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Market Analysis: Mark Gold

posted on May 2, 2014

Grain prices were mixed this week as the rally in wheat continued, while corn headed south. For the week, July wheat gained 8 cents, while the July corn contract moved 13 cents lower. Soybeans also were pressured as the July contract lost 23 cents. The nearby meal contract followed suit with a loss of $1.00 per ton. In the softs, cotton put together its third consecutive winning week as the July contract gained $1.07 per hundred weight. In the dairy market, May Class III milk gained 6 cents, while the deferred contract improved by 72 cents per hundred. Over in livestock, the record breaking rally continued again this week as the June cattle contract gained $1.28. August feeders improved by $5.70. But the June lean hog contract lost $2.30. In the financials, the Euro gained 4 basis points against the dollar, crude oil lost 84 cents per barrel, Comex Gold advanced by $2.10 per ounce, and the Goldman Sachs Commodity Index declined by more than 7 points to settle at 651.10.

Market Analysis: Mark Gold

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

Gold: Thanks, Mike. Nice to be here.

Pearson: It's a busy week to have you here. Let's get right into it. Let's take a look at the wheat market. We've had a lot of winter wheat tours going on this week. How is the market interpreting all of that?

Gold: Well, certainly on the friendly side. We've got 5 bushels less than a year ago in the Kansas wheat crop. We're looking at about a billion and a half total production on the wheat. So these are numbers that the market is taking pretty friendly. We're putting hard wheat over $8.00 a bushel and we've had a nice rally here. The question becomes, is it just a hard wheat problem? The soft wheat we're looking okay. They're going to get the soft wheat up in the northwest in the ground. It has been a little bit delayed but it looks like they'll get it in the ground now. And we've got some pretty good situations around the world in terms of the rest of the wheat market. So, is the hard wheat in itself going to stand alone and go do its thing and maybe move to significantly higher prices because of the drought? It's possible. They're talking about 95 and 100 degree temps moving into Oklahoma and Kansas next week. That could be the death nail for this crop. I've always been one to say you don't kill a wheat crop in March or April, you kill it in May, that's when you're going to have the real problem. And if we continue hot and dry then it's going to go from bad to really bad and we could see wheat prices really take off here. But, again, with the world situation being much better I don't know how long that will last.

Pearson: And seeing as it might just be a hard red situation, what should producers of the soft wheat be looking at? How do you plan for that eventual disconnect between the hard and the soft?

Gold: Well, I think, you know, if you know you're going to have a crop and you're looking pretty good out there, certainly we've had a nice rally in this wheat market, go ahead and make some sales into the new crop. If you're not sure exactly what you've got you can use put options to protect the downside. So you've got some marketing opportunities here in the wheat both in the hard and in the soft. I just, right now as a marketer I wouldn't get real aggressive selling the hard wheat until you know exactly what you've got out there. You don't want to get into the position of getting real aggressive on the sell side and not wind up with a crop, which is, again, where put options can be very helpful to you.

Pearson: Certainly. Producers in that situation where it's droughted, looking at 105 degree temperatures, that's going to be an ugly situation.

Gold: Very tough.

Pearson: Alright. Well, now let's take a look at the corn market. We did not see wheat pull corn higher this week. We saw corn on the downward slide. What's happening, both old and new crop?

Gold: You know, it's interesting we got prices up to $5.12 in December corn, backed it off almost 20 cents. What has been pushing the corn up has been good demand from overseas, no question about it, but also the delayed plantings. Now, yes, we're delayed but it's not like it was a year ago. Last year we were 5%, this year we're 19% planted, we've had some windows of opportunity. This next 6 days look like we've got a pretty good opportunity to get a lot of corn in the ground in a lot of spots. Iowa, Minnesota, Wisconsin still could be a little bit wet and a little bit chilly but the rest of the country is going to do a pretty good job and even I think most parts of Iowa. Iowa farmers, in my opinion, are not going to let 2 years go by with a lot of lost acres, I just don't see that happening. In any window they're going to be out there getting the job done. But I think when it's all said and done, we will get the crop in, we'll get the beans in and I think the market is sensing that here the last few days that the weather patterns are shifting and we will get the corn in the ground.

Pearson: Now, that being said, as we look to get this corn in the ground, even though it's potentially a smaller crop than last year, how should producers be sold on their new crop corn?

Gold: Well, certainly once you get the corn planted I think a pretty good marketing idea here is if you've got the corn in the ground as of today, we've had a nice rally from December corn, $4.30ish back up to $5.10, we're at $4.95 roughly right now, these are still not bad prices, certainly better than they were at the beginning of the year. So if you've got the corn in the ground I'd certainly look to be selling something here, 20%, 25% of your forward prices into the fall. I'd be having some put options on for maybe another third of that. If we get the corn in the ground nationally by June 1st I'd be buying some more puts. We're selling some more grain. And if we come in, in mid-July and we look at the longer-term forecast, if it looks like a fairly normal July out here I would be getting the rest of it done because if we, we haven't had a year in quite a long time where we have good weather in July for the corn. We proved last year even with late planting and no rain in the month of July we can still grow one large corn crop. Well, if we get rains in July this year, how big is this corn crop going to be? I believe it could be pretty big and push prices significantly lower than where they're at now.

Pearson: Alright. And we have heard talk of El Nino coming back into that timeframe, July and August --

Gold: And that should be a little bit helpful towards producing these crops, bringing some more normal rain patterns in, moderate temperatures. Moderate temperatures and good rain we're going to see a huge crop out there.

Pearson: Right. And a decent size drop in that December corn contract.

Gold: I would assume so, yeah.

