The market took a beating late in the week as the effects of an uncertain global economy pushed prices lower. The move left some traders to wonder if the “top was in.”
For the week, December wheat lost nearly 50 cents, while the December corn contract moved almost 55 cents lower.
Soybeans followed suit as traders liquidated their positions. The November contract lost nearly $1. December meal continued its decline losing $23.40 per ton.
In the softs, cotton fell, again, this week as the December contract settled with a weekly loss of $9.28 per hundredweight.
In the dairy market, September Class III Milk futures dropped 6 cents while the October contract moved 51 cents lower.
Over in livestock, the November cattle contract lost $2.22. Nearby feeders lost more than $2.70. And the October lean hog contract continued its upward trend closing just over a dollar higher.
In the currency markets, the Euro took it on the chin losing a whopping 328 points against the dollar. Crude oil fell more than $8 per barrel to close below $80 for the first time in weeks. Comex Gold continued its downward trend with a weekly loss of $172.30 per ounce.
And the Goldman Sachs Commodity Index declined more than 54 points to close just over 600.
Pearson: Here to lend us his insight on these and other trends, one of our regular market analysts, Darin Newsom. Darin, welcome back.
Newsom: Thank you, Mark.
Pearson: It was tough, pick your poison. The equity markets, the corn market, the bean market, the wheat market, you name it, they were all, gold, oil, everything was down and certainly the Euro took it on the chin which can impact everything, right?
Newsom: It certainly does and that last chart that you showed with the CLB index, that tells the tale, that tells what type of problems commodity has. It just wasn't one sector, it was all sectors and this shows us that there's a larger sentiment towards the markets right now and Euro getting beat up that's going to support the dollar. Does the dollar need to really rally? No, there's no fundamental reason for the dollar to rally, it's just rallying because the Euro is going down. Stock market, yeah, it looks pretty weak right now and it doesn't look like it's going to change any time soon and I think that's where the real threat to many of these other markets lies is what is going to happen to the Dow, how much lower can we go and are we going to continue to see this liquidation tied to the weakening Dow continuing to affect the other markets.
Pearson: It has definitely had an impact. We mentioned oil too, stronger dollar, cheaper oil, there are some good things aren't there that are happening here?
Newsom: I've actually been asked that question and you think we hear so often that when gold goes up that is one of the reasons why the economy is seen as weak. Well, now we've got crude oil coming down below $80 for the first time in quite some time targeting maybe $75, maybe a little lower than that later this winter. Why isn't the economy looking better? Well, there's bigger things at play, we both know that, most folks know that there's a lot going on right now. You showed a partial list of some of the economic reports that came out this week. There's going to be just about as many next week. So, we keep getting mixed results. There is nothing concrete that shows growth is starting to happen. We continue to have the problems over in Europe. Domestically just a lot of questions as to when are we going to see the growth actually, economic growth actually start to take hold. It just isn't there yet and until it gets there we're going to continue to see these types of market problems regardless of what crude oil does.
Pearson: It's going to be interesting to see and Warren Buffet said, you pay a high price for clarity on Wall Street. And so this may be one of those opportunities maybe we will start to see some improvement. Let's talk about this wheat market. A lot of pressure there, Darin. There's concern about wheat planted this fall and what those numbers are going to look like.
Newsom: There's a couple of things going on in wheat right now. You're right, it's been an ongoing drought, there's been a little bit of rain move across the southern plains but really that creates more problems than it might solve. Visiting with some folks down there now the question is do we go ahead and plant even though we had the rain and if the rains stop then we'll watch it die as it comes up here before it goes into dormancy? Or do we wait, plant later, let it go into dormancy without it really coming up much and then wait to see if we have a wetter winter and spring? So, we're going to see that. There has been a debate, are we going to see fuel acres? I think we're going to see less wheat acres next year, I think it's just going to happen. Ongoing problems there, lack of global demand has been an issue for wheat for quite some time, we've got future spreads that won't behave, particularly in Chicago just won't come in. There's just so many problems in the wheat market right now but even though it is oversold, even though it looks like it should start gaining ground on corn, should start gaining ground on some other markets it just can't do it. Wheat is very closely tied to the dollar and with the strength of the dollar this week just another nail in its coffin that kept it under pressure.
