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Market Analysis: Nov 19, 2010: Darin Newsom, Market Analyst

posted on November 19, 2010


A resurgent dollar this week coupled with easing foreign demand weighed heavily on commodity prices.

For the week, December wheat lost 25 cents, while the nearby corn contract moved 13 cents lower.

Soybeans also were pressured, as the January contract moved 68 cents lower. The nearby meal contract traded followed the downward trend giving up nearly $14 per ton.

In the softs, cotton's impressive run above $140 ran out of steam as the December contract settled Friday with a weekly loss of $12.28.

In the dairy market, December Class III Milk futures gained nearly 70 cents while the deferred contract moved 41 cents higher.

In livestock, the December fed cattle contract gained more than $3. Nearby feeders were exactly $3 higher. And the December lean hog contract eaked out a gain of 16 cents.

In the financial markets, the Euro lost 19 basis points against the dollar. Crude oil declined almost $3 per barrel. Comex Gold lost $13 per ounce. And the Goldman Sachs Commodity Index lost more than 15 points to close at 565-even.

Market Analysis: Nov 19, 2010: Darin Newsom, Market Analyst

Pearson: Well, here to lend his insight on these and other trends one of our regular Market analysts Darin Newsom.

Pearson: Well, Darin the dollar seems to be the big player this last week. I mean, where are we going with that? All we hear about was quantitative easing, devaluation of your currency, we had countries that really have disastrous economies themselves where we're talking about we're devaluing our currency, and yet the dollar seemed to rally against all this.

Newsom: It was an interesting week certainly here in, I think, since early November we saw the dollar put in a low and it looks to be more of a technical low than a fundamental low. And so we've got, as you mentioned, all these problems going on in Europe. This seemed to spark renewed buying interest calling - looking at the dollar as a safe haven market. It still seems kind of odd saying that give the QE2 that we're seeing, given all the other, you know, you ran through the list of financial reports there really isn't anything consistent going on in here. The buy interest in the dollar seems to be the catalyst right now that's causing the havoc, causing the chaos that we're seeing the commodities. It looks like the dollar wants to continue to go ahead and to rally. We could post a bullish technical signal here in November. If we do, you know, we could see another three/four hundred point move in the dollar and we can only imagine what that might do to some of these key commodities.

Pearson: Alright. So, the dollar despite all the fundamental bearishness you think will probably continue stronger.

Newsom: I think it's got a chance. I mean if we look at the way things are setting up right now the money seems to flowing back into the dollar. Now this thing could change, you know, by Monday but right now that's what it certainly looks like. The money is going to try to come in the dollar. We're going to see a short term rally and this is going to cause some pressure. It certainly could cause some pressure in many of these commodity markets.

Pearson: Well it certainly created havoc as you say this week. Wheat price is down $.25. We still have a world situation that's not short of wheat but certainly short of wheat in the right places.

Newsom: The wheat market was actually interesting in that we saw kind of a meltdown here at different days in corn and soybeans yet wheat held relatively well. I had a hunch as to what was going on and then the CFTC Report came out. It kind of confirmed that we're seeing position squaring and I hate that phrase but that's basically what's going by the investment side of the markets. And so where they had already moved to a small net short in wheat they started getting out of those by buying it back and where they were already - and where they

where still long in corn and beans they were selling those market. So, wheat had a little bit of support here at the end of the week. It kind of broke away from the pressure scene in corn and soybeans. Fundamentally, still a bearish market. We're still not moving much wheat if we look at the weekly export shipments, export inspection numbers, not really moving a lot of wheat right now. the dollar does go up it's going to keep interest in the U.S. wheat at least low until really the world situation does tighten further. So, you know, wheat could see a bit of a bounce in here but if again the dollar does gain strength we're just not going to have that fundamental reason to rally wheat that far.

Pearson: Alright and then still some gapping basis levels in wheat.

Newsom: Yeah but those have, you know, we're seeing the national average basis levels firm a bit. The weaker future has helped now that we've seen a little bit of a rally in the futures. It will be interesting to see if basis starts to soften again. I think we're really going to have to see demand pick up before we see, you know, a big rally in the basis market.

Pearson: You want to wait for rally and sell wheat then?

Newsom: I think so. You know it's so hard to sell anything now for the new crop because all we're hearing the terrible condition it's in, how dry it is in the southern plains, parts of the upper Midwest where we grow winter wheat. So, it's going to be very hard to get much sold. If we do get a rally and maybe we want to look at getting something on the books, it's a very difficult time right now for not only wheat but for most of 6the markets.

Pearson: Let's talk about the others. We don't have a lot of time. Let's talk about the corn market now. Obviously a set back here. We've got a lot of people on this show saying we're going to get back to $6.00. We're going to see more than $6.00. What's your take?

