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Market Analysis: Jan 14, 2011: Jamey Kohake, Market Analyst

posted on January 14, 2011

Corn, in fact, moved limit up on the news and traded at a two-and-a-half year high Wednesday. Wheat prices also rallied on the reports, but not enough to counter losses in other sessions.

For the week, March wheat lost 7 cents, while the nearby corn contract settled Friday with a weekly gain of 54 cents.

The notion of tighter supplies was friendly to soybeans as well, as the March contract also surged to a 29-month high before settling Friday with a weekly gain of nearly 60 cents. Nearby meal prices followed suit with a $25 rally.

Stronger grain and oilseed prices helped power a broader rally across other major commodities, including cotton where the March contract posted a gain of 84 cents.

In the dairy market, February Class III Milk futures gained nearly $1 while the deferred contract moved 71 cents higher.

Prices also were stronger in most of the livestock sector this week as the February fed cattle contract gained $3. Nearby feeders advanced more than $4.50. But the February lean hog contract only increased a dime.

In the financial markets, the Euro countered last week's 350 basis point loss with a 425 point gain against the dollar. Crude oil moved $3 per barrel higher. Comex Gold declined by $9 per ounce. And the Goldman Sachs Commodity Index gained more than 20 points to close at 644-even.

Market Analysis: Jan 14, 2011: Jamey Kohake, Market Analyst 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: Well, I'll tell you what, we talked about corn and beans in our lead into this. Let's talk about the wheat market first. It was really the catalyst that started moving grain prices last August, culminating now with this USDA number, a one percent shrinkage in corn and soybean production over the December report. Let's talk about wheat and what's happening worldwide. Demand is good and supplies are tight.

Kohake: Right. The report on Wednesday with wheat was mostly neutral, maybe a little bit bearish. World supplies is where a little bit of the bearishness is coming from. Then all of a sudden increase of acres, close to 10 percent more is what is being forecasted right now. So that is where this late week profit taking came from. Wheat is follower of corn in here. We're also going to see a lot of long corn, short wheat, long beans, short wheat spreads keeping wheat in check. But the bullish side is going to stem from Australia. Their ports are flooded out so our exports should increase, but our weekly export number this week was at 11-month lows. So we need to find that level that we're more competitive at. I like to buying July Chicago down around 7.5, that area is where I'd be a buyer at on a break.

Pearson: All right. For a wheat producer out there watching our show or maybe down in Kansas, maybe not looking at -- not an outstanding winter stand at this stage of the game. What are you telling them about making sales?

Kohake: Right. We're holding off right now. We just -- down where I'm at, we don't know how big of a crop we're going to have. It could change overnight. Soft wheat guys, I think you come in and sell more old crop. Leave the new crop open, sell the old crop, and look to buy calls down around that 750 level if we would see some more profit taking.

Pearson: All right. Let's talk about this corn market and what you foresee with that one. Obviously a one percent decline in a report over a time period is a pretty big move. It caught the trade, as we mentioned, off guard. What about a producer at this stage of the game? Old crop sales? Do we still have old crop unloaded here?

Kohake: Partial sales right now in old crop for sure, Mark. The ending carryout, as you were saying, is razor thin. That's where we saw the big flush in the buying come from this week. The stocks to usage ratio is at an all-time low very, very tight. We're just seeing more spec money come into this market along with the lower trading U.S. dollar helping out. Where the market is right now, I don't think we should be chasing it higher. If you go back and look at 2008 when this rally started, in the month of January, we lost 50 cents, March we lost 70, may we lost another 50. Then we came back in July and put all-time new highs in. The market is trading overbought right now, so if you're looking for re-ownership on some of these old crop sales, I think you've got to sit back and wait for July down around 620 to do it there and for the new crop sales closer to 6.

Pearson: So you're still fairly aggressive. You're still fairly friendly. You want to leave some upside open?

Kohake: I do. Longer term I think this thing stays supported probably through April time frame, we see the acres, see how well the crop got planted. I think for the old crop sales that are sold, look at the 620 level of July as some re-ownership strategy.

Pearson: Po, with that in mind, Jamey, at some point we're going to start rationing demand. We're down to, what, three week supply of corn at this stage of the game. We're going to be rationing. When is that going happen?

Kohake: I think it's closer to probably 7.5 to 8. There's some big financial houses this week said 8, and I think they're pretty close to that. We're going to find a level eventually. I think it's a little bit further down the road. The corn market has rallied two bucks since August. We've had a major setback. So I'm not really enticed in here to say close your eyes and get long in here and get long in here and re-own everything right now.

Pearson: All right. Let's talk about soybeans and the outlook there for prices. Again, the situation in South America is has pretty much impacted corn at this point, but obviously until that crop is done, there's been some concerns about some weather market developing down there.