Pearson: What are you telling a producer out there who maybe is holding onto the remains of the 2011 crop?
Newsom: I think a lot of the wheat gets sold right around harvest but there is going to be some and I do think wheat is oversold. So, if we get an expected rally, we saw wheat try to move away from the other grains too ...
Pearson: ... 50 cents ...
Newsom: Exactly, I think we're going to see wheat break free from corn, break free from soybeans for a while. The biggest threat to it is the continued strength of the U.S. dollar. It weakens again because it really has no reason to rally. I think it's going to give wheat a chance to move up. We get this 40, 50, 60 cent move I think it's going to give us some selling opportunities and producers are going to have to look for that because unless we see global demand pick up, unless we see the global supply and demand situation start to tighten, more wheat replacing corn and so on, wheat is going to really struggle to maintain rallies.
Pearson: You mentioned corn, let's talk about the corn market now. Harvest is underway and all the yield data that I've heard has been highly variable.
Newsom: That's a great way of putting it. Some coming in a lot better than expected, some coming in lower than expected. The lower than expected isn't -- there doesn't seem to be as many stories of that but let's keep this in perspective is that we have lowered our expectations so far that even if it's coming in better than expected it might not be as good as what had been originally thought. So, there are some better yields out there, there's some more shields out there. It's just a huge question right now but that side of the market has not changed. We're not going to know what is out there for quite some time. The best way we can do it is we always talk about look at these spreads. We look at that May-July corn spread and it is very small carry, very small percentage of carry out there. The market is still concerned about the type of supplies that we're going to have deeper in the 2011-2012 marketing year. Yeah, we're going to have some at harvest, yeah December could stay under pressure for a while. But longer term the supply and demand situation is still viewed as tight and that isn't going to change any time soon because of all of the questions surrounding harvest.
Pearson: We've heard this term demand destruction a lot and of course we've got this stronger dollar which is impacting corn too.
Newsom: I don't think it's happening. Have we seen some reduced demand? Sure we have. Have we seen ...
Newsom: Shifting demand. Have we seen USDA trim some of its demand numbers? Absolutely. But have we seen the market really react because again those May-July spreads still quite strong, March-May neutral, they're not bearish yet. So, I don't think we've seen demand shut down. The real test of this is what is national average basis, what is local basis doing? And right now it is still relatively firm. Yeah, I know, futures have come off $1, $1.50, whatever it is from its highs but we still have a pretty strong cash market in relation to the futures and that indicates to me merchandisers are still looking for corn.
Pearson: Always a good sign when you have a good cash market demand wise. But real quick on the corn right now. It would be tempting after this pull back just to dump corn onto the field but there is some carry there.
Newsom: There is. I mean, you've got a little bit of carry out in the December-March so that is probably your best bet. Don't dump it now. If you need to sell something sell it out against the March contract and work it that way. Hold onto some others, hold onto the balance of it because that May-July is still looking pretty attractive, that March-May, May-July saying that the market is going to be looking for some corn in that time frame as well.
Pearson: 2012 any opportunities out there?
Newsom: We've seen some early numbers as far as acres that we're going to see a large increase in corn plantings in 2012. I don't want to sell anything down here. But if we start to get something coming back in the 2011 market that pulls 2012 higher I think we're going to want to take a shot at maybe upping the percentage that we've got sold just in case we see that huge increase in acreage.
Pearson: Let's switch to beans and some bean yields I've heard have been decent.
