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: It as a wild week. Let's talk about the equity market first. A lot of money coming and going from that pit. A lot of concern about what's happening in Europe.
Kohake: Right. We had another 400 day swing in the Dow this week. It started off in Europe the night before. They were down 4-6 percent. All of this is off their debt worries or debt impasse right now. So much of the worries are still in Portugal, Italy Greece, Spain, that we've talked about on here. If one of these nations would default, banks are in serious, serious trouble with their bonds. There's also U.S. banks that are linked to there, so we're seeing all this spillover, wild swings, people wanting to go to cash. There's a lot of uncertainty there in the market.
Pearson: There's a lot of concern about the euro holding together all the euro nations. But France and Germany, are they really going to let those PIIG countries go under or default? I mean that's going to spin things even worse, and they do a lot of trading with them?
Kohake: Right. I don't think they will. Sarkozy and Merkel met this week. Nothing really came out of it. I think they will get something resolved there. I agree with you, they're not going to let another nation default, and eventually will end up hurting them with some type of export business.
Pearson: Absolutely. Crude oil, some wild swings, big swing down, $3.30 lower. Hopefully that will get translated to the pump fairly soon.
Kohake: Right. A lot of this is spillover from the equities. $90 crude seems like a top right now on a daily chart. I've sold some naked calls out up over 94, 96 area. I don't see crude holding rallies right now with all this global weakness. Our economy being, very, very weak. This week on this other reports, the filling region -- the fed region manufacturing index was negative, and that was really a big surprise. That was a huge, huge surprise. You know, weakness in the crude, weakness in the S&P all from that. Mortgage rates are at fifty-year lows right now. Jobless claims up this week. I don't see crude holding the high 80s right now at all.
Pearson: And gold keeps going up.
Kohake: Right. Gold has kind of turned into its own currency right now. The dollar is in about a two-point range. Gold seems to be wanting to put new-contract highs in every single day. The market is getting overbought. I'm not chasing gold up here at all. I would advise customers to look to be taking profits and look for like a $200 setback to get back into. But here where it's at, I'm staying away from it. The sentiment seems to be $2000, is the target. But I think you need to see some profit taking to relieve the charts.
Pearson: All right. With that background, let's move now into our ag commodities. We had a nice gain in wheat this week. A lot of concerns about the drought conditions down in Texas. I visited with governor Rick Perry this week at the Iowa State Fair. The worst drought he's seen in his lifetime. The family has been there five generations. Obviously we talked about the burn bans and fire problems and certainly drought problems, hay problems, livestock liquidation and, of course, the huge problem in the panhandle with the wheat crop in the Southern Kansas. We had ears of corn from South Central Kansas last week that they weren't worst doing much with at all. So the wheat market as we go and as we start looking for new crop -- when we start looking this fall at planting this week in this dry dirt, what's the thinking, Jamey?
Kohake: Right, we're at two-month highs -- we were at two-month highs earlier this week. The soft winter wheat, Kansas City wheat as well, is getting a lot of support from Minneapolis. That's the leader in the wheat complex right now. There's still a shortage of high-protein wheat, and that's where this basis is for the rally. Exports is where the key is, I think, for the whole grain complex. We need to keep moving this, or we're going to set back sharply. I like selling 770 area right now December Chicago as a hedge until I see exports get a little bit better than they are right now. This week's numbers, were okay. They weren't great. What we're seeing is Russia export a lot of wheat. They're moving two to three million metric tons a month right now. So I'm not trusting the wheat market to hold together. So short term I like 770, 780 December Chicago.
Pearson: All right. So take advantage of that one.
Pearson: All right. Let's talk also about the corn market now and where you see that one going. We've had this huge rally. We're at some very strong prices, Jamey. What are you telling producers?
Kohake: If you can't store it, you've got it sell it in here I think short term. Don't wait till it comes off the combine. I was a little disappointed this week. We saw new contract highs be put in. We just kind of grinded through it real slowly, kind of just walked through the door. Where in the past year or two, we bust new highs, we've run 10, 20 cents in no time at all. I was a little disappointed with the way we did this week. We've got a continue to of bullish news, and we're still kind of hanging up around 730. We saw a big surprise report this week on Tuesday, FSA numbers. They weren't expected to be outing in October. And they've got preventive planted acres at three million -- four million less planted acres. Bullish numbers there. Top flight in Central Illinois reported yield estimates 25 bushels lower than last year. We can't really rally this market. Then we saw a set back off the equities. But I would be selling rallies short term on a sharp setback. Down towards $7 in December, I would reown it with some calls.
Pearson: I spoke today with Secretary of Agriculture Tom Vilsack about some of the damage that we've had certainly along the Missouri River. He said most of the relief from that is going to come from crop insurance. You know, our disaster days are somewhat limited. He also said the new Farm Bill is going to be very budget conscious, so don't expect a lot to happen in there. Maybe some conservation measures but not a lot more than that. And we'll see what happens with the fixed payments too. So corn growers have a lot of their plague right now, but making decisions about crop sales is extremely important. We used to talk about a short crop giving us a long tail. Now, that hasn't been the case the last couple of years. What's your take on this? Should we look at 2011 -- or 2012 in addition to 2011 sales?
Kohake: I think for sure you look at them. I think one wild card there is to get your numbers worked up too with your inputs and make sure you know what your profit potential is before you just start going out and selling everything. Yes, the Dec '12 -- this red Dec., I would look at, you know, 660, 680. I think there's still potential for more upside there and just based off I think final yields probably coming in the lower low 150s. Brings the total crop size 12-7, 12-7, and we're still in a very, very -- same situation close to last year. So I think 660 is a good price to start at there for the red Dec.
