Strong export demand and good planting weather dominated the trade this week leaving the market with mixed results on Friday. For the week, July wheat lost 22 cents, while the nearby corn contract moved a nickel lower. Soybeans were pushed higher on the news of Chinese orders as the July contract added 50 cents. The nearby meal contract followed suit with a gain of $22.40 per ton. In the softs, cotton lost ground for the third consecutive week as the July contract declined by $3.51 per hundred weight. In the dairy market, June Class III milk gained 52 cents, while the deferred contract put on 51 cents per hundred. Over in livestock, the August cattle contract lost $1.25. August feeders declined by 47 cents. And the July lean hog contract lost $1.53. In the financials, the Euro lost 7 basis points against the dollar. Crude oil gained $2.77 per barrel. Comex Gold fell back by $1.70 per ounce. And the Goldman Sachs Commodity Index gained a little more than 5 points to settle at 658.65.
Pearson: Here now to lend us his insight on these and other trends is our newest market analyst, Dan Hueber. Dan, thanks for joining us tonight.
Hueber: Absolutely. Thank you for having me here.
Pearson: Well, let's jump into the market. We saw wheat pull back quite a bit this week, down 21 cents on the nearby. Talk us through that a little bit. What is happening in the market?
Hueber: Well, realistically the wheat market peaked about two and a half weeks ago and has been in a pullback mode ever since. And so much of it is we just lost the story, the bull story at this point in time. If you go back two weeks ago we were, of course, talking about the drought in Kansas, Oklahoma, which is really still there although the weather forecasts do call for some moisture. But we know the damage has been done. I mean, the crops that have been destroyed there are not coming back. But also adding fuel to the fire was the whole turmoil going on in Ukraine. That is by no means settled but at least we're not seeing the riots in the streets and the bloodshed and what not. In fact, today I read Putin said, whoever is elected, the election is going to be all over this weekend, he is going to be more than willing to work with. So that has really settled that down. So you took away the bull story. And, like in any market, you need to feed that bull every day to continue it to move. You take the feed away and it's going to contract which is exactly what we've seen in the wheat market right now.
Pearson: And we're still looking at large global supplies on the wheat market?
Hueber: Absolutely. When you move outside of this country there had been a little bit of talk earlier this week that there was concerns about some dry conditions in the Volga area of Russia. Forecasts now call for some cooler and wetter temperatures there. Russia as a whole does look tremendous, I'm sorry, not Russia. Europe as a whole looks tremendous. Russia looks good. Ukraine even looks good. So outside of the borders of the United States there's very little concern about wheat production at this point. And I think that is really what has come back home to roost here in the wheat market in the last two weeks.
Pearson: So as we look, as producers take stock of what they've got, looking at this trend are we in now a sustained downward trend do you figure? Would this be a great time to maybe be making some sales? Or do you hold off and try to get a weather scare?
Hueber: Like any market we tend to ebb and flow. We'll get oversold and we'll get overbought. Right now I think we're probably nearing the point we're a little bit oversold, probably due for some type of a corrective rebound to the upside. So I would hold off on prices, hold off on sales at this point. I don't think it's unthinkable at all to see July futures work back towards the $7, $6.90 to $7 range. Maybe at that point would be an ideal time to catch up on sales if they're not done already.
Pearson: Alright. Well, now let's jump over to the corn market. Had some good weather throughout the Corn Belt, we saw some planters get rolling here in the last two weeks, we saw corn slide back a little bit this week. Was that pressure put on by planting or just spillover from wheat?
Hueber: A combination. Certainly the wheat pressure on the corn. Of course, you had beans on the other side that were probably pulling back the other way. But really here too we've talked this market up, we know the demand is significantly better than we thought three months ago, domestic usage and export demand combined. But on the same token you can only talk about that story for so long. We need something fresh to continue it up. We know planting still in Minnesota, the Dakotas, Wisconsin to a lesser extent, it's still behind normal. But the weather outlook has not been bad this week. We know there has been a lot of catch up and, again, just took away that bull story and the markets kind of fell back on their own weight. So realistically, comparatively corn has dropped about 10% in the last two weeks, wheat has dropped about 12% so they're not too far behind each other. But the grains have just been in a little bit of a sinking mode here right now.
Pearson: Alright. So, again, advice to producers as we're looking at that corn start emerging here in a lot of places through the Corn Belt, do you hold off on your sales and hope for a scare and a reason to feed the bull a little bit later this summer?
Hueber: I certainly would at this point. We have got the entire growing season ahead of us. There is bound to be some kind of a hiccup here or there. We know the demand side of it right now is probably going to keep us from completely collapsing, at least until the market feels very comfortable that we have a crop under our belts. We've gone from -- if we went back to January before the last, the final reports for last year, we had people thinking we were going to see a 2 billion bushel carryout. This year that has now been dwindled down to less than 1.2 billion bushels. So the necessity to produce a good crop this year is there. We have raised that risk parameter a little bit and until we, I think the market feels a little more comfortable, we can do that. We're not going to totally take this market to the down side.
