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Market Analysis: Mar 11, 2011: Jamey Kohake Analyzes Volatile Commodity Markets

posted on March 11, 2011


The supply and demand estimates failed to reveal anything to spark a rally in the pits, and grain prices continued their recent trend to the south.

For the week, May wheat lost $1.13, while the nearby corn contract moved 64 cents lower.

Soybeans also trended lower as the May contract settled Friday with a weekly loss of 80 cents. Nearby meal prices followed suit with a weekly loss of nearly $14 per ton.

In the softs, cotton corrected a bit and still remained over $200 as the May contract lost nearly $8 per hundredweight.

In the dairy market, April Class III Milk futures lost 98 cents while the deferred contract declined by a little more than a dollar.

Over in livestock, the April fed cattle contract gained more than $3. Nearby feeders advanced nearly $2.75. But the April lean hog contract lost 32 cents.

In the financial markets, the Euro lost 98 basis points against the dollar. Crude oil put in its first declining week in more than a month with a loss of more than $3.00 per barrel. Comex Gold declined $6.80 per ounce. And the Goldman Sachs Commodity Index lost nearly 24 points to close at 696-even.

 

Market Analysis: Mar 11, 2011: Jamey Kohake Analyzes Volatile Commodity Markets

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

Pearson: Here now to lend us insight on these and other trends one of our regular Market Analysts Jamey Kohake. Jamey thanks for being with us.

Pearson: All right a lot of things are going on this week and we didn't really talk much earlier in the show about what's going on the Middle East as far as Saudi Arabia is concerned and the fizzled out "Day of Rage," the impact that could have on oil prices, other regime change throughout the Middle East, everything being overshadowed by the earthquake in Japan. Obviously this was a huge one, huge trading partner of ours, tremendous tragedy for Japan, we don't want to underestimate that in any way shape or form. But from a commodities trading standpoint obviously the corn, soybean, wheat pits were lower on Friday. Talk about potential impact of this quake.

Kohake: I think it's a short term spill over type deal in the grain sector. It's more just a fun profit taking deal more than the shipment and fundamentals. Funds are taking as much risk as it can off the table right now in all markets. Computer generated selling is heavy in all markets and they just want to pretty much looks like square their books up right now and maybe wait until spring in case some type of weather scare and get back in. But these markets are not going to slow down. The rage like you're saying did not pan out Friday and we saw more profit taking in crude on Friday. We also had a bearish inventory report this week in crude. We got a record amount of crude at over 40 million barrels and that weighed on prices this week as well, but the key in the Middle East on this spill over if we are going to see a pop erase losses this week would come from Saudi Arabia. That is just where obviously the big oil is and where the most excitement would come from by the funds.

Pearson: And again it looks like regime change maybe much slower in coming in Saudi Arabia.

Kohake: Exactly. It looks like the number three guy would take over. The king right now is very old and been sick and been in Monaco in the hospital off and on and the number two guy is in his 80s as well. The number three guy looks to be just as conservative as what is there now. He's actually in charge of the parts of the military and the secret service. So it's going to be or could be a very serious fight if the protestors would get more aggressive.

Pearson: All right. Well, we will continue to follow that one because it impacts everything else as crude oil goes, so goes ethanol, so goes corn. So, all right let's start at the top. A big sell off in wheat this week. Are you concerned about this? Is this the end of the bull run for wheat?

Kohake: Not long term. Short term consolidation in here. The wheat market is trending towards oversold. We're roughly two bucks off the high right now in wheat. I think you're going to see some type of rally coming back into spring/early summer. I would not unload the crop right here, right now, or get nervous that we're heading straight on south for the rest of the season. What really shook the market loose this week was the export number on the report. The trade was not expecting that and the numbers are showing that Australia is going to be able to export their crop is going to slow ours down. But I don't think you want to sell wheat right now. I look for maybe some spreads by Kansas City, South Chicago. Kansas City harbored their wheat. Wheat crop conditions are in very poor shape. Kansas, Oklahoma, and Texas are all between like 40 and 49 percent very poor to poor right now.

Pearson: All right. So, try to spread to make some gains. Let's talk about the corn market, Jamey, as well. As you look at what is happening with corn prices again a big pull back this week and we have big events like this historically of natural disaster. Everyone goes to the sidelines and not at all surprised to see what happened to the pits on Friday. Technical standpoint though did we break through some support levels?

Kohake: We did. The charts do look bearish in the grains. They flipped over actually on Wednesday and we had the follow through Thursday and Friday. Very, very ugly this week obviously. The report was mostly neutral not a huge, huge surprise there. Commercials had started to get bearish a middle part a week ago. They ended up kind of buying a little bit late Thursday and Friday on both breaks, but here short term I think corn is just going to kind of drift 15 to 20 lower/15 to 20 higher. I don't think you're going to see corn on its own unless the energy market does something crazy or the dollar shoots straight back up, you know, to 7 until we get closer to the Acreage Report. I think we'll see short covering then and right now we're just drifting sideways to lower short term.

