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Market Analysis: John Roach

posted on June 6, 2014

Severe thunderstorms rolled through the heart of the Corn Belt on several occasions this week, especially Tuesday when Mother Nature pelted Nebraska with baseball sized hail, torrential rains and even a dust storm. Nevertheless, grain prices declined. For the week, July wheat lost 9 cents, while the nearby corn contract moved 7 cents lower. Old crop soybeans fell out of bed Thursday and the July contract settled with a weekly loss of 36 cents. Nearby meal prices followed suit giving up $12.60 per ton. In the softs, cotton also was pressured this week as the July contract lost nearly $1.50 per hundred weight. In the dairy market, June Class III milk gained 38 cents, while the deferred contract lost 27. It was another record-breaking week in livestock where the August cattle contract gained $2.70. August feeders settled above $200 Friday with a weekly gain of nearly $3.50. And the July lean hog contract bounced back from last week's decline with a weekly gain of $4.50. In the financials, the Euro was virtually unchanged against the dollar. Crude oil lost a nickel per barrel. Comex Gold advanced by $6.50 per ounce. And the Goldman Sachs Commodity Index lost nearly 2 points to settle at 647.80. 

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: It was an interesting week on the grain side. We had severe weather across most of the Heartland. We had rains coming down. Most of the corn is in. Let's talk about the wheat market to begin. We saw it continue to slide. Where are we headed here in this next week?

Roach: Wheat market slid a long ways over the past 30 days. When the rains finally started to come they stabilized the hard red winter crop, although some of it is not going to be worth combining at all, and continued to develop the soft red crop nicely and get spring wheat crop planted. So, we really made some improvements as far as the conditions are concerned. And the speculative buying that had been in the market started to leave and prices started to decline. Our cash bids are much above world price levels. So, we lost some export business. And maybe the last thing is that we're finally seeing the grain situation in Ukraine and Russia seem relatively normal in lieu of the uncertainty of that situation, having normal business occur was a real negative to the wheat market.

Pearson: Now, you mentioned America's cash grain wheat business bids are higher than most other countries. Is that indicative of us being able to use the U.S. grain crop in country? Or are we going to be kind of sitting on it a while?

Roach: We're going to be sitting on it. Wheat is a big export crop and we've got the competition from the Black Sea region where they've got improving crops, the ratings are all improving a little bit. We're moving into harvest. And so from a standpoint of competitive situation they're likely to undersell us as long as they have inventory and the capability to ship it.

Pearson: And the bottom line for producers out there, this lull in the market probably not a great selling opportunity. Do you hold off, wait for some weather scares?

Roach: Well, we have a weather scare. The decline has been a longer term decline over a period of several weeks and now on Friday wheat was the leader back to the upside putting in a real strong performance. As people look at the weather situation immediate and directly ahead of us, it looks like it's going to cause us some problems in getting the wheat harvest going in this country. So, we're back into the weather market again. Farmers prayed for rain for a long time and finally when they got it, it's coming at the wrong time and doing a lot of damage.

Pearson: So, good time to be making some sales? Or do you hold off and see where this leads us?

Roach: I think you have to wait a little bit. We have buy signals actually on the technical indicators we follow and we think the market can bounce back somewhat. But we're really not optimistic about a big move in the market. We just want to give it a little opportunity. We think that the selling that we've gone through has kind of been exhausted and we think that the market can stage some recovery. So, we'd have a little bit of patience right at the moment.

Pearson: Alright. Well, now let's talk corn a little bit. Corn market sliding on the old crop side a little bit, up slightly on new crop corn. Where is this market headed into this next week?

Roach: Again, the corn market has come under the same kind of pressure that the wheat market has come under, same kind of reasons. Speculative sales, liquidation. A pretty good movement of wheat on the part of farmers back a few weeks ago, they got the buyers kind of taken care of and then improving weather, the crop got planted and we're off to the best rated crop in quite a while. So we really have about all the negative things that you can bring to bear on corn. We also have buy signals in corn. We accumulated some feed over the last, actually over the last couple of weeks we've been picking off some feed purchases. We think at the moment in a corn market that is probably the person that ought to be most active is a person needing feed for the summer. We think farmers are going to be really tough and not willing to sell corn and expect prices to firm a little bit, particularly in the cash. We are concerned about new crop prospects and we'll be looking for sales opportunities but right at the moment we're just really kind of cautious here thinking we'll have better opportunities than what we have today.

Pearson: Alright. Now, you mentioned the new crop prospects and we've got a question from one of our Twitter followers, Tim in Crookston, Minnesota. And he is curious, how many acres do you think are going to be prevented plant in northern Minnesota, North Dakota, those northern areas that were really cold, really late?

