For the week, July wheat lost 33 cents, while the nearby corn contract moved 12 cents higher.
Soybean prices also stayed in positive territory, as the July contract settled Friday with a weekly gain of 4 cents. Nearby meal prices also trended sideways but finished in the red with a loss of 30 cents per ton.
In the softs, "oh, how the mighty have fallen..." Cotton which traded at all-time highs above $200 only week's ago now appears to be headed for $150 as the July contract lost another $9.50 per hundredweight.
In the dairy market, May Class III Milk prices recovered about half of last week's losses with a gain of 21 cents, while the deferred contract rallied 50 cents.
Over in livestock, the June cattle contract lost $1.87. Nearby feeders were off $1. And the June lean hog lost nearly $5.
In the currency markets, the U.S. dollar fell to a three-year low against six other major currencies, including the Euro, which settled Friday with a weekly gain of 265 points against the greenback. Crude oil gained $1.64 per barrel. Comex Gold settled at an all-time high Friday capping a weekly gain of more than $52 per ounce. And the Goldman Sachs Commodity Index gained more than 5 points to close at 759-even.
Pearson: Darin, welcome back, buddy.
Newsom: Thank you, Mark.
Pearson: Well, I'll tell you what, we had the Chairman of the Federal Reserve come out and talk about quantitative easing wrapping up in June but extended periods of time for Fed involvement and the economy going through at least the September meeting. It looked like it was go-go commodities, go-go equities, go-go physical things general because it looks like inflation must be lurking around the corner. Having said that, at our place inflation is here. 3.90 gas and everything else, it's already here. So what does this tell us just generally as you look at the markets? Are we going to see more dollars floating in to own commodities. And, of course, gold having another big week, and silver, a record.
Newsom: I think you just hit it on the head. What we're going to see is what we've been seeing is this switch off of the baton from one sector to the next. It was the precious metals turn this time. A 50-some dollar gain in the gold market was just incredible, closing over 1550. You know, silver pushing up near $50 here at the end of this week. So I do think for an extended period of time, it looks like we're going to continue to see money flowing into commodities, and then it's just going to be which ones have the most bullish supply and demand situation to really prompt additional money to start coming in. We're going to see sell offs like what we saw in the grains today. We're going to -- or this week. We're going to see some times when the energy markets start to come under pressure. But by and large, it looks like commodities as a whole want to move higher.
Pearson: Goldman Sachs came out a couple weeks ago and said, yep, pull the trigger on commodities, get out of it. It doesn't look like they know everything, apparently.
Newsom: It lasted about a week. Then it rallied again. Then it was down again for a bit this week. But commodities as a whole, we haven't seen a great deal of pressure building. There's pressure in sectors, but we have not seen this long liquidation coming out of commodities at a whole. And looking at the way the Fed is setting up right now, where inflation is going to be an issue for quite some time and they're willing to take it at its levels right now, I think commodities are going to stay well supported.
Pearson: All right. How concerned are you about energy impacting this general economy?
Newsom: I think -- I think in the long run it probably it. I think that's one of the things that's going to put an earlier-than-normal seasonal high in this gasoline rally. As you mentioned, you know, we're already pushing towards $4. Maybe by the time we get into early next week, we'll see already $4 national average gas. I think this is going to bring an earlier-than-normal peak into the cash gas market because I do think it is going to keep slowing the economy. And we are seeing gasoline demand running behind normal for this time of year. It's increasing as is normal, but it is slower than normal.
Pearson: And domestically we've got plenty of crude; is that right?
Newsom: That's true. You know, if we look at the spreads in the crude oil market, there is no tightness of supply. We look at the EIA stocks report to come out every week. What we're looking at here is a bigger picture crude oil situation where the Brent crude is telling us something and the West Texas intermediate traded in New York is telling us something completely different. Right now the West Texas contracts are trying to catch up and make up some of this ground that the Brent crude holds over them. That's pulling crude oil higher and gasoline is just kind of moving off on its own.
Pearson: So there's plenty of crude, and gas is okay. So this is still largely headline risk with what's happening in the Middle East, Northern Africa, and so forth.
Newsom: Even though it's been pushed off the front page here recently, I still say yes, it's the North Africa situation, it's the Middle East situation. It has the global -- what's viewed as the global benchmark now, the Brent crude market continuing to rally.
Pearson: Absolutely. And, of course, the situation in Libya, that's real oil that's not happening. All right. Let's get back to our stuff. Let's get back to wheat, corn, beans, cotton. Let's start with the wheat market. I was in Lubbock a couple weeks ago. Man, it's dry down there. It's dryer than a biscuit, Darin. Now, we've got some challenges to this crop with dryness in the south, wetness in the north. Make some sense of all this for us. What are you telling producers?
