The combination of tighter supplies and strong demand coupled with concerns over weather forecasts was friendly to grain prices.
For the week, September wheat gained 44 cents, while the September corn contract moved 59 cents higher.
Soybeans also continued last week's rally as the September contract advanced 38 cents. Nearby meal prices followed suit with a gain of nearly $14 per ton.
In the softs, cotton trended lower again this week as the December contract settled Friday with a weekly loss of more than $14 per hundredweight.
In the dairy market, August Class III Milk futures gained more than $1... a move virtually matched by the deferred contract.
Over in livestock, the August cattle contract lost more than $4. Nearby feeders were off nearly $8. But the October lean hog contract settled Friday with a weekly gain of nearly $2.
In the currency markets, the Euro lost 106 basis points against the dollar. Crude oil added to the past few week's move with a weekly gain of just over $1 per barrel. Comex Gold advanced nearly $50 per ounce. And the Goldman Sachs Commodity Index gained more than 6 points to close at 635-even.
Pearson: Here now to lend us his insight on these and other trends is our senior market analyst, John Roach. John, welcome back.
Pearson: We looked at the corn market this last week, really the last couple weeks. We've had almost a dollar move from the lows tithe highs. We're up 59 cents for the week. Wheat again a huge move. Beans a huge move. Volatility is unbelievable in these markets. We've kind of gotten a little sanguine with it because it's been what we've been dealing with really since about September of 2006, and I don't guess you're going to tell us it's going to change much. But broadly we look at energy, we look at the currency, we look at everything. Volatility is still the key on these commodities and on these currencies.
Roach: It is. It's absolutely amazing the volatility that we're experiencing. But we have to look at some of the underlying causes for that, and there are really many different causes out here, some positive, some negative. The big situation as far as economies are concerned around the world and debt around the world -- if you look at what's happening in Europe where we’ve seen the problems with Greece, we saw the problems with Ireland, and now it's Italy. -- You look at the kind of austere budgets that they're having to pass and the difficulties with that. You look at the budget situation we have in the United States and the $120 billion a month that we're spending that we don't have. And we have politicians all around the world trying to figure out how do we normalize lies this, how do we cut enough, how do we stay taxes --
Pearson: And stay getting elected.
Roach: And get elected again because that's -- there's two political parties, those in and those out. And nobody wants to be the out. So that whole process one day looks like, oh, we're headed in a good direction, and the next day it looks like, oh, we're headed in a bad direction. So that's one of the underlying things. Another underlying thing we have that we learned again with the USDA Report this week, and that is the demand for food in this world is phenomenal. The interesting graphs that I look at are the total usage graphs worldwide of corn, wheat, and soybeans. I mean they're just going off the chart, and they do it again and again every year. So we really tax our production capability. And then we have very unusual weather on top of all that herein one of the larger producing areas of the world, the United States. Very unusual weather as was reported on earlier. So we have several different things that are all happening in here at the same time, and it’s tremendous volatility. And there's no reason to think the volatility is going to quit anytime soon.
Pearson: Try and take advantage of it. Those that do will be the ones that succeed. Let's get to some direct cases. Let's talk about the wheat market. Again, a good rally this week. Certainly you look at those charts, there's plenty of wheat around the world, John. But good up market for producers. What are you telling them?
Roach: We’re selling into the wheat market. We generated a sell signal today on Chicago wheat. If we can get some more strength, we'll generate sell signals in Kansas City and Minneapolis perhaps next week. It will take a little more strength to get it, but market cycles back and forth. This huge volatility, which is daunting, is also a little bit predictable. And so far the swings to higher prices and then lower and back to higher, we continue to swing over about the same territory, although wheat is not getting back up as high as it did before, because we're finding out the crop is better than we thought. USDA raised the yield estimate this week. It's surprising how good the yields are as bad as the weather was through the hard wheat belt. But with that increased production, we also found that there was increased demand. And so that swung the market back to the upside. We had a lot of traders that were short Chicago wheat. They had to bail out of those shorts. That meant they had to buy. That rallied the market up right into our sell signal. So what we're suggesting to producers is this is good time to be pulling the trigger, selling a little bit of the crop. We don't think that we'd sell everything here. This is kind of the wrong time of year to sell wheat, but selling a little bit and getting yourself a little more financially comfortable makes sense to us.
