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Market Analysis: Jamey Kohake

posted on March 14, 2014


Further unrest in Ukraine is driving some sales of wheat and corn.  But it is the growing concern over the world's number two economy that is eroding soybean prices.  For the week, May wheat gained 33 cents, while the nearby corn contract dipped 3 cents.  Fear of economic instability in China and its cancelled contracts with Brazil, plus continued weather concerns in South America, are creating a volatile soybean market.  The May contract fell almost 70 cents, while nearby meal traded down $13.80 per ton.  In the softs, cotton continued its upward trend as the May contract rose 92 cents per hundred weight.  In the dairy market, April Class III milk gained $1.16, while the deferred contract was up more than 50 cents per hundred weight higher.  Another bullish week in livestock as the April cattle contract was up $2.00, nearby feeders gained $3.77 and the PED Virus continued to pressure April lean hogs higher as it added $6.30 to last week's close setting another all-time contract record.  In the financials, the Euro gained nearly 4 basis points against the dollar, crude oil fell be $3.47 per barrel, Comex Gold had a huge gain of $42.40 per ounce and the Goldman Sachs Commodity Index declined almost 8 points to settle at 645.25.

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, Mike.

Pearson: Big week again in wheat as we continue to watch this situation with the Ukraine and Russia unfold.  Where is this market headed?

Kohake: I still think there's a little more upside in the wheat market.  But, like you're saying, this support right now is coming from Ukraine, their Crimea region especially.  They're only roughly about 5% planted right now and they're about completely halted.  Farmers can't get fuel and it's pretty much a standstill over there.  There's roughly 50 million bushel of wheat in that area that could be short now on the world market.  So we've seen that spill over into the U.S. markets and also we've seen in the southern wheat belt situations that look like the dirty '30's again, 30 to 40 mile an hour wind, a dust bowl down south this week and everybody was caught short, getting flushed out, the market is turning higher.  I like selling the new crop December up around $7.30.  This market has been a big rally, $1.30 roughly from the recent lows.  So I think you have to reward this rally with some sales.

Pearson: But you'd let it run another 25 cents or so before starting to make some sales?

Kohake: I think there is some more upside.  The big upcoming date this Sunday, there's a referendum vote in Ukraine, see what happens with that and there could be some fireworks Sunday night which I think would be bullish for wheat.  That should be laid into with some fresh sales.

Pearson: Now, if come that vote and the Crimea decides to side with Russia or stay with the Ukraine, whatever should happen, will that provide enough certainty for the market that we could see a selloff?

Kohake: I think it is short-lived myself.  I think we need more than just a little bit of unrest in the Ukraine right now or Crimea.  But I think you should be selling to a big, big rally.  Lost some uncertainty yet with our crop so there's plenty of time to re-own and get long.  But I think after $1.30 rally and this news that is already in the market is should be rewarded.

Pearson: Alright.  Well, now let's take a look at the corn market.  We saw corn rising last week on the back of the Ukraine conflict.  This week we didn't see a whole lot of movement, trading relatively sideways.  Is that trend going to continue?

Kohake: Short-term I think so.  Wheat has been the leader then that spilled over into corn real lightly at times but not much.  I'm a seller here in rallies too.  I like $4.90 December.  That's a 200 daily simple moving average and I think you get up in there you have to make sales before the big March 31st acreage report.  But same as old crop, $4.95 I think you have to lay some off for sure, or sell your last batch.  But corn has been a follower of wheat right now and with the normal growing season there's plenty of downside I think so I'm looking to get hedged up before the acreage report.

Pearson: Now, with this recent rally in corn and until this week the rally in soybeans, are traders, is the market expecting any significant change in the perspective planting report?  Are we seeing one buying acres from the other?

Kohake: Well, we've seen a rally in corn so I think we have bought some acres.  I'm right around 91.5, 92 million corn acres for the report.  We could see record bean acres, 82 area, maybe more up to 84.  But yeah, we have seen some acres being bought off this rally.  The only kind of nuisance there is, is guys have low risk tolerance, futures and/or options is pretty much the only play.  Basis levels are very, very wide right now and it's not in your advantage to sell into the basis, it's more lucrative to use futures or options.

Pearson: Alright.  Well, now let's move and look at the soybeans.  This week, tough week for soybean producers after that rally we saw last week and into this week.  Are we still on the downturn?

Kohake: Short-term I think there is some morel liquidation yet to be seen.  But the bean market has been all spreads this week, old crop versus new crop.  We saw it blow out up over $2.30 difference, $1.90 was a38% retracement.  I think we go on down $1.76 area, that's a 50% retracement.  But all of this just uncertainty with China, Brazil and China has already washed out on 20 cargos with Brazil, there's rumors that they might have washed out another 20 on top of that.  So a lot of uncertainty.  Brazil's crop seems to be getting smaller though.  But that seems to be in the market.  But a lot of spread action.  This week here as well with new crop I think you have to sell rallies here before the end of the month.  I like $11.90 to $12.00, same technical area up against a 200 daily moving average.  We have been teeter-tottering all week long, up one day, down below the next but that $11.90 to $12.00 I think is a great area to make some early sales.