Newsom: Well, what you have to tell producers right now is to sit back and wait to see what's going to happen. If they've got some pre-harvest sales on -- and they might have been planning on that being 20-30 percent. It could very well be the majority of their crop right now. If you take these crop conditions at face value -- and I don't know if we should -- but if we do, we're looking at a disaster in Texas and Oklahoma and not much better in Kansas. So I think we're going to come up with a very short crop. This is similar to the situation that we saw in 2002 where we saw not only harvested acres drop off much more than normal but we also saw yield drop instead of increasing by 5, 5.5 bushels per acre. That sort of situation is certainly in place again over in the southern plains.
Pearson: All right. So you're not -- you don't feel comfortable increasing wheat sales that you recommended at this point.
Newsom: No, I wouldn't. I mean you could look at some sort of option situation, but the markets are going to be very volatile from here on forward. I wouldn't want to make any more sales at this point unless I'm pretty comfortable with the type of production that I might have. I really don't know anyone in the southern plains right now who is comfortable with that situation.
Pearson: Real quick while we're on wheat, spring wheat, are we going to get some planted up north? I mean I've looked at these pictures from North Dakota and South Dakota; It's not good.
Newsom: No, it's not. We've been hearing a lot of talk about the corn planting and how much slower it is. There's hardly anything done in the spring wheat as well. So, you know, I think at some point they'll get in and they'll probably get some in the ground, but it's still going to be quite a while. It's going to take quite a few clear, dry days to be able to catch up some ground a little bit with the average.
Pearson: All right. I heard from a guy today, an agronomist up in Northwest Iowa. He saw 12 planters running in fields up there. They're going, you know, just bent for leather. So maybe we're going to start getting some corn in the ground. What's your take on that? We're going to squeeze this corn planting in a very short period of time too.
Newsom: Yeah. That's the thing. We don't have to have a huge window of opportunity to get a lot of ground covered in the corn market -- across the Corn Belt. But if we go back to the March 31 report, where we're going to see the acreage increases is, again, up in the northern plains, up in the Dakotas and so on, and we're not looking at a much better situation there. And, you know, if we take the situation as it is, I don't think it's going to matter even if we get our 92 million acres or whatever it is planted, because we're still going to be looking at a tight situation if domestic demand continues to go up. And it's anticipating -- everyone is anticipating it to go up. So I don't care if we see the 92 million. If by some chance we get it all planted in perfect condition and we have ideal growing conditions, I think we're still going to be running into a tight supply and demand situation not only here at the end of '10-'11 but working our way into '11-'12.
Pearson: So you think corn is still cheap, new crop?
Newsom: I still think corn is a little bit cheap if we look out at the new crop. I think -- I don't think it's taken over as the lead market yet in the corn, and I think it's a matter of time and it will.
Pearson: All right. Let's talk about soybeans. Obviously the soybean market, good crop in South America has come in. That's to ease some of the pain out there in the export problem. But, you know, going forward, obviously we need to get a crop in the ground in 2011 here in the United States. Maybe we'll see more beans if this corn window closes on us before we get all those in. What's your strategy now on soybeans?
Newsom: Well, basically what you mentioned there. We've got a couple different things going on. We do have that huge South American crop, and we've got the potential for increased acres. Now, that may be a bit premature to be talking about the switchover since we still have some time to get the corn in the ground. I like the soybean market. I think it's going to be a good follower. But if there's one new crop that could have some pressure starting to build, it could be new-crop soybeans on the idea, you know, if we go through another week to ten days of not getting corn planted at the pace that everyone is anticipating. So certainly watch that market, and if we start to see it waver a little bit, get some put options in there. Get some price protection of some kind because this market could be a little bit vulnerable if we see some increased acres later on this spring.
Pearson: All right. You prefer an option strategy?
Newsom: I would. I don't really want to be short any commodities right now. I mean with the dollar continuing to sink, heading toward March 2008 lows, I just don't really want to be short commodities at this point. Let's see how this thing plays out.
Pearson: I am loathed to do this. I am loathed to go back, but I want to ask you one other thing about corn.
Pearson: I know you're an option guy on corn too, right?
Pearson: All right. I'm hearing that ethanol usage is starting to drop off. Is that why we're starting to ration this 2011 crop finally?
Newsom: You know, there's been a lot of talk about rationing going on, but we're not seeing it in the cash market. We've still got a very firm national average basis. I think that's going to continue through the end of this marketing year. I don't know that we're actually seeing demand being cut back yet. Now, if overall gasoline demand starts to slide and we don't peak it out in the late summer, then, yes, maybe we start to see ethanol demand come down again. But I don't think we're seeing this destruction of corn demand, not at this point.
Pearson: All right. Now we're going to jump back over soybeans, which we just finished and jump into cotton, which has been selling off on the old crop, which is not a huge surprise. Most people I talk to down in cotton country, they haven't got any old crop to sell anyway. But they're focusing on this new crop. What's your take there with these same dry conditions and some concern about what's ahead?
Newsom: Yeah, you know, the cotton market has kind of fallen victim to the same thing that's hurt so many other commodities. You've got a great deal of money coming out of this, pouring into things like precious metals and energies and so on. I think when we sit back and we realize, okay, we had a tight situation in '10-'11, we are going to see some acreage increase in 2011-12 but not to the degree that had been talked about earlier. I think at some point we see some support coming back into the cotton market. I do think it turns back into a weather market. It will probably start gaining some ground here. You just have to wash through this long liquidation phase that we're going through at this point.
