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Market Analysis: Nov 26, 2010: Jamie Kohake, market analyst,

posted on November 24, 2010


We're producing our show on Wednesday this week to allow the people who bring you Market to Market every week an opportunity to gather with friends and family over the extended Thanksgiving weekend.

But grain prices trended higher during the abbreviated trading week despite a much stronger dollar.

As of Wednesday's close, March wheat gained just over a penny, while the nearby corn contract moved 19 cents higher.

Soybeans also rallied on strong demand from China. For the holiday-shortened week, January beans moved 58 cents higher. The nearby meal contract followed suit with a gain of $14.70.

In the softs, cotton's retreat from historic highs continued as the March contract settled Wednesday with an abbreviated-week loss of $6.56.

In the dairy market, December Class III Milk futures lost 30 cents while the deferred contract moved 45 cents lower.

In livestock, the February fed cattle contract gained 57 cents. Nearby feeders moved 87 cents higher. And the January lean hog contract followed the trend with a gain of 75 cents.

In the financial markets, the Euro lost 358 basis points against the dollar. Crude oil gained nearly $1.50 per barrel. Comex Gold advanced $20.70 per ounce. And the Goldman Sachs Commodity Index gained 11 points to close at 576-even.

Market Analysis: Nov 26, 2010: Jamie Kohake, market analyst, Pearson: Here now with us to lend us his insights on these and other trends is regular market analyst Jamie Kohake

Jamie good to have you with us.

Kohake: Thanks, Mark.

Pearson: -- On this holiday shortened week. Hope you had a good Thanksgiving. Look at these grain markets right now. We've had a huge run-up, pullback, running back up again at the start of this week through Wednesday. The dollar is a big factor here. All of the problems in European community are coming back home to roost again. Is this strengthening dollar going to be a regular feature now?

Kohake: I think it very easily could be. It was a one-day deal pretty much this week. Couple that with the North Korean news, and that was the major swing there. Ireland looks like they'll probably get something done next week. Then you've got Portugal behind them. Then maybe the big one is Spain. Spain could be $500 billion. But I think the short-term low is in the dollar, and I think it will be after the first of the year before we swing back down and take that out.

Pearson: All right. Well, talk about these commodities markets. Obviously just the first couple of days this week, there was some big up moves. Let's talk about the wheat market first.

Kohake: Right. Wheat is pretty much a follower of corn and beans right now. Exports are still sluggish. We did get support on breaks from dryness here in the Midwest. And then parts of Asia, southern Asia still, what are they going to do over there with acres based on weather. But I think wheat right now is in a 30-cent trading range. I don't see it breaking off till after probably the first of the year, when we see a pick up in exports then.

Pearson: All right. So for you to make sales, you'd hold off.

Kohake: I would hold off till after the first of the year. I think we're just range bound right now.

Pearson: All right. Are we range bound in corn? What's happening in corn? We've had the big move up, the pullbacks, some uneasiness floating around out there. What's going on with corn?

Kohake: Right. The breaks are being bought into by commercials very, very aggressively. March corn, 520 is a great spot to buy into. We saw that again this week get bought into. But, yeah, extending long-term coverage is the trend right now. Exports have backed off with the higher prices with the 3-cent bounce in the dollar that we've seen as well has slowed it down. But I think you'll see the breaks bought into and especially bought into heavily after Christmas getting long near the end of January crop report.

Pearson: So you're not in a big hurry to sell corn.

Kohake: I'm not. I think the December '11 gets back up over 520, I'm looking somewhere around 540, close to the recent highs up around 555 again to make sales there.

Pearson: That's on new crop -- that's on 2011, I should say.

Kohake: Yeah, the red dec..

Pearson: All right, red dec. Being next year's crop.

Kohake: That is correct.

Pearson: All right. Let's talk about the soybean market and what you see happening there. Obviously there is a lot of concern about South America. The climatologists out there, Elwynn Taylor for one -- let's talk about La Nina. That generally means some issues for South America, either too wet or too dry. What do you think that's going to play? How big of a role is that going to play in this soybean market?

Kohake: I think it's a very big role, mark. Argentina is already very dry right now. You throw in this La Nina forecast, which is showing dryness through the end of the year, and I think it's going to keep support underneath the market right now. We're at about a 1180, 1280 range for Jan. Beans. I think you buy the breaks down to 1180 and get long there. But we've got that supporting the market, and you've also got China. They announced a buy this week at 5.5 million metric tons. That could be for 2011 but that supported the market. Again, this morning they bought about three-quarters of a million metric tons again. So as long as China stays in there and you've got this adverse weather forecast down in South America, breaks will be bought into, and there's still plenty of upside I'm thinking in three grains yet right now.

