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Market Analysis: Aug 27, 2010: Market Pearson and Jamey Kohake

posted on August 27, 2010


Wheat prices fell below support levels this week, while nearby corn contracts put in new highs for the current move.

For the week, September wheat lost more than 15 cents. Nearby corn prices, meanwhile, traded in a sideways fashion.

Soybeans rallied late in the week with the September contract gaining more than 12 cents, while the nearby meal contract settled Friday with a gain of $7.00.

In the softs, cotton broke through the $85.00 barrier with the December contract posting a gain of $2.52.

In the dairy market, September Class III Milk futures were up nearly 35 cents, while the deferred contract moved nearly 40 cents higher.

In livestock, the October fed cattle contract lost $1.15. Nearby feeders were off 38 cents. And the October lean hog contract declined by $2.30 cents.

In the financial markets, the Euro gained 22 basis points against the dollar. Crude oil lost 46 cents per barrel. Comex Gold gained $9.00 per ounce. And the Goldman Sachs Commodity Index gained more than 5 points to close at 511.20.

Market Analysis: Aug 27, 2010: Market Pearson and Jamey Kohake Pearson: Here now to lend us his insight on these and other trends is one of our regular market analysts, Jamey Kohake. Jamey, good to have you back with us.

Kohake: Thanks, Mark.

Pearson: It's interesting -- the wheat thing has slowed down some but the corn market seems to be taking over as being kind of a bullish factor. Let's talk about where we are fundamentally on the wheat first, though. What do you see happening? Obviously we're going to have a lot more wheat planted in the U.S. and around the world in 2010-2011.

Kohake: That is right. We are roughly about $2.00 off our highs in wheat already right now. The market looks a little sluggish to me in here short-term. We're not seeing the big fund money pour in like we saw four to six weeks ago. I like selling December and July up around the $7.30 mark and it's trading about a forty cent range back and forth. Support right now is off dryness in Russia. The hedge pressure, selling pressure will come from the increased acres once that gets factored in, everybody thinks it will be there. But I like selling rallies. The market just looks tired to me right now.

Pearson: All right. Well, certainly a lot of players are in. There's still a fairly long position with the fund money or have they backed out some?

Kohake: They are still long, they have not got out yet. They're not nearly as long as they were. They have taken some off but they're still holding longs.

Pearson: All right. Let's talk about, from a producer standpoint, and you mentioned that futures contract making sales in there. Is that Chicago or Kansas City or both?

Kohake: That's December Chicago and July Chicago wheat up around $7.25, $7.30. I just want a short-term trade. The market just looks tired. I think just take about a 30 cent profit out of it and get it back off.

Pearson: All right. Let's talk about the corn market where it seems like some of this lead now has gone over to corn. You have been fairly friendly to the corn market. But is this a place where we should be making corn sales?

Kohake: I think you very easily could. We put in new highs for the move today. We finally broke through the $4.39 mark, didn't close above it, but broke through it. That is one area a guy could sell into if he has not made very many sales so far. The key is going to be short-term is exports, can they keep up at the very rapid pace that we have been on and then also too in here is USDA accurate at 165. I think that is a high-ball figure right now. We saw some late support this week coming in from the early yields down south and parts of Illinois. They're running five to I've heard fifty bushels below last year's numbers and I think a little bit of this late week rally is based off of that.

Pearson: All right. So, a little bit of concern about production. Over time, Jamey, it's pretty hard to argue with USDA's numbers, though, and that's what we have to live with until the new report comes out.

Kohake: Yeah, that's right, that's what you have to trade off of currently right now. The corn market is in a very tight range, about a $4.20, $4.40 range for December corn, $4.40, $4.50 for this December 2011 that we've been talking a lot on the show about, just back and forth right now. But big supplies versus big demand, it's a tug-of-war right now. Funds are long, over 300,000 contracts, that's a ton of positions and so they are buying the breaks and users should be buying breaks, sharp breaks to get long but right now it's exports and assuming acres too need to be bought against wheat.

Pearson: We've got an acreage battle coming up and cotton, of course, had a big jump this week that will tighten cotton acres, increase cotton acres perhaps down south which could affect certainly soybean acreage. But coming back to this corn market, how much corn do you want to sell for 2011? Is this thing going to keep going? Is the corn market going to stay strong? Or do you want to go ahead and take advantage of this rally right now?

Kohake: Right. I've sold about 15% to 20% already for December 2011. I have not laid any off lately short-term. I would like to get up around the $4.50 mark to lay some more off. But I think short-term this December 2011 is supported in here just based off acres, based off longer term demand. The demand number is the key. China has been forecasted to be maybe importing five or six million metric tons next year. If that is the case I think you're supported on deep breaks in this December 2011 around $4.10 and $4.50 would be your top side short-term.

Pearson: All right. So, that gives us some parameters to work with. I like getting numbers. All right. So that is our corn outlook, again, fairly bullish. Are you concerned about ethanol or what could happen with ethanol as far as what the politicians are going to be doing with either extending the V-Tach or eliminating the tariff? There's a lot of things floating around on that front and there is a 30-year corn demand right there.

Kohake: Exactly. Longer term it's very, very key. You adjust the higher export business to China bullish and then you take away the ethanol demand, it's taking one hand over the other, I think longer term it could be very, very bearish and hopefully here after the election they can get something situated and figured out.

Pearson: All right. Well, we'll see. They haven't done it on the soy biodiesel initiative, that hasn't gone anywhere yet. Maybe that was the shot across the bow we should have paid more attention too. Let's talk about beans and what you see happening there. I'm hearing good news on early pod counts and bean numbers, we've got an SDS issue out there, the sudden death syndrome in soybeans, a fungal issue. That's going to have some impact on yield. Also obviously the very wet areas are going to be susceptible to it so that's going to keep the market nervous but there seem to be plenty of beans. South America still has a lot of beans. What do you see ahead?