Pearson: All right. So you're not really that concerned about new crop cotton.
Newsom: No, I'm not. I think it's going to have a nice chance to rally again later this year.
Pearson: Let's talk about livestock. The fed cattle market made this huge run in March and really the first week or so of April. Then pulling back a little bit since then. In my head I'm thinking, boy, this isn't seasonal because we're starting to warm up and we're starting to certainly, you know, put those big center cuts on the grill. What's your take on the fed cattle market?
Newsom: It goes back to gasoline. With gasoline going so high, we're seeing discretionary spending on things like beef and so on, demand is getting hurt. So the threat is and the possibility is that we have seen an earlier-than-normal top in the cash cattle market -- in the beef market, because of the fact people just aren't going to be spending the money because of the gasoline price. And if that lasts, you know, through may and possibly into June, that's just going to pressure the cattle market more. So this build up that we normally see going into grilling season may have already occurred, and that could start to turn the market lower, possibly faster than we normally see.
Pearson: All right. So what do you tell a cattleman out there right now? He's paid some pretty fancy prices for some of these calves he's got in the lot.
Newsom: Yeah, it's a little bit difficult. And that doesn't help anything, just me saying it's difficult, because they all know it's difficult. But again, if you can get some profits locked in maybe through hedging, selling the futures, the livestock market is one area or one arena where I really don't mind being short the futures markets because I do think they've got some problems coming up ahead. So get some hedges on if you can make some money or if you can at least limit your exposure a bit, look to get some hedges in place. Options may not work all that well, again, because of the prices they had to pay and the premiums of the options at this point.
Pearson: You know, I talked to some cattle buyers who were saying they're really not seeing this cash calf market back off much. These spring calves -- these yearlings are extremely strong.
Newsom: Yeah. You know, we've been hearing different factions of these markets still doing pretty well. Usually the cow/calf does perform better and it has a lag time, you know, with the beef market itself. So we may be in such a time frame right now, certainly they're going to be concerned if the cattle market as a whole starts to come under pressure and will last for quite some time. Then it could start to leak into some of these other areas.
Pearson: All right. Let's talk about the hog market and what you see happening there.
Newsom: Hog market, again, we've seen a very strong demand, a very strong cash market. Could start to slip a little bit in line with what we're seeing in the cattle. I don't think it's going to be to the same degree but, again, the same factors are going to be in play. That could start to hurt the pork market as well this summer.
Pearson: All right. Let's talk about some other things here. Chairman Bernanki is out there saying QE2 is going to continue. They're going to reinvest the notes as they come due. This looks like QE2 for a while really or GE Light, whatever you want to call it. That's going to mean more dollars coming into the system, more capital out there, and continuously weak dollar. This is the lowest dollar in three years. It's the wind at our back in agriculture certainly. But at the same point, are we going to reach the law of diminishing returns? What's your dollar outlook, Darin?
Newsom: Well, right now we've got that 71160 sitting out there from the March 2008 low. That certainly is a pretty achievable target price. And if we look at these fed fund futures and if we look at the ways those spreads stack up, it's certainly indicating that the traders themselves are not anticipating a move by the fed until late 2011, early 2012. So I think we've got the time and we've got the weight of the selling pressure not only domestically but globally on this dollar that is going to finally -- is going to wind up with a test of that 2008 low. And then it just comes back to which commodities have the most bullish fundamentals, where is the money going to go, what market -- what market sectors are they -- is it going to flow into. That's where we're going to see the largest gains here over the rest of 2011.
Pearson: All right. Well, a continuous weak dollar certainly is an issue for us on the energy front.
Newsom: It is because it certainly gives commodities as a whole again this rationale to rally, you know, this idea that we're going to be seeing inflation and we have to buy into these markets to hedge against it. And crude oil has been taking advantage of that again. It does not have bullish fundamentals, so it could be vulnerable except for this Brent crude situation. If that ever comes down, I think that leaves the crude oil, possibility the energy complex as a whole a little bit vulnerable with the prices that we're seeing right now.
Pearson: So maybe we'll see some erosion. Okay, record silver prices, high gold prices. Darin, your thought for next week; what do you think we're going to see?
Newsom: I think they're going to keep going up. There's really no reason to believe that it's going to come to an end. It used to be buy low, sell high. Now, you know, I've seen it many times, buy high, buy high.
Pearson: Darin Newsom, thank you so much. That wraps up this edition of Market to Market. But if you'd like more information from Darin on where these volatile markets just may be headed, visit the "Market Plus" page at our web site. You'll find "Expanded Market Analysis," audio podcasts and streaming video of our program -- all FREE -- at the Market to Market Web site.
Pearson:And be sure to join us again next week when we'll examine the outlook for grain and livestock prices with Walt Hackney and Virgil Robinson. Until then, thanks for watching. I'm Mark Pearson. Have a great week.