Kohake: The numbers this week obviously were bullish. Any carryout here domestically 140. 2008, 138. So they're razor thin here as well. The numbers in Argentina, like you were saying, were lower for both corn and in beans. But if you look at private estimates in Argentina, they're still 3 million metric tons lower in both corn and beans than where the USDA is right now. I'm more bullish beans longer term than I am in corn. I think you look down at the 1350 level for July beans to re-own some old-crop sales in that area. And I think you leave the new crop sales open right now. I think you could be looking at maybe 50 cents to a buck higher yet longer term.

Pearson: So you're talking mid teens anyway, on beans.

Kohake: Eight, 14 1/2, that area. Lots of them depend on how become planting wise the weather there. Right now where we're at, I'm still looking for some type of short-term setback, profit taking as all three of these grains, you know, turn more towards overbought.

Pearson: Funds, were they back in the bean markets this week too.

Kohake: Yeah. They were aggressive corn and beans buying. The option pits were huge this week. I mean $7 March corn calls. I mean the guy is bidding up 1,000, 2,000 at a time, and heavy on the bean option as well.

Pearson: All right. A lot of volatility. A lot of cash moving around. Talk about the cotton market, Jamey, because that's been a wild one too, and that's going to figure into this acreage battle.

Kohake: Exactly. Taking away from the bean acres. I think if we've ever seen acreage -- we're going to see it here in the next hundred days roughly. The cotton report showed what we've been pretty much trading off of the last three to five months. Stocks extremely tight. We're in about a 15-cent trading range. 137, 152 for the March contract. I still think longer term there's still more bullishness. I buy the breaks and make the old crop sales up in the low 150s level.

Pearson: All right. Again, buy a break and re-own. So you're pretty friendly longer term.

Kohake: Longer term up to March-April time frame. I think you get past there, we'll know a lot more and we'll make sales accordingly then.

Pearson: Ltalk about the other side of this whole thing. The fed cattle market first. I've seen a great rally there. We'd got fed markets very strong. The board is extremely strong. Is it going to stay this way? Is it going to hold, or should we be taking advantage of looking down the road and hedging some of these calves that have been bought?

Kohake: I think you start hedging in here next week. It's just like the grain market overbought in here, getting close to it. You're right, the futures in the cash market have been on a terror. 108 this week in Kansas and Colorado. The board is carrying a little bit of premium right now, but I don't think it's enough to tank to market -- Tuesday. If I was the hedger, I'd step into the Market right now, look for about a 4-6 cent setback just on profit taking. That would bring April live down around 109, and I would take profits there for sure.

Pearson: let's talk about the calf Market. $4.50 cent move on the board despite a 54-cent move on nearby corn. You usually don't see that kind of a relationship.

Kohake: You're exactly right. We're seeing the funds pile in there. Pretty much new contract highs every single day in the cattle market and in the hogs. You're looking at huge exports too in the cattle market. They're 20 percent a year to date than they were last year. There's a lot of bullishness out there right now. If you go year over year, month over month, the placements right now are all lightweight cattle. And right now I mean I think that proves longer term is huge, huge bargaining power. So I'm looking at the march contract getting hedged in here next week sometime, getting a pull back to around 121 1/2 and taking them off. That's the level I think would be hard to break through unless the grain market would change overnight drastically bearish.

Pearson: Exports are going to drive a lot of this. The dollar is going to be important, particularly in hogs. What do you see ahead in the hog market?

Kohake: Exports there are huge too. We're 6 percent higher year to date there also. They're the same type of trade with cattle right now. Hogs are following corn. Cattle are following corn. And I think -- corn -- profit taking, the hog market stays in here. Cutouts are at three-month highs. Like I was saying, the exports are strong. And I think you hedge in here short term, but be prepared to have a 3-cent setback to pull them off.

Pearson: Jamey, fresh metals, oil. Let's talk fresh metals. What do you see ahead for gold?

Kohake: I think a lot depends on the dollar. The fear factor is coming out of the metals market. You don't hear about it in the news every night and talk about that, but I think you buy April around 1330, 1340, for a long term play. The dollar is going to remain weak. I'd sell it up around 81 1/2. The jobs report this week was bearish. The housing report this week was bearish. I think the dollar turns down lower.

Pearson: All right. As far as the oil market is concerned?

Kohake: I like buying March crude at about 8850. Inventories are at 11-month lows. Weekly inventories were two million barrels lower than the previous week this week.

Pearson: All right. Things we all need to be keeping track of. Wildly volatile markets. A lot of fresh money coming into the commodities is going to be the bottom line.

Kohake: That is right.

Pearson:Jamey Kohake, thank you so much. That wraps up this edition of Market to Market. But if you'd like more information from Jamey on where these high flying 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 whether this week's impressive rally in commodity prices has legs to run longer. Until then, thanks for watching. I'm Mark Pearson. Have a great week.

Tags: agriculture commodity prices markets news