Pearson: Let's talk about the Acreage Report. USDA came out with that number. Came out at the USDA Outlook Conference of 92 million acres. Now there have been some other - and a lot of analysts, including yourself, who have said 92 million acres won't cut it. What kind of acreage number do you think we're going to see?

Kohake: I think we're actually going to end up closer on the estimates to 93. There has been rumors floating around this week some guys are up around 94, but if that is true I'd like to know where they are coming from because beans ain't done nothing either price wise.

Pearson: Right. So we won't be loosing acres there. Let's talk also about the new crop corn of the break there. What is your take on new crop? How much sold should we have?

 

Kohake: Oh, I think we you get back up over 6/620 - get 30 percent sold that area maybe 40 percent in that area and it's only March. We haven't planted any of the crop yet up north. There are a couple planters down in Texas going this week but I'm not getting too shook up in here and saying it is over with let's get hedge. This is really the first scare we've had this year are we wrong? Should we get short? Why didn't we sell the crop two weeks ago, all that. I think if we look at past years we've kind of ran these trends in January into March, everybody gets nervous, puts some hedges on, you wait three weeks, they get blown out, and that's kind of been the time to where they get short. I think in here these next two weeks guys will get nervous, put some hedges on, and then short covering a few days before the Acreage Report.

Pearson: All right. As we look at the corn market going forward and like you said the biggest thing we really have to look forward to barring any other issues is this planning intentions report. So we'll kind of - we'll know a lot more once we get through that and of course we also know - that report can change just because that's their intention but by the time the June report runs around we can have some pretty dramatic shifts.

Kohake: Exactly and you look at the USDAs track record in the last nine months with some of the reports I wouldn't be a bit surprised to see some kind of adjustment in June.

Pearson: How close attention are you paying to this La Nina. Is this La Nina thing that big of a deal? Is this early still that the La Nina is this strong? We haven't seen this awhile. Typically doesn't bode well for grain production in North America.

Kohake: Exactly. I'm taking a very serious look at it. The last report I saw this week was actually a government report. They think if it does pan out it's over with by late June. That doesn't signal there's not going to be any damage, but I think it's serious. We need to be prepared. That's why I like using options not getting tied up heavy with futures and get caught in a big swing. You know awful weather scare or something this week and you got a ton of margin money.

Pearson: That's right. Let's talk about soybeans. Talked to some Brazilian soybean producers last Saturday hugely upbeat about the crop down there Jamey. They are seeing the best yields that they've seen in their operation in a long time and they said the corn looks pretty decent down there as well. What's your take going forward on soybeans?

Kohake: I think the Brazilian crop is there especially the central to southern part - number four and number five grain areas had some heavy rain maybe an inch a day on average through the whole month of March. Next week looks to be forecasted for an inch a day as well. But I think the southern part will make up for that. Beans longer term I think we will come back in and put new highs in but we're seeing this risk off, maybe a global slow down economically, funds wanted out, but I like buying breaks on beans. I'd take a stab at July around 1320 and get a stop down below 13 dollars on a close. I think beans are still really grossly under priced relative to corn. IF we end up in 93/94 million acres I think the bean acres are being factored in as double crop acres and those acres kind of throwing darts at and don't usually pan out with high yields.

Pearson: It is a crap shoot that is for sure. All right. So, soybeans those would be the only sales you would consider at this time?

Kohake: I haven't done any selling in beans hedge-wise the last three or four weeks at all. I think you hold off on beans and I'm probably longer term more bullish beans than any of the other three grains right now.

Pearson: Ok. So you're not moved in much on new crop beans at all?

Kohake: No.

Pearson: All right. Let's talk cotton. Again a little bit softer week this week but, you know, we're at some pretty stupendous level.

Kohake: Right, we had a late week rally come back on Friday and closed relatively well. Still having around that 200 dollar mark in May. I like 192 areas if a guy was looking to, you know, try to catch more rallies right there in that zone could be a short term buy, but exports are still keeping up. Dollar slipped back a little on Friday and that brought some fund buying back in. But this deferred cotton I still think you look up around 130/150 as a hedging zone.

Pearson: All right. And also as we look at the acreage situation and cotton really not giving up much ground. So we're not going to pick up much in the way of bean acres down in the south. We're not picking up much in the way of corn acres versus the spring wheat especially with the pullback we've had in wheat. So again this whole acreage battle still going to have to work itself out.

Pearson: Let's talk about livestock for just a minute. Fed cattle markets off the chart. Cash cattle markets off the chart. Movement seems to be pretty good where retailers seem to be wanting product.