Kohake: Range bound trade in beans right now. We finally broke the psychological $10 mark the middle part of the week. We got a late bounce with corn and with wheat also. Basis is weakening up with beans. I agree with you, the pod counts have been there, Pro Farmer's numbers were bearish and I'm more selling of rallies in here with the beans short-term yet. They're a follower of corn. I'm still targeting the $9.60 area for November beans sometime late September, early October and like you're saying, South America still has a large amount of beans to export and so these prices can't get too wild or our exports could shut down drastically.

Pearson: But they are wild enough to encourage some more planting probably in South America.

Kohake: Exactly, yeah. That is the key is keeping these prices up in here to keep the acres up down there.

Pearson: And on the up side, demand for beans worldwide has been huge.

Kohake: Yeah, worldwide this week's numbers were great again, pretty much what was expected, above expectations in corn and in wheat. All three grains are seeing huge exports.

Pearson: 2011 soybean sales?

Kohake: Yeah, I think you could step in front of those, do an HTA, I wouldn't sell the basis by any means but, yeah, that or some type of a put or sell the board strategy.

Pearson: All right. 20%, 30%?

Kohake: Yeah, I'd say between 10% and 15%, yeah.

Pearson: All right, and, of course, new crop 2010 do you want to take a position on these beans or what do you want to do?

Kohake: I'm short a pretty aggressive amount in here right now and I'm just going to hold them. I'm short as much as -- I'm pretty much holding right now with beans.

Pearson: All right. We mentioned cotton earlier, a big move in cotton this week.

Kohake: Right. We're back to two-year highs in cotton right now. We're seeing, like you were saying, maybe a little bit of an acreage battle get factored into the market, spillover from the other grains, the dollar has weakened up a little bit also but we're seeing the funds step in there also and buy a little bit. I like the $86, $87 mark for December to sell into if I was a hedger.

Pearson: All right. Let's move over to livestock. Let's talk about fed cattle. We've had a good move. This cash market has been very strong. What is your take on fed cattle for the balance of 2010?

Kohake: I think the market needs a short-term setback, sit back and catch its breath. We've rallied straight from 95 to 100 in the cash market in no time at all. The cutouts rallied $11 in ten days so I think you're looking at a short-term setback. I don't see this market holding in here longer term based off the broader economy and with the Dow being so shaky, unemployment, jobs, everything there being bearish and you've got increased marketings, increased weights for the cooler temperatures and better quality corn coming along so I'm a short-term bear in the cattle right now looking for about $1.50 setback.

Pearson: All right. Calf market has held in there pretty well despite the fact the corn market has rallied. We don't have any calves.

Kohake: Yeah, exactly. I've been a little discouraged myself with the feeder cattle market not catching the spillover strength there that we should. The live cattle have kept it in check with the weakness there spilling over to feeders. The cash market was great this week, had a $5 rally but didn't see much on the board. I think it just stands pad in here, doesn't fall apart with the live cattle, maybe a dollar or two down but stays firm.

Pearson: Stays firm and if you get a dollar or two you'll pay up for the feeders just to find them. Okay. The hog market, what do you see ahead there?

Kohake: Record pork prices this week, it has been on fire. My philosophy is pretty much the same with the cattle, increased weights, better quality corn, I don't see the economy keeping demand up at all in this beef or pork sector to sustain current pork prices or the dollar feeder calf prices. So, I'm selling this short-term in here all the way out into the first quarter of next year.

Pearson: All right. So, again, we've had a good move in livestock, good things seldom last forever, take advantage of it.

Kohake: Yeah, short-term, I'm not bear longer term, but I think just looking for a short-term setback based off the strength that we have seen and also I don't see demand with the way the broader economy is right now being able to sustain where we have been.

Pearson: You mentioned rallies, we've had a big rally in the dollar, good improvement there. Fed. Chairman some fairly positive remarks, a revision lower in the U.S. GDP, the little bit weaker dollar is a plus for us. Where are you thinking the dollar is headed?

Kohake: Just looking at September dollar charts 82 to 84 is the current range right now. I think we could go back to 85 longer term in here just on some short-term profit taking. But this whole financial sector is very unstable, very shaky. We had a nice late week rally, the Dow and metals too closed great this week, but we got, you know, jobs, healthcare, the debt, all this adding up longer term. We finally broke through 10,000 close on Wednesday but we didn't hold it and I think we come back down and re-test it again.

Pearson: All right. You mentioned gold, what is your thought on gold?

Kohake: I think you buy bricks in gold and in silver longer term. I think you're going to start to see a lot of money pour out of the equities, the Dow and the S&P and they're going to go try to buy some type of inflationary market, metals, grains and some softs. So, at deep breaks I'm still a buyer there.

Pearson: All right. Ten seconds left, what would be your trade for the week?

Kohake: I like October cattle and October hogs on the short side.

Pearson: All right. Well, we'll see how that all works out. Jamey Kohake, thank you sir, glad that you've joined us here today. That is going to wrap up this edition of Market to Market. Now, before we go we want to remind you about the special rural economic summit we'll be taping at Husker Harvest Days in Grand Island, Nebraska on September 15th. We'll assemble a panel of experts and, of course, you are invited to join the discussion and all you have to do is submit your questions at the Market to Market Web site. Of course, we want to get the conversation started by asking you the following: What improvement are you seeing in your local economy? So, visit the Market to Market Web site to share your story and submit your questions. Of course, join us again next week when we'll ride along on the sesquicentennial celebration of the Pony Express. Until then, thanks for watching. I'm Mark Pearson. Have a great week.

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Tags: agriculture commodity prices corn markets news wheat