Pearson: Would you sell 2012 wheat? Are you concerned?
Roach: Well, I think that anytime that you're able to generate what looked to be very good profits that you've got to take that home. The one thing about volatility is that you’re volatile and you're very high priced, but when volatility disappears, so do the high prices. And we'll go from volatile and high prices one of these days -- we've been in this business long enough to be able to say one of these days we're going to go back down to where farmers are going to struggle to make any profits at all. So looking forward to 2012 and even some producers who really can look forward to 2013, if you're seeing profitable opportunities where it looks like they make sense, then go ahead and be making some sales. And then get over and try it get your inputs bought, because the key here is that you have both your costs covered and your revenues covered.
Pearson: That same vein. Let's talk about the corn market. Obviously we're looking for record tightness this year as we get into the new crop season. Very tight this summer. You've had sell signals. The last time you've been on the show, we reached some very lofty levels. Hopefully people picked up on that and took advantage of those times. At this stage of the game, let's now talk new crop and let's talk December, how much do you want to sell? Are you selling the corn market right now like you are wheat?
Roach: Yeah, we are. We generated a sell signal yesterday, actually, for our clients, and our attitude is that this is kind of the wrap-up sale for summertime sales on corn. Our whole marketing philosophy is one of we want to sell -- almost all the sales we make, we want to make them in the first half of the year. The second half of the year, historically you go from whatever peak there is in the summer to some sort of valley in the fall. Now, the sure years like last year where you have -- to move, but they come around only every once in a great while. The more traditional move is to make your peak in the first half of the year and then you go to some sort of a harvest time low. What we learned in the report that came out at the end of the month was that we actually have more corn in the bin than what we anticipated. Now, there's a lot of discussion around about whether the government is write with this or not. But we learned a while ago that you better be careful if you argue very much with the government on these reports because they're the biggest counter out there. Nobody counts as many people as they do. So we think that there is a bit more corn out there than was anticipated. So the old-crop inventory is not as highly sought after, and the demand instead is shifting more over toward the new crop. But we're just wanting to wrap up the sales that a producer normally wants to get sold before harvest. The rest of the crop, we'll wait and sell it next spring. We don't think next spring will be a cheap market. We think next spring will probably be good. But we love making a sale when it's 100 degrees out, it's going to never rain ever again, it's going to stay hot forever, because usually the futures market -- remember we're trading futures here. Usually the futures market anticipates all that in its price structure.
Pearson: Even with that all, would you still, if it were profitable to do so, start making some 2012,even 2013 sales?
Roach: Absolutely. We think that, again, you have to look out forward. You have to look at the profitability on your farm. You're running a business. You're not raising the corn to do anything with other than generate a profit. So if you're able to do that, it's time to tie up inputs. It's time to go ahead and make some sales. You mentioned a moment ago the corn market is up a dollar a bushel.
Pearson: Oh, yeah. It's been wild.
Roach: But I can tell you, it had three one-dollar declines this year.
Pearson: Good point.
Roach: So when we're finally done with the corn market, I'll tell you it will be the decline that hurts the producers' profitability.
Pearson: Absolutely. All right, let's talk soybeans. And again, soybeans worldwide are -- seem to be okay. We're a little tight in this country. South America, as you predicted, is a good crop. Where are we going from here? What's your producer's -- are you in a sell signal on soybeans?
Roach: We're in a sell signal as well on beans.
Pearson: Really! I don't think you've had three sell signals all atone time in a while.
Roach: It's been a little while. It has. What's happened in recent history, in the past couple months, is we only got them for a day or two and then they're gone. Normally, historically the last four to six days. So we're, I think, three days into our sell signal on beans, two days on corn, one day on wheat. So we think that the selling opportunity will probably run through next week, or most of next week. And our way of approaching that is we try to get a good average. We just try to sell some bushels every day and get the total done by the end of the week that we're wanting to get done. The bean situation is, again, one of big supplies out of South America. A little smaller acreage here in the United States than what people anticipated, but still a relatively decent sized crop. It's just the phenomenal level of demand. And China is just really figuring into so many things in the economy and so many things in agriculture, and they’re, of course, our biggest customers in soybeans.