Pearson: All right. So you're holding tight here for the time being on everything.

Kohake: I am. The balance sheets are still very, very tight, corn and beans. Wheat is a little more comfortable, but I think wheat follows the corn. And I'm in no hurry right now to sell anything.

Pearson: All right. Well, let's talk about the cotton market, which has had that huge run-up. Sharp sell off this week. Short crop, long tail there in cotton?

Kohake: It pretty much looks like that. We've had a 35-cent break the last roughly two and a half weeks in cotton. The market got overdone. We see the dollar rally. That finally flushed everybody out. It was needed to make another bull run healthier, get a flushout. But we did see a late bounce back this week. I'm still looking at about a 50-percent retracement, if I was a hedger -- to put us back over 130 for the March contract. The key in here short term is exports turning lower the .U.S. dollar will help as well.

Pearson: Let's talk livestock and I want to talk about the fed-cattle market first, which has held in there very well. What's your outlook as we go into 2011? Where do you think we're going with fed cattle?

Kohake: I think we're going to hold in here right now. We had a very impressive cash trade this week. Oklahoma City a couple dollars higher starting off Monday. Plains this week 101 in the live cattle. It shot the futures market up. The 2011 contract saw new contract highs this week, which is very, very impressive. I don't think we're going to be off to the races putting on another $2 or $3 next week. I think you get a $1.50 rally. You step in and hedge it. The market is overbought and I think cash is getting a little bit ahead of itself right now. I'm just looking for one more week of affirmative trade.

Pearson: Are we pulling cattle ahead now?

Kohake: We are. I think the numbers will show that in next month's on-feed report, but right now it's getting overbought, overdone.

Pearson: All right. That's time to start thinking about taking advantage of a hedge situation. As we go into 2011, do you think we're going to be able to sustain these types of prices?

Kohake: I do. I think we hold in here. I don't think we go back and take out the old lows and talk $70 cattle again. We have seen an up tick in the economy. -- we're holding 11,0000 in the down. Unemployment looks like it's probably topped out here about 9.6. So I think you're going to see the breaks hold in, the sellers hold in more than they did about nine years ago.

Pearson: I was up in winter, South Dakota, yesterday in Freeman. That's such great cow country up there, and cattle look great. This feeder market, this calf market, what are you telling these ranchers?

Kohake: Right. We had a great trade there this week, new contract highs there as well. The market is overdone there technically also. I think you put another 80 cents to $1.50 on it next week. You have to put a floor underneath this market somehow. The feeder cattle trade obviously is based off corn, and I don't think corn is heading back to 6.5 or 7 yet right now. So I think we're more toppy in here right now. Looking for a setback, put some cheap puts on, something like that for next week, and just look for a short-term setback.

Pearson: All right. The hog market. The same guy last night I was visiting with said you always have hogs last. You don't give them enough time. So let's talk about the hogs here. We've had a nice run there in the hog market. We've got a little bit of pressure here lately. Good export demand.

Kohake: Right. And that's been the key factor there. The hogs have held them very well. We haven't seen the big huge fund liquidation washout like we've seen in some of the other markets. The key there right now short term like you're saying is the exports. We came back up to the old-contract highs here this week. Did not put new ones like we did in the cattle, but got back up there. I think there's still a little more upside. What's weird here in the cattle right now are the December futures expire in about two weeks. They are $5 premium -- roughly $5 premium to where the index is, so there is obviously some really bullish cash hog guys out there short term. But I think this same thing as the cattle right now. You put about a buck, buck and a half on it, I would get a floor underneath some of these spring hog futures for sure.

Pearson: Real quick, with the break in the grain market, would you cover any feed needs?

Kohake: Absolutely. That 520 March area, you know, 1180, 1190 Jan. Beans is where I'd be buying into for sure short term.

Pearson: All right. Start taking care of some of those short-bought needs. Got about ten seconds. Is there one thing you really want to do in the commodities markets after Thanksgiving?

Kohake: I think you buy the breaks, stay in the metals and also in crude around 79.

Pearson: Jamie Kohake, thank you so much. That wraps up this edition of Market to Market. But if you'd like more information from Jamie 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.

And be sure to join us again next week when, we'll examine the outlook for agricultural trade in 2011. Until then, thanks for watching. I'm Mark Pearson. Have a great week.


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