Pearson: Well, now let's take a look at soybeans. On a bit of a roller coaster ride this week, particularly on Thursday where the market was down new crop 50 some cents throughout the day. What happened?

Gold: Well, it looks like people finally got the message that we're actually importing some beans into the U.S. easing some of that tightness and we are very tight in old crop beans. But the rumors haven't -- they started the week off with maybe 15 to 18 million coming into the U.S., then it got bumped up to 22, then 25, then 28 and these are numbers that change the dynamics of the market. And with the Chinese backing off and the cancellations, the Brazilian crop being raised a little bit out there and perhaps maybe a few corn acres going into beans, it takes a little bit of the heat out of that market. And, like you said, we had a 50 cent break, the old crop/new crop spreads broke 40 cents. That is significant action and it is happening in a time of the year where seasonally we expect to see the highs, we expected to see the highs this week in the grain markets, we saw it in corn, we saw it in beans, we saw it in wheat, we saw it in cattle, feeder cattle. So, I'm a little leery on these price rallies whether we can hold. This has generally been a good selling opportunity in a lot of commodity markets.

Pearson: And good selling opportunity on the new crop side as well? As you look at these Chinese cancellations, concerned in their economy, how sold should producers be on new crop beans?

Gold: Well, one of the things I always like to talk about is when we have a rally in old crop like we have and we put May beans almost $3.00 over the November, that increase in the old crop dragged the new crop up. I have yet to see it in a year where we have old crop drag new crop up, that that isn't a good marketing opportunity in the new crop. We have dragged the corn up to $5.00, we have dragged the beans up to $12.50, $12.25 in that range and this is a good marketing opportunity that guys need to take advantage of. If you believe there's higher prices and you want to sell some grain, you can buy a call option to keep that upside open. If you're not sure what you’re going to grow you can buy puts. Now, the puts aren't going to protect corn prices from $5.00 down to $.300 penny for penny. But if you can capture 60% or 70% of that with an option trade if we have a significant down move, that is protection enough to keep you in the game and to help your marketing. So, even though it's not penny for penny and the options are expensive, I still believe they're well worth the money out here.

Pearson: Some money is better than no money.

Gold: Absolutely.

Pearson: Now, let's take a look at the cattle market. We saw fat cattle run up again this week, cash trade staying relatively stable. Can this continue?

Gold: Well, the cash was actually up a buck from what I saw late here on Friday. Surprised me a little bit. We're starting to see some demand back off, a little bit at the retail counter and the restaurant level. The feeder cattle made all-time highs and explosive highs. They were limit up on Thursday. They traded limit up again on Friday but then traded lower on the day, some of the contracts actually closed lower on the day. That kind of volatility, particularly when you look at a feeder cattle chart, is certainly indicative of a high in a market. When you see this kind of volatility it's a pretty good sign. So, again, if I had cattle that were coming due any time in the next six months, would I be wanting to protect these huge prices, not only on the fats but the feeders as well? You bet I would. Now, these puts, again, aren't cheap but if you've got, if you don't have the ability to go out and sell or price anything into the fall you spend $3.50 on these puts, you're going to give up a couple of bucks on the strike place, spend $3.00, you're $5.00 away from the market. But if something turns this market on a dime, and at these kind of levels to come just halfway back from where we were, those puts could be very valuable insurance. The other side is you want to sell futures in here, well the guys that sold $180 feeder cattle futures, watch them to go $193 making these margin calls. Could we go to $200 or $210 in this feeder market? I wouldn't rule it out. There aren't a lot of numbers out there. But, again, we made the highs just when we should have. We saw the volatility just when we should have. I believe it's going to be pretty tough to take out Friday's highs. If we start doing that next week then we could have another big run up to $2.00 or higher.

Pearson: It is an exciting market to watch.

Gold: It certainly is.

Pearson: And I'm sure it is nerve-racking for a lot of producers.

Gold: It is.

Pearson: Now, let's talk hogs. We have been talking hogs, watching the PED virus week after week. This week and actually the last few weeks we have been seeing the market soften, hogs pull back, saw it again this week. Is that going to continue?

Gold: I believe we've taken these hogs to a pretty high level in here and we've got such a discrepancy between the front month prices and the back month prices, $30 roughly. And I just don't know if we can continue to pay these kind of prices for pork up front in the long run. It concerns me, I think the PED news has pretty much taken its toll. It is in the market. Unless we see another round of a lot of deaths, I think it's going to be tough. Now, do we have a handle on the PED virus completely? I'm not sure we do. So I think you've got to be very careful out there. But, again, these are prices well worth protecting and something that you've got to take a look at. One of the things in the cattle side that may be a little bit of a harbinger of the future, we talked about it before we went on the air, the largest hot dog chain in Chicago just sold out on Thursday. One of the largest steakhouses selling prime beef in Chicago just transferred their lease over to a new owner and they're going to put a seafood spot, seafood restaurant in that store. That is telling me that somebody, some people are very concerned about the profitability and the margins with beef at these high prices. And if we start turning it at that retail level, it could have ripple effects and this could be the harbinger of when maybe this all ends.

Pearson: Something to keep an eye on. Thank you for being with us tonight, Mark Gold.

Gold: Thanks, Mike.

Pearson: That wraps up this edition of Market to Market. But Mark and I will continue our discussion and answer more 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, Facebook page and the rest of our social media outlets exclusively at the Market to Market website. And be sure to join us again next week when we'll learn how an international team of scientists works to eradicate a disease that is decimating Africa's poultry population. 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 live cattle Mark Gold markets Mike Pearson soybeans wheat