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Market Analysis: Mark Gold

posted on August 8, 2014

Wheat prices rallied this week while corn traded sideways. For the week, September wheat gained nearly 15 cents, while the nearby corn contract moved fractionally lower. Old crop soybeans recovered from last week's loss as the September contract gained 40 cents. Nearby meal prices followed suit advancing by more than $12 per ton. In the softs, cotton snapped its losing streak as the December contract gained nearly a buck per hundred weight. In the dairy market, September Class III milk lost a nickel, while the deferred contract moved 16 cents lower. But the big story again this week was in the livestock sector where the October cattle contract moved limit down on Thursday and Friday to settle with a weekly loss of $6. Nearby feeders declined by more than $5. And the October lean hog contract lost $3.50. In the financials, the Euro lost 2 basis points against the dollar. Crude declined by 23 cents per barrel. Comex Gold gained $16 per ounce. And the Goldman Sachs Commodity Index moved fractionally higher to settle at 617.10.

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, nice to be here, Mike.

Pearson: Well, we're glad to have you. As we look at the situation in the wheat pits today, coming at the end of this week, how much of this is being driven by situations over in the Baltic and with Russia? 

Gold: Well, certainly the Russian situation is having some impact on the markets. But more than anything else it is the quality of the wheat in the European Union that has got everybody's attention. In particular Poland and Germany's wheat, seen a lot of wetness and it has really had an impact on their quality of the wheat. And a lot of people believe that a lot of that wheat will wind up being feed wheat. So, that has been giving us a push here in the U.S. for our export, potentially for our export market. And with the Russians some people are concerned that maybe the Ukrainian situation might kind of limit some of their exports. We don't think so. We really think this really has been about the quality issue more than anything else. And we have also gotten to the point where we're more than 90% harvested on our wheat. We're due for a bounce. We've gotten through the harvest pressure. The funds are short, which I think is a good sign for higher markets. And hopefully we can get some more short covering. Looks like we're trying to make a little bit of a low in here but we keep getting kind of dragged down by the corn a little bit. But I'm still a little bit hopeful that we can see some higher prices.

Pearson: And especially it looks like for higher protein wheat producers might see good marketing opportunities in the week, two weeks ahead? Would that be a correct timeframe?

Gold: Yeah, I think that's a reasonable timeframe. We'll see what the report says on Tuesday. But left on its own I think the wheat might have the rally first before the corn and the beans. We're still looking at some pretty big crops in terms of corn and beans. But having most of this harvest behind us now I still think there's a relatively good chance that wheat can try to be a little bit of an independent leader.

Pearson: Alright. Well, let's jump over to the corn pits. Corn relatively unchanged this week. Is the market just trying to digest what is coming as we look at the new crop?

Gold: Well, we made our lows Sunday night and we tried to rebound all week. We kind of drifted right back toward that $3.61 low on Friday, we got down I think it was $3.63, so within a couple of cents of that. Obviously we've had some good rains this past week all throughout the Midwest, Iowa, Illinois, southern Illinois, northern Illinois, Indiana, Tennessee, Kentucky all got good rains, which they needed. We've had a pretty dry July but again this year we had the cool temps which certainly helped. The crops I have seen from Iowa, Illinois, Indiana into Michigan look pretty darn good, maybe the best I have ever seen with the exception of Michigan, a little bit ragged in some points with the cold, wet weather they had earlier but they have come back pretty well. And the rest of the Midwest in my opinion looks awful strong.

Pearson: So, as we take a look at this tremendous crop that is going to be running through the combine here beginning in about a month, what is your advice to producers? How do you -- if we have put the low in, and we seem to have held it this week -- hold your breath and hope this thing climbs?

Gold: Well, I don't believe holding your breath is ever a great marketing opportunity in here. We still want guys to be proactive. We did buy back some call options a week ago on some of the grain that we have sold three or four months ago at great prices. We felt it was time now to try to ease back into more ownership again. But we still have puts on to protect the crop that we haven't sold. Now, people will say, well how can you be long calls and puts? Something has got to go wrong there. And the fact of the matter is we might see the rally in the short run on the calls, be able to take some opportunity out of that, make some more cash sales, liquidate some of those puts, maybe then catch the puts again on the downside. I don’t' think that this market has seen the bottom. I think we've got a potential that we built a lot of negativity into this market over the last two to three weeks. Everybody is looking for172 on the corn yield. I don't think the government number will be that big, maybe get a little bit of a bounce here. But I think when these combines roll and they start seeing 225, 250, 275 and in some places it'll be bigger than that, we're looking at an awful lot of grain and I think we're going to have maybe a little push up and then sometime harvest or post-harvest we'll be making some new lows in this market yet.

Pearson: Okay. Alright. That will be the true low when we get in there, see what the yields are reporting on the monitor. Let's jump over to the bean side. And, again, let's focus on new crop beans. That is the question out there today. Crops looking tremendous. How do you market in this environment where we're up 26 cents this week? What was the news? What caused that?

