we're more optimistic about corn we're less optimistic about beans.

Pearson: Certainly.  With the growing acreage in South America and the quality of the crop down there that makes sense.  Now, is this Chinese slowdown going to have a major impact on the bean market as we work through the rest of this year?

Roach: We don't know.  So far it's not.  So far although the Chinese were rumored to have cancelled a couple, three cargos, shifting it maybe to Brazil, export sales out today another strong week of export sales of soybeans.  The fact is if you look at the export sales numbers we really don't have any more beans to sell either.  But we keep seeing those numbers show up every week.  The demand still is there.  So those numbers may get shifted to another destination or we may just really eat down into our ending stocks.  So I don't want to really be bearish on old crop beans because of the tight supply.  I just think it's going to be very hard to get much -- one more rally and that's about it before we get a lot of competition out of South America.  I'm not sure whether the Chinese economy is going to have problems, cause us problems later in the year but at least at this juncture they have really not slowed down their buying.

Pearson: Alright.  Well, now let's take a look at livestock.  Over in the cattle market we saw the cattle on feed report come out today.  Anything in there that's going to spark the trade one way or the other come Monday?

Roach: Wasn't really -- there were no real surprises there.  It was pretty much in line with what everybody was looking for.  The numbers all came right in the middle of the range of estimates.  But the cattle market had a very strong week this week in the cash. The futures market kind of trailed off at the end.  We do have sell signals in cattle.  It may be an opportunity here to be starting to hedge some cattle forward or perhaps get some puts underneath of them.  But it's not because we're really afraid of the market.  We are concerned though when we see the stock market fall like this, that we've seen in the past couple of days because you can change people's attitudes just as you are trying to push this high priced beef out on the retail shelves.  So the consumer has not yet seen the highest price on beef and we don't know if that demand will taper off when they see that demand.  But certainly if the psychology of markets in general are starting to turn a little negative that could influence the consumer's buying decisions.

Pearson: Alright.  Now, you mentioned you've got sell signals on cattle.  Does that apply to feeders as well?  Is this a seller's market on the feeder cattle side?

Roach: The feeder cattle are also giving us sell signals.  If you're on that side of it, it may be an excellent opportunity to look at getting some price protection.

Pearson: Alright.  Well, now let's take a look at the hog market.  We have been faced with the PED, high feed costs in the past and then this week we saw the price jump a little over $2.00.  Where do you see the hog market headed?

Roach: We think in general the hog market moves higher.  But, again, we have got sell signals on the charts.  So we're up into price areas that if you're looking for prices to be putting some hedges on or getting some puts this is probably the right area to be looking.  But we're not negative the market.  We think price levels will be firm.  We think that we're really getting into some of the better supply periods here as we move forward.

Pearson: Alright.  Now, let's take a look over at the energy side.  We've had a lot of talk as we have endured this cold weather throughout the country, the polar vortex and so on.  As we watch crude oil prices, for instance, we have been bouncing in that $90 range.  Do you see crude moving one way or the other?  What is your expectation on crude oil?

Roach: Every time I hear the talk about the oil refining in this country and the amount that we're getting out of the various areas in this country they're all bigger numbers.  And so it would seem to be very hard to get energy prices, oil prices to rally very far when the supply is as adequate as we're seeing right now.  So no, I don't think we have a big up move in oil.  We have certainly had a big move in propane and in natural gas and that is another reason, let's shift back over to the livestock market, another reason to be a little bit afraid of these higher prices because the consumer has higher heating bills, maybe higher electric bills to pay too.  But in general energy prices we think will be, will stay relatively under control once we get through this weather situation.

Pearson: Once we get through -- all the folks out there watching in the Midwest with this high priced protein, excuse me, propane might see a little bit of a break?

Roach: We think so.  When we finally get some clearing in the weather, some warming in the weather.

Pearson: Alright, fingers crossed.  Thanks for being with us, John Roach.

Roach: Thanks, Mike.

Pearson: That wraps up this edition of Market to Market.  But John and I will continue our discussion and answer some of your questions in our Market Plus segment online.  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 continue our examination of efforts to improve water quality in Iowa.  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 John Roach live cattle markets Mike Pearson soybeans wheat