Newsom: Bean yields so far the early yields seem to be coming in, this is going to sound bad, more consistently better than what we're hearing in corn right now. Did that frost affect things a couple of weeks ago, a week or so ago? Yeah, I think it did up in the very northern parts, up in the northern plains, up in the Midwest. So, I do think you're going to see some reduced yields there but overall I think yields are going to be relatively a little bit better than what had been anticipated and the spreads are reflecting that. The spreads are more bearish in soybeans than they are in corn and I think that tells a tale. Also it has been soybeans that have really struggled that last couple of weeks holding technical price support because it has more pressure coming into it, because it doesn't have the same fundamental support. Soybeans I think are going to continue to struggle and the stronger dollar makes it less attractive globally to buy U.S. supplies and we're only one half of the equation, there's plenty of supply still in South America. That is going to make the situation that much more difficult and soybeans are going to have to rely more on corn's ability to come back with a rally for itself to be able to rally.
Pearson: Sell beans off the combine then?
Newsom: I still don't want to sell beans off the combine. Basis is still relatively fine, if you need to generate some cash do it. I think there's going to be better opportunities later on if nothing else tied to the price relationship between corn and soybeans.
Pearson: Real quick cotton market soft again this week, start getting maybe some lower numbers for cotton?
Newsom: Yeah, the December, as you showed on your slide, the December is still holding around that $101. As long as it stays above $97 I don't really see a lot of technical problems in that market. Fundamentally still very bullish. We've got an inverted market on the futures spread so I think we get through this liquidation phase. I think cotton is going to bounce back. I still think we're tight domestically supply and demand, future spreads reflecting that, it's going to give us a better opportunity later down the road.
Pearson: Let's talk fed cattle and what you see going forward. All this talk of the negative economy, about the general economy whether it's right or wrong we won't know until it's over but that impacts beef demand to a certain extent but also our supplies continue to shrink in Texas, Kansas and Oklahoma. That's a lot of cattle.
Newsom: That's a lot of cattle and that's a lot of beef that we're not going to have later down the road. We still have good demand. Supplies, yes, are coming down. What has been interesting to me is that we did see the futures market come off. They came off on the same pressure that was hitting just about every other commodity but technically we didn't do the chart damage to cattle that we did to many of the other markets. They're holding relatively firm. I like that. Again, they are supported by the cash market. I don't see the cash market taking a huge hit here. I think a lot of the poor economy, the lack of extra spending that is going to be seen, all of the joblessness that we've been hearing about for the last few years I think a lot of that has already filtered through the market. So, cattle seem to be comfortable at these price levels. Could they break down? Absolutely but I still think there's enough support in there to keep them from having the meltdown that have happened in so many other commodities.
Pearson: All right, the calf market is strong with fewer cows I would assume.
Newsom: Yeah, and I think the prospects for the calf market are still going to be pretty good because at some point we're going to be looking to start replacing some of those numbers that didn't come out of Texas, didn't come out of Oklahoma. So, I think we're going to see some pretty good replacement demand here in the short-term.
Pearson: Hog market, strong dollar, we've depended a lot on exports in the hog trade.
Newsom: We have and really we haven't trimmed the export demand that much. If we look at, again, that hog chart it is very solid, it's pretty much sideways which in this day and age sideways markets not all that bad. So, again, as long as we can keep that floor of demand underneath this market that we have built up I think we're going to be okay in the hog market as well. It is a little bit more vulnerable than the cattle market but that is just the nature of hogs. We can see this huge crush come right back with a really strong rally.
Pearson: Darin, as usual, some great insights. Darin Newsom, we appreciate it. That's going to wrap up this edition of Market to Market. Now, if you'd like more information from Darin on where these volatile markets may be headed visit the Market Plus page at our Website. You'll find expanded market analysis, audio podcasts, streaming video of our program and, of course, links to our Twitter feed and Facebook page and it's all free at the Market to Market Web site. Of course, join us again next week when we'll examine the impact of a shifting global economy on U.S. agriculture. So, until then, thanks for watching. I'm Mark Pearson. Have a great week.
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