Gold: Well, most of that I believe was off of the old crop prices. We had some pretty good strength in this August and September contracts. The August contract has gained back about $1.20 of what it lost in the last several weeks to this market. It is actually at the highs it was at when we had the highs in these markets back in April and May. So, it has been really led by this old crop. The August beans go off the board next week, I think it's on Thursday. So, I don't know how much longer this will last and keep us pulled up but there could be a little bit more push in there. But when you look at this bean crop and you look at the number of pods that are potentially out there on these plants, we don't 'hear about anybody talking about BB sized beans. We're talking about pods well set out here and looking awful strong. When we start going through these crops I believe, again, the government won't show us how big this crop is right now, but I do believe bigger crops get bigger over time and ultimately we're going to see perhaps another 50 to 75 million bushels on top of what we're looking at now. We'll know that at the end of harvest and that is when I think we're going to make our ultimate lows.

Pearson: So, this $10.80 to $10.90 level that we're in today, would you be an active marketer in here?

Gold: I'd certainly be looking at some put options to protect the downside. They're not cheap but in my opinion they're still protecting what could still be a $2 to $3 risk in this bean market. We hope that the market goes higher and we can sell a $2 or $3 rally. But in the meantime we can't afford to look at this market and just say we're not going to do anything. And when you look at next year's crop, if you look at the 2015 corn/bean ratio on the new crop for '15 there's still an incentive to plant more beans next year. So, we want to stay ahead of this bean thing and be prepared for lower prices but still keep the upside open.

Pearson: Okay. Well, speaking of being prepared for lower prices, let's jump down and talk fat cattle. Two limit down days end of the week this week, Thursday and Friday. There's talk that it is tied into Russia but they're not much of a beef buyer.

Gold: No, It's going to have as much as an impact on pork and poultry as anything else. We're going to look at a situation, how much of that is really going to affect our markets? I think as we get more protein available to our market, whether it is pork or poultry, that is going to put a little bit of a pressure on the cattle prices out there. We're starting to see I think some of the end retailers shifting some of their practices to make the beef prices a little bit more palatable. I don't know if that's going to stick well with the American consumer. But the other thing besides this Russian deal that is affecting beef prices, in my opinion, is the stock market. I know the last time I was on we talked about watching that stock market. If the stock market was to give it up I found it hard to believe that the cattle prices would stay high as well. We've seen almost an 800 point drop in the Dow Jones. We had 180 point rally on Friday and the cattle still stayed down. That tells me that there's some more inherent weakness in this cattle market and certainly we are still within two or three percent of all-time historic prices, prices that guys have dreamed about their entire lives and not to protect it with a put option and granted, they're not cheap, you're going to have to spend $3.50, $4 a hundred to get something but you're protecting maybe $20 or $30 worth of risk out here. That is a trade I believe the American farmer has to look at and look at quickly.

Pearson: Is that the same strategy you'd be applying in the feeder cattle market today?

Gold: Exact same strategy. We're, again, at historical high prices in here and yes, the numbers are low, but if we have kind of changed this demand curve a little bit in this cattle and we're starting to see maybe a few more animals out there, we saw the cash start to back off, first time we've really seen that. Now, we did, I think it was two months ago we had a break of about $13 in this cattle market, came right back, the feeders made new highs, the fats didn't but the fact of the matter is I think it's going to be a little bit tougher with this Russian news, with the stock market down for the cattle to be able to come back. At any rate we're content spending some money on puts, protecting that downside and let's hope that we can make a new high for whatever reason and sell our cattle at even better prices. That is a situation we could certainly live with.

Pearson: Certainly. Well, now let's jump down and look at the hog market. As you mentioned, possible implications with the Russia deal. We have seen the hogs been declining now close to a month. Is that a trend you expect to continue?

Gold: I think the hogs are in a little bit of a tough bind in here. The PED scare seems to have kind of eased its way out of the market. Farmers certainly seem to be doing a little bit better job managing that risk out here. The August contract goes off the board on Thursday in the hogs and that is the only one currently that is still over $100. The October closed under $100 this week. So, we have kind of -- and this is kind of where we were at in the pre-PED values before that. You've got the back months sitting there out there $84, $86, which is kind of where we were at. So, I think we've kind of budgeted this in. The Russians take about 5% of our pork so that's going to be a little bit of a hit here. There's going to be more product available. And I think all that combined with the poultry we're going to see a little bit cheaper prices out here.

Pearson: We'll see some pressure.

Gold: Yes.

Pearson: Well, Mark, thanks for taking the time to be with us this week.

Gold: Always a pleasure, Mike. Thanks.

Pearson: That wraps up this week's show. But I want to let you know about a special event next Friday when we'll kick off Market to Market's 40th season at the Iowa State Fair. The special program will be taped with a live audience at the Penningroth Media Center in the Cattle Barn on Friday, August 15th at 3:45pm. We have assembled a blue ribbon panel of analysts to answer some of your questions and we'll look back at the early years of the program. This special live taping is open to the public. Doors open at 3:15pm. And I hope you'll join us next Friday for a very special edition of Market to Market at the Iowa State Fair. 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