Pearson: Get in there and take some cash off the table.

Kohake: Yeah. 

Pearson: Alright.  Well, now let's take a look over at the livestock market.  On the fat cattle side we saw another run up this week, another $2.00 in fat cattle.  Where is this support coming from?

Kohake: It's still demand outstripping supplies right now.  It was a little bit sluggish early in the week and we did catch a late rally here on Friday.  $1.50 cash created in Nebraska was a big stimulus but I'm in a hedge mode here as well but for the deferred cattle I did some August, October, December up near $138 to $140 on those.  I think the cash market could drop off $10 to $13 come early spring.  But nearby contracts I think are safe right now and look for it to play around the $146 to $148 area.

Pearson: Now, do you see the cash in the nearby, excuse me, in the deferreds dropping off just as demand begins to fall, as consumers react to these high prices?  What makes you a little more bearish long-term?

Kohake: Yeah, demand.  We've seen boxes rip just consistently $2.00, $2.50 a day the last two weeks.  I think we've already seen a little bit of resistance at the counters right now off of that and I think we'll have a little bit better supply situation too this fall.  But I just see boxes backing off, don't see this demand staying up here where it should be.  Weekly exports though were very, very good for cattle this week, the beef market, but I think that's a short-lived type trade too.

Pearson: Okay.  Well, now let's take a look at the feeder cattle market.  Even with this rally that we've seen in the corn we have seen feeders get stronger week over week, up another nearly $4.00 this week.

Kohake: Yeah.  Very, very impressive trade there.  I still like this longer term more than I do the live cattle just based on the supply side and also it's a normal grain season, corn trends lower, back near $4.00 maybe, that keeps feeders supported too.  I know this is quite a bit below the market but I like buying August where I spec play down around $173.50.  It's sharply lower but if you did see some liquidation coming a month in I would look to get long there.  But I think the feeders are fine and not doing much there right now at all.

Pearson: What have we heard on herd regrowth?  Does it look like this herd is growing as we see $3,000 bred heifers out there?  Is that enticing some folks to retain feeder cattle as breeding animals?

Kohake: We are but it's going to be slow and long.  It's not flip the switch on next spring and we're back to record herd size.  We're the smallest since the '50s yet right now and I think it's a two to four year deal.  I don't think we're going to be fine again next summer.

Pearson: Alright.  Well, now let's take a look at the hog market.  April lean hogs up another $6.30 this week.  All PED related?

Kohake: Mostly.  Same situation here as kind of the box beef trade.  We've seen the index over 33, 34 days in a row new highs, just consistently day after day after day.  News today down in Arizona now but it's overbought obviously.  We've been on a tear with no setback at all.  It's hard to judge this market obviously too.  I mean, $130 is a round number now.  I like to call the look left indicator, look at a chart and see what's left, there's nothing, roll open air so just draw out even numbers.

Pearson: And you're looking at $130 in the deferreds here over the summer months?

Kohake: June, it could be, that's just a round number just because there's nothing chart wise to go off of pretty much.  But exports were very soft this week for pork.  Beef was strong, pork was weak.  I don't know if that's a sign that rationing has started, will be starting, I think you'll just see back to back weeks in a row you'll see exports back off.  But it's the same situation as the beef market, it's going to be hard to sustain this demand up in here.  I know we've lost upwards of 5 million pigs maybe but the demand is the wild card and I'm not buying into it, I'm waiting on a setback to see what happens here eventually.

Pearson: Alright, Jamey, before we let you go, we saw crude oil take a little dip this week.  Where do you see that market headed?

Kohake: Still $1.00 down around $96 in May. We've seen a $7.00 setback here the last couple of weeks and look for more downside.  But this is a global kind of issue right now.  We've seen a stock market setback late this week, the S&P was on a 150 point rally, we had our 5-year anniversary this week of the bull run since Lehman collapsed.  But this all weakness from China spilling over into our markets.

Pearson: Alright.  Well, thank you so much, Jamey, appreciate you being with us.  That wraps up this edition of Market to Market.  But you can find expanded market analysis as well as streaming video of our program free at our website.  Now, we want to remind you that Market to Market may be airing in some different time slots and in some cases on different channels over the next few days due to PBS fundraising activities.  We encourage you to check your local listings for details.  And if you value programs like Market to Market, please consider making a pledge and investing in a service that provides you with accurate information and timely market analysis.  We do appreciate your support.  And until next time, thanks for watching.  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