Pearson: And there was a confirmed corn sale too. I guess we didn't talk about the corn part that also kind of gets people excited.
Roach: And there's about them importing some pork as well. So, you know, you really have China being a major feature in a lot of things that are going on right now in our marketplace.
Pearson: All right. Talk about cotton, John, and where you see that one moving. Obviously it's been -- talk about volatility. That may be the one that had the highest record prices in relation to its customary price this last year. It's fallen off dramatically. What's the look ahead for cotton?
Roach: You're exactly right. The cotton market just went way up to levels that nobody could even fathom, and we ran into demand problems. In the report that came out this week, the USDA cut the export demand by a million bales. We're seeing replacement of cotton with polyester yarns, and so we went from $1.40 on December cotton to 99 cents. And so 40 percent of the value has been gone. Even though the main state that raises cotton in Texas and they're burning up and the crop is being reduced on a daily basis, the market is still going down anyway. This has got to be the hardest thing for a producer who’s looking at a crop losing and looking at the price going down at the same time. It's hard to even fathom that, but high prices will slow demand. If you want a prime example -- and all the grain farmers ought to be looking at this -- cotton a prime example: down 40 percent in value while it's burning up. That's kind of the way markets work. The problem with cotton is that we probably lost that demand for a little while. Remember, that's a fabric that goes into a consumer item and you start changing styles and so forth, and it’s hard to buy that back again.
Pearson: All right. Let's talk about the livestock markets. Big sell off on the board on cattle. We had this big rally. Is this a correction? Are we seeing beef slowdown at the consumer level? What's the factor?
Roach: Actually the dressed beef market, if you take a look at the combination of choice and select, it's actually marched its way on north. It actually broke into kind of new highs on this particular move.
Pearson: What's the futures market look like?
Roach: Well, the futures market is looking forward to next week's weather and saying, you know, we're going to back up some cattle, we're going to have problems with demand. We're into that time of year where it's going to be hard to maintain good beef demand. That's been the fear. And yet the real near term for the past few weeks would actually suggest that the demand has been a lot better than we thought. We have good export demand. We're up 27 percent on beef exports this year. So there's a lot of positive news in the cash market but, once again, you're dealing with futures, where people are looking forward is saying, well, what will the news be around the corner. And there's some fear that we’re going to create some extra tonnage out of this whole weather situation.
Pearson: And the same thing on feeders, a big back-off on the board. They've been really long in the cash markets.
Roach: They really have been and maybe got a little ahead of themselves here. With this kind of weather situation, you're buying a very expensive animal and taking a chance that you might have extreme death losses, real problems. Feed availability is tight and so you really have some concerns if you're in the cattle feeding business.
Pearson: You mentioned pork exports, China buying pork. This export scene has really been a dynamic in this livestock market. What do you see ahead for hog prices?
Roach: Well, in the last report that came out of China, their pork prices -- wholesale pork -- or retail pork prices up 57percent from a year ago. Pork is a huge meat demand, a very popular meat in China. They lots, lots more hogs than anybody else in the world, and yet the prices are so high. So the talk is the Chinese will step up and buy some pork, increase the total pork demand around the world. And that's what kind of got everybody buzzing, and it ran the hog market right up into a sell signal. We're -- on any kind of firmness in here; we’re hedging into the hog market slowly. We don't want to be negative at all. We just think, again, if you're a profit-minded producer and you use the futures market, use the strength to go ahead and layoff some of that risk to the speculator. It's a speculative trade that's taken the market up here to this price.
Pearson: We've got ten seconds, John. Oil prices, what do you see?
Roach: Oil prices I think are going to stay relatively narrow ranged here. I think they're going to be firm. I think economies are going to improve. But we're uncertain here about economies, the financial part.
Pearson: John Roach, thank you so much. That wraps up this edition of Market to Market. But if you’d like more information from John, 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 implications of the battle to raise America's 14.5 trillion debt ceiling. Until then, thanks for watching. I'm Mark Pearson. Have a good week...