Kohake: Right. Very explosive trade this week 5 to 6/7 dollars higher 118/119 we're still exporting a decent amount, decent pace and here I did some hedging on Thursday. Just wanted to get a floor underneath the market. The key in here with this whole meat sector is can we sustain this longer term? 100 dollar hogs, you know, dollar nineteen maybe dollar twenty next week cattle, can we hang on to that? And I think just as a hedge wise you got to put a put under these some of these deferred cattle. The long term signal that I'm going to be watching are export. That's what driven this whole beef and pork sector up. This week's exports were the lowest in four weeks. I don't think that's a sign that's over with but it's something to keep an eye on longer term to make sure and keep that pace up.

Pearson: Where is the demand coming from? Is it largely export driven? The domestic market seems to be doing very well. Obviously we've seen unemployment come down, general economy picking up, and it is two years from now until we get a fat steer on the ground where is the expansion going to occur? We haven't seen any expansion of this cow herd at all?

Kohake: Yeah and I don' t think you're going to any time soon. Very limited right now. Like you were saying unemployment below 9 percent. I think that's an artificial number at best. A lot of people have given up on that. Job claims were up this week but like domestically we're still moving the product. A lot of it is going to Asia is where it is going and we've got to watch - we saw some profit taking Friday morning off the earthquake that exports slowed down. It was just a profit taking play, emotional type trade, but I think you still on rallies you leg into more hedges 118 and then get them up over 120, put another layer on.

Pearson: All right. Are you hedging this calf market at all?

Kohake: 138 - there is a double top up in there I like to sell against next week. We had great trade on cattle on Friday. We came back and closed really strong after being lower of the earthquake most the morning.

Pearson: All right. Well, but not enough to get expansion going in the cow herd. All right. Let's talk about hogs and what's happening there. We've cleaned our house pretty much in the hog trade of the 23 month in a row of bad prices and horrifically high inputs. So we saw the turn around. We've reduced sound numbers. Any hint we're growing the hog herd?

Kohake: None that I have seen that's going to make a big adjustment to the futures market has been in about a 4 dollar range for June here recently. What the problem has been with the hogs is - in the futures are a premium to the index and -- pressure. I like selling June up around 103 is where I try to get - next week. It's the top side of the short term range and I like that. Hopefully we get some spill over from the cattle next week, bring the hogs back up, they kind of separate on its own on Friday.

Pearson: Sharp drop, sharp sales in milk futures this week. Does that tell us anything?

Kohake: Demand domestically could be slowing down. Milk trades a lot relative with cattle and with the Dow. They all kind of three follow each other and it was just profit taking. We've been on a nice rally in the milk market. Due for a nice wash - flush out and it was generalized profit taking.

Pearson: Ok, let's get back to currency issues. You mentioned the weakness in the dollar. Still a lot of concern about that. We also had a situation in Europe Thursday regarding debt and the debt issues over there not getting solved. All these things you would think would maybe start to drive the dollar a little bit at the expense of some of the other currencies and certain the yen. Where is the dollar going?

Kohake: I think we still should see more aggressive short covering coming into to the end of this first quarter. What we saw on Thursday or Friday of the lower dollar was the spread versus the Asian currencies with their earthquake. The dollar is a wild card to the whole commodity sector. We get the dollar back up over 80 funds get out and they will probably stay out and go to some other sector and try to play it. Interest rates are key. This QE3 come online, there is QE2 - and but the dollar is very, very key on the longer term with this - market to keep the fun money in.

Pearson: All right but you're not particularly bullish on the dollar yet?

Kohake: Not, not really just short covering. We did have a report from China this week, reported their first monthly trade deficit in seven years. We're buying less junk and they're buying high price grain. But it really didn't do much to the currency market either.

Pearson: I want to come back and visit our opening discussion. We have about 30 seconds. Outlook on oil prices. Obviously things have calmed down somewhat in Saudi Arabia after the current regime threatened dissidence. Is that going to calm this oil market down? Are we going to see that thing start to calm down or should we be buying diesel fuel longer term? Longer term I think we stay here at the higher. 98 is good support. If you break 100 crude we come back right up. We did it on Friday. I think we're supported in here short term until the Middle East gets completely settled down and it is probably six months away.

Pearson: All right. You're not in a hurry to hedge gasoline or diesel at this point?

Kohake: I would buy the - put some calls on for sure in crude or heating oil breaks on into July/August time frame.

Pearson: All right and big supplies of crude here in the U.S. so we're not running out near term as you point out the open.

Kohake: Right. It's on the products is where the shortage is. Lower inventory there with the RBOB and with the heating oil and that is where the bullishness is coming from.

 

Pearson:Jamey Kohake, thank you so much. That wraps up this edition of Market to Market. But you can find expanded market analysis from Jamey as well as streaming video of our program -- free -- at our Web site.

Pearson:Now, we want to remind you that Market to Market may be airing in some different timeslots in the days ahead as America's PBS stations conduct fundraising activities that are crucial to their operations. So, if you value programs like Market to Market, please consider phoning in a pledge and investing in a service providing you with accurate information and timely market analysis.

Pearson:And be sure to join us again next week when Sue Martin will give us her take on these volatile commodity markets. Until then, thanks for watching. I'm Mark Pearson. Have a great week.


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