Pearson: You mentioned in put costs and that's always a scary thing when you go up front. We had a Tweet from Evan up in North Dakota who wanted to know about fertilizer inflation. We already talked about crude oil. We're getting a break there right now. 40 percent of our oil comes from a very dangerous place in the world, so the idea of that staying down is maybe not that possible. What are you telling people about locking in inputs?
Kohake: I like locking some in here once crude gets in the low 80s, high 70s. Opec seems to think that $70 crude was the old $40 crude. They think it's bone cheap. I don't agree where that. But as a producer high 70s, low 80s, get some hedging on there to lock some in. That way we can get some forecasting with some futures pricing.
Pearson: All right. Let's also talk about soybean market and what you see happening on that front. Again, we've had some good moves. There's been fewer dynamics going in the soybean pit for the time being. In August, in parts was Bean Belt, anyway, are starting to look better than what we went through in July, which is a critical time for corn.
Kohake: Right. We're in about a dollar range in beans right now, 13-14 we're getting back towards the upper end right now. The key with the beans will be I think a little bit this weekend how much rain we get out east of here, Central Illinois, Eastern Indiana is going to be key. But I still like 1380 to $14 short term as a sell price until we get a better handle on what the yields are. Top flight, central Illinois this week had about six pods per plant less than last year. With all this uncertainty with crude, with the economy, export business, I like selling the crop up around $14. If you run into a 40 bushel crop, we can turn around and get calls and reown it that way.
Pearson: Obviously with the drought in Texas, the problems we've had down there, cotton for the production side is certainly down from last year. But apparently demand is down, too but we saw a nice rally is cotton this week.
Kohake: Right. Final starting to get a little bit more fund activity in there. I don't know how long it's going to last. This weak dollar too is start to go help us as well. This whole entire grain complex, cotton as well, oats, we have to export the crop. And right now I think we're at levels where they're going to start backing off. That's why I'm more into, you know, putting a floor underneath this thing.
Pearson: All right. That's always a good idea. It's still a business. Let's talk about the fed cattle market. Where do you see that market headed? We've seen a lot of liquidation down in Texas. We've seen a lot of cow herd liquidations. I'm hearing they're bringing good prices and those cows are going somewhere where there is some pasture.
Kohake: Right. The cash prices this week are $2-$4 lower compared to last week. We saw the futures set back. I think they're a little bit overdone in here right now. I'm looking for more short covering next week. A lot of it will depend on the equities. They seem to follow each other. We saw the cattle and feed report today. It was bearish. Probably a little bit more bearish than expected, in my mind. But those numbers I think were factored in on Wednesday's selloff. So I'm looking for, you know, probably a flat to a little lower opening Monday, nothing major. But I think there's still a little bit of upside with the cattle in here. We've got really a big tug of war going on in this whole meat complex. The supply side, like you were saying, this is bullish -- tightish since the 50s with the feeder cattle and then you've got the same thing with the grains. You've the economy is weak and can we sustain these high prices or not. I think we're more range bound right now. I would sell another dollar and a half rally next week --
Pearson: All right, on the Feds.
Kohake: On the Fed.
Pearson: All right. Feeder market?
Kohake: Same thing there. At one time this week, feeders were down six bucks on week. I'm so bullish feeders longer term, a little bit based off of corn. But I'm not too concerned with feeders in here right now. I think they've still got room to rally.
Pearson: Talk about the hog market. This export business has been red hot, beef and pork, but certainly we're seeing a big impact in the pork market.
Kohake: Right. We're moving anywhere from 15 to 30 percent more pork and beef from last year based on some numbers. The million dollar question with pork right now is how fast or how hard will cash come down to the futures. There's a huge, huge discount here cash to futures. So that's going to be the key. We've got large slaughter right now. We've got a weak economy, and I think hogs get another dollar, dollar and a half upside able to sell into. I think 88 to 91 is a fair price for hogs, so I'd say up around 90, 91 would be where I would hedge at for these nearbys.
Pearson: Jamey, it's been very volatile. A lot of concern about when we're going to start rationing, particularly on the corn. We've got huge potential export business coming our way with china we're being told left and right. The volatility has continued. Certainly the currency complex has been wild as well. Euro weak against the dollar this week, of course, the problem with the banks over there, and all those issues. What would you do right now this week if you had to make a trade? What would you tell somebody you think would be a winning trade? What would you tell people?
Kohake: I like selling deep out of the money corn puts, like December 620, 630, pick up somewhere around a dime, 15 cents in there. I think that's a conservative play to make a little bit of money on. And I also like looking at coffee calls as well. Coffee has been on the tariffs of some recovery here -- spec play. Looking at over $300 calls next week as well. And I think for the ags the corn trade and even some bean puts, I think, short term would sell, like selling October soybean puts, you know, a dollar out of the money.
Pearson: Well, there's a couple of great ideas for people that are looking at this these markets and trying to profit from there.
Pearson: That's what we try and do here on "Market to Market." 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 volatile markets just may be headed, visit the "Market Plus" page at our web site. You'll find "Expanded Market Analysis," audio podcasts, streaming video of our program and links to our Twitter feed and Facebook page-- all FREE -- at the Market to Market Web site. And be sure to join us next week when we'll examine the economic outlook on Main Street. I'm Mark Pearson. Have a good week...
Market Analysis: Market Analyst Jamey Kohake
posted on August 19, 2011
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.