Newsom: Well, what happened when we hit $6.00, we just shut demand down. Now as we pull back to near $5.00, possibly pull back to near $4.50, we'll have to see if that demand comes back. Long term the market still looks bullish. We still have some bullish fundamentals this market is going to be dealing with as we head into 2011 but in the short term we're just not seeing that demand come back in quickly.

Export sales were slow again, you know, feed demand so-so, export demand - but ethanol demand is still strong. We have to see the demand side pick back up. Until we do this market is going to come under some pressure.

Pearson: So, again you're holding off on corn sale for the time being?

Newsom: I wouldn't want to sell it in here. You know, if we really start to get some signals that this thing is changing long term then we're going to have to make some emergency sales but right now I think I'd let it go.

Pearson: Alright, soybean market. It's backed up too. What do you see happening with beans?

Newsom: Soybean market is very interesting. We came right down to some support right around $11.70 in the January contract but if we look out at those deferred spreads we've got an inverted situation in I believe the May/July/Mach/May. So, again long term this market looks bullish fundamentally but if we break through that $11.70 we're going to loose another $.50. It looks like we could loose another $.50 in a hurry. I'm still bullish long-term the soybean market. I think there's a lot of demand and unless something happens to the Chinese demand, unless it all the sudden just dries up and goes away, I think it's going to be enough to provide support to the market in here and provide the stability and soybeans to allow it to rally later on.

Pearson: You talked about in the past how soybean prices are strong in China and justify the values that we're seeing here. South America, the crop down there, how we coming? Good? I know we've got to kill it off a couple times here.

Newsom: Exactly. You know right now supposedly too dry in Argentina and, you know, Brazil has had off and on weather problems. The key to it is it doesn't look like the crops are going to be as large as they were last year and demand is not going away. So, that being the case it looks like it's going to tighten the global situation a bit.

Pearson: Alright, we'll keep watching that one in the La Nina year.

Newsom: Exactly.

Pearson: Alright, real quick cotton market, huge move up, big sell off this week. Is it over?

Newsom: Yeah, it looks like the supply driven market is over. Usually this happens about the time we get ready for the next harvest somewhere. It certainly looks like that's the case again in cotton.

Pearson: Alright, if you haven't made sales make them now?

Newsom: I think so. I hate to chase the market on such a huge sell of but, you know, just looking at this market it does look like it's getting ready to head lower.

Pearson: Alright, cattle feeder called me this afternoon before I came out here to do the show and he's pretty happy. -- cattle market on the board was up nicely. Calf market was stronger too. Corn pulled back, he appreciated. What's ahead for the cattle feeding man?

Newsom: You know, it looks like the cattle market could start to come under a little bit of pressure here at the end of the year. Fundamentally, again, the spreads aren't looking that bullish. We had another cattle on feed report coming that came out this afternoon, on Friday afternoon, really didn't do much but it does show that we're not going to run out of cattle any time soon. So, it looks like we're still going to have plenty of demand if the dollar does go up it could slow. We're going to have plenty of supply. We could slow at demand a little bit if the dollar goes up. I would think we could see the cattle market come under a little bit of pressure as we head towards the end of the year.

Pearson: Alright, nest year cattle market?

Newsom: I think it's still going to stay pretty strong. You know if all the commodities turn back around, even corn, if corn the other feed grains go higher I think cattle is going to go higher as well. It's going to run, you know, it's going to have a tough time testing these 2010 highs, really being able to push beyond that, but if the overall consensus is again commodities are going to be bullish, I think, cattle are going to want to go along.

Pearson: Aright, calf market - you feel pretty good about that right now with this corn pulled back?

Newsom: Yeah, I think so. I think that's been a key part of the market and, you know, if we do see pressure in the corn market over say the sent 20/30 days I think that's certainly going to help the calf market.

Pearson: Alright, hog market?

Newsom: Similar to cattle except for they haven't, you know, they've come down much further than the cattle market did. Again if we look at the fundamentals not all that bullish but there's always this thought that, you know, the cash market is going to start turning around again in the hogs and that's always the key point into getting this hog market to turn around. So, it looks a little bit better than it did a couple weeks ago. It certainly looks like we could see a little bit of an uptrend in the cash market.

Pearson: Alright, I've got to ask you about oil and gold and I know the dollar is going to play a big role in that one too. What do you see there?

Newsom: Oil market, you know, we did loose a great deal of ground this year. I think you said something like $3.00 per barrel, but again like some of these other commodities we're starting to see the future spreads tighten up a bit and that shows that we've got a changing supply in demand market. Very strange to have happen this time of year. It looks like it's tightening up a bit. So, if that's the case I would anticipate some fundamental support to start coming into the crude oil market. If it can shrug off what's going on in the dollar, it looks like crude oil may want to try to rally, and I think it's going to be based on the gasoline market. We saw gasoline stocks pull way down. Gasoline has gone into an inverted future spread situation. So, that seems to be the leader of the energy markets right now and I think crude oil is going to want to follow.

Pearson: Darin, that's all the time we have.


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