Roach: We've seen some estimates that there's maybe as many as 4 million acres that are yet to be planted and we're getting late into the planting season so it's certainly possible that some of those acres will go prevent plant or get switched over to a different crop. So, it's still an uncertain question but one that is going to be getting answered by the end of the month when we see the June USDA planting intentions or planting report -- end of June planting report. We think it will be a little less than the 91.7 the government had in their March report. We think it could be 1 to maybe 2 million acres less than what they intended to plant in March.

Pearson: Now, in those 1 to 2 million acres, as we change gears to take a look at soybeans, and we talk prevent plant, acres shifting, are we going to see some of them shift into the soybean column do you think?

Roach: We think so. We think that the bean market, with the strength that we've seen during the planting season here, we're going to get a few more acres of beans, a few less acres of corn and it is concerning to us on soybeans actually.

Pearson: It's concerning and as we watch this week the market took a big slide there on Thursday, trended down through the week, where do you see this going?

Roach: Well, we think the soybean market is being held up by the extreme tight supplies of old crop inventory in this country. The U.S. stocks are going to be the tightest in many years before we combine that first field of soybeans this fall. So, we're going to have to ration that out with price, that's what we've been doing, we've had very high prices on beans. We've had the market come apart a little bit here the latter part of the week and so maybe we've reached price levels that are high enough. We certainly could import and we need to import more beans from Brazil in order to satisfy the kind of demand we think we have between now and the end of the crop year. But at the moment the numbers aren't quite right. We're just not moving that many beans in from Brazil. So, old crop beans are one animals. New crop beans are a different one. The new crop beans are going to be very much supplied this year. The acreage is large. The yield forecasts look excellent, the government is using a very strong yield. We expect the South Americans to plant a big crop this next fall, they just harvested a big crop. But we think the beans are going to go from a tight supply situation now to a very oversupplied situation next winter. So, we're most concerned about getting sales made in the new crop bean market on any kind of moves back to the upside. We think that's what the farmers need to focus on.

Pearson: Alright. Well, now let's take a look at the livestock market. Big moves there across the board. As we take a look at the fat cattle market, where it stands today, we're in record territory. Is this sustainable, to use a word that is in fashion today?

Roach: Well, record prices are never sustainable but they may go to bigger records before they become unable to hold.

Pearson: Where do you see us headed of those two choices?

Roach: I think at the moment the market is very strong. And most everybody understands the reason behind it, our herd is small and the problems we have with virus in the pork complex. And so we have tight supplies with an economy that is improving in this country and around the world. So, our exports are good, our domestic demand is good and we're actually driving prices maybe a little higher than we should if you'd just look at the number counts, because of the strong demand. So, everything is about as positive as you can make it. That is normally a good time to make sales. We have sell signals on corn, or on cattle. We have sell signals on hogs. And we think this is a spot here in this timeframe when a person normally needs to put on hedges and protect out into the future. So, we're suggesting livestock producers be cautious here from the standpoint of the market price. Take a look for profit opportunities where they can be satisfied. And look to hedge some of those cattle and hogs off.

Pearson: Alright. And now as we take a look to feeder prices, to dig in a little bit deeper as we did set a record, went north of $200 a hundred weight in feeder cattle this week, for folks with maybe some spring calves they'll be marketing in the fall, what is going to be the best way to make those sales if you're leery of perhaps an outright futures sale?

Roach: I think not to worry. I think that the feeder cattle market is going to stay strong really off into the future. I'm much less worried about the feeder cattle market as we look out forward. I just think the supplies are going to be tight, we're going to be pulling more heifer calves back into the herd and so I just think it's going to be a positive kind of a market and I'm not sure I'd be anxious to be into a hedging program on feeders. We're getting -- the green light is on. We have all the ingredients here to say these are prices that could top out a market but there's really no signal that that's happening and the supplies are just tight enough, I think, as we move through this year that we're going to, for most people that are going to be producing feeder cattle it's just going to be a good year for you.

Pearson: Alright. Now, let's take a look at hog prices. We've seen the World Pork Expo going on, a lot of PED discussion and we saw the market rally a little bit this week on hogs. Where are we coming around to? Are we hitting kind of an equilibrium here in the low $120s?

Roach: Well, price wise we've really pushed beyond where the fundamentals, some of the way people look at fundamentals would indicate that we're actually producing more pork at a higher price level and allowing packers a large margin at the same time. So, it doesn't really make sense if the pork is in such tight supply, how is it the packers can make good margins? So, there's still probably some more money that they can put into their bids if they choose to do that and it's really all because the demand side of this equation is better at these price levels than we thought it could be.

Pearson: Wow. It's an interesting time to be a livestock producer in America today.

Roach: Well, it's a very interesting time and at the same token we have a lot of producers out there that are having a very difficult time because they have the virus in the herd and they've had it and they don't know yet what the cause is and they don't know if they'll get it again. And so it's a disappointing time for others as well.

Pearson: You bet. Thanks for being with us, John, this week.

Roach: Thank you very much, 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, 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 examine efforts to preserve the history of the American farm. 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