Pearson: Alright. Well, now let's jump over to soybeans, the one commodity that was in the black this week. Just surprise at the continued export demand?
Hueber: Well, absolutely. The bean market surprises time and time again, probably less of a surprise on the old crop than the new crop, which has continued to rise as well. But on the old crop probably what shook the market a little bit this week was that China actually stepped into the meal market again. It looks like they probably purchased some meal out of South America. Granted they're not coming to this country. We produce or we had positive export sales again, I think we sold another 6 million bushels. It still takes us 49 million bushels above what has been projected. So we know we're going to have to import that many beans or see some cancellations come along. So it's more of a prove it to me at this point. We may have the numbers balanced out on paper but until we see that demand really stop that continues to push the front side of the market up. Now, granted, we didn't really hold the highs. We did poke into the highest level for a spot bean future since July of last year. But couldn't hold that for the weekend. And, sure, long weekend, might have created some profit-taking but on the same token it's pretty tough to sustain prices in these levels without something additional stimulating us. And we're kind of at that balance point right now that either we're going to need something friendly and new or there might be some money taken off the table here as well.
Pearson: Alright. So keep an eye open. We've got to feed that bull to keep these prices up there.
Pearson: Now, as we jump over on the livestock side, as we take a look at feeder cattle we saw a pretty substantial pull back, would have been a positive week were it not for Friday. What happened on Friday?
Hueber: You know, I think the long weekend had a lot to do with what happened in all the livestock markets but certainly in the feeder cattle market as we came into the end of the week. Here's we've had this historic, meteoric rise in all livestock markets and even with the feeder market you would think with the lower feed grains that we've seen this week would have stimulated them some. But, again, for all of these -- of course, cattle, hogs and feeders we have looked at almost a yearlong advance in these markets. The grains a good solid two to three month advance. And time, often times people just say enough is enough. The three-day weekend brings a lot of uncertainty in. Let's just take some of our money home and we'll look at something fresh again next week.
Pearson: Now, on the fundamental side as we're looking at fresh news on the cattle side, is there anything we're anticipating? Demand has been relatively strong for this time of year. Is there still room to the upside looking at the feeder cattle to get to that $200?
Hueber: I personally think the room to the upside is somewhat limited. Not that we're going to see prices reverse and collapse by any stretch of the imagination. It's going to take some time to rebuild herds. It's going to take some time to really correct the situation that is out there. But consumers are starting to shop around. You're definitely going to see price resistance at that meat counter at this point in time. Look at the lower cuts of meat, look over at the poultry markets and, again, all markets mature over time and I think we have a very mature market all across in the livestock sector at this point.
Pearson: Alright. Now, let's talk fat cattle again just briefly. We saw a little bit of a pull back there. We're still up in record territory. We've been hovering in record territory for some time. Do we anticipate this to continue for some time?
Hueber: You know, really I think very similar situation there. I think we could maintain the gains, maybe move into more of a trading range instead of a continually rising market. But that said, here too you're finding the resistance, I think we're starting to see the retail side of it back off a little bit and to continue to stimulate the growth -- now, granted, some of the things that are happening in the industry, if we're holding heifers back for breeding purposes, that type of thing, can create a short-term, smaller quantity of meat in the market. But ultimately the market realizes why that is happening, you can't sustain a market for any extended period of time just on those kinds of circumstances.
Pearson: The best cure for high prices, of course.
Hueber: Is high prices.
Pearson: That's right. Now, let's talk the hog market. We saw, again, a pull back again this week, still very strong. Hog market are we range bound?
Hueber: You know, the hog market really has been several weeks now in kind of a contraction mode, still not back to as low as we had traded a month ago where we had bounced off again. I think it's probably going to stabilize right in this area here as well, not that we have a tremendous amount of upside potential necessarily as we move out in to the summer, but could get, again, as you said, into more of a trading range. If you look at the June I think we got down to about $116 as a base. That could hold us well through the summer months and, of course, by the time we get out to fall we should start to see numbers kind of regroup again. We seem to be past the biggest devastation of the PED virus and we already know the industry has kind of met part of that by increasing the weights of the animals who are marketing. But nonetheless, just like cattle, you don't have a quick fix here. It's going to take some time to get these numbers rebuilt again.
Pearson: Alright. Well, Dan, really appreciate you taking the time to join us tonight.
Hueber: Most certainly. My pleasure to be here.
Pearson: That wraps up this edition of Market to Market. But Dan 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 next week when we'll explore how the transportation of electrical energy across state lines is gaining the attention of local farmers. Until then, thanks for watching. I'm Mike Pearson. Have a great week.