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.
Kohake: Thanks, Mark.
Pearson: All right. Let's talk macroeconomics here real quick.There's still a lot of concern about your Europe. We saw the euro actually improve this week against the dollar. Gold was still up a little bit. But there seems to be kind of a calming. The equity markets in the us were a little bit stronger. Are we starting to pull out of this thing? Is there less concern about a global recession occurring or is there more concern as we go through this week?
Kohake: The rhetoric, like you are saying, is getting a lot better than it was two or three weeks ago.
It was every single morning of Greece, Italy, you name it, and something was bearish and everything was spilling over off of that. The rhetoric has gotten better. I'm still bullish gold longer term, taking a look at buying December at 1590 area. And I'm just looking for a short term setback there to get long. The currency market, like what you're saying, is very, very wild. A lot of spreads. The dollar versus the euro, all this macroeconomic news out of Europe that is fluctuating that. S&P downgraded some more banks here this week. French was out as well, downgrading. Slovakia wants out of any type of bailout structure. They're the poorest e nation, and they're expected to help some of these countries out, and they are saying no way. The big key next week is going to be how big of a haircut do the bond investors take, 40 percent, 50 percent, and how that spills over. I like being long the dollar, a point low than from where we closed at today, looking for run back around 7850. Selling the euro a point higher than where we were today, looking for new short term lows.
Pearson: A new foreign exchange strategy there. Obviously in the a world, the corn market and the bean market, obviously this cheap dollar has been the wind at our back. So if the dollar rallies, what can we see?
Let's talk about the wheat market first.
Kohake: It did soften longer term the export business, but I think we have to get about 80, 82 to really fluctuate the export numbers right now. We did see a big rally Tuesday, like the news was saying here and just a lot of premium built in. To the week, the key is exports. There's a ton of wheat coming out of the Baltic Sea area, A lot of FSU week. So we're competing against that, that's the long term key. Wednesday's report showed very comfortable world supplies. That's going to become the wet blanket over the wheat market for the next six months. Domestically still decent carry out. We have weather problems down south still. They did get some rain a week ago but not enough, and the acreage deal is still coming. I like buying Chicago at 660. I think a lot of this bearishness of wheat is factored in. Looking for one more setback to position longer term to relieve the charts.
Pearson: So again, a little bit of a break. You would be a buyer. And the flipside is from a producer's standpoint looking at this thing because we get these rallies, again, not a huge one but 15 cents this week. If we get another 15, 30 cents, do you want to start selling the wheat?
Kohake: I would start pricing some in that area, back over in $7. This is Chicago I'm talking about, contracts July up over 7. I think longer term, wheat comes out of this hole. The funds are short right now. It wouldn't take very much news to get funds back in that even position, which would probably be around 30 or 40 cents. If we can just get some export business back going, get some weather over in Europe again. They're drying out. I think that wheat could be explosive longer term, but short term we are just starting to fight through exports versus FSU wheat.
Pearson: Let's switch gears. Let's talk about the corn market. Obviously the China deal, it was a big one.
Not a huge surprise. There's been a lot of talk about China and corn and China buying corn, but following the USDA Report, which, again, was not bearish really. But again, I mean it wasn't a catalysts to bringing these markets higher. What is all this going to mean with this new activity from China?
Kohake: I think it is supportive. China supplies are low historically. So they are going to be replenishing their stocks out. It could be a three to six or nine month play that they look at. They'll manipulate the prices like they always do. But the news of China buying corn and beans was a big key Tuesday. Saw the limit to up move there, and it inspired a lot of short covering. I don't think that wheat or corn as much in here at all. It's a range bound type trade. We've got Dec. I think between about 610, 660 back and forth. I'd be a short term seller at 660. I'd take them off near 6. The yields are neutral, like you were saying. The crop size is neutral, but we still have a decent carryout of 11 12, and that's what is overhanging the market. We need to keep exports very, very strong.
Pearson: That's going to be the news going forward. But again, positive news from China. Other factors as we look at what's happening in corn, every Brazilian farmer we talk to and Argentinian farmer at the farm progress show this year and other events, they all told us the same thing. They're going to plant more corn for next year. Are we going to see some of that showing up here before long in terms of planted acreage?
Kohake: I think we will and we are going to start to see China, you know, go down there for more corn eventually as well. But, yeah, we are going to see larger corn acres probably. Informa had some estimates out today, and they showed that. But the key here short team is just to keep exporting to China, get these ending stocks back down where we can spur the market higher longer term. I think fundamentally we are fine longer term. You can still see 680, 720 range. That's March through next July pricing. And that's what I'm telling hedgers, you know. If you've got the storage capability, store it and price it out that far.
Pearson: There's your carry. Let's talk about the bean market and what you see happening there. Again, some good news there, obviously China buying too.
Kohake: Right, that was the big catalyst on Tuesday. Rumors of China six to eight, eight to nine cargoes was the catalyst. Beans, if you want to be long, anything in the grain complex, I'd be looking to get long beans Jan. Around 1225. That's sharply lower from where we are now, but pretty good setback. I would be long there. The 11 12 carryouts, very very tight. I think you're going to see beans up over 13 longer term. I'm willing to hold off here before we do any additional selling.
Pearson: All right. Good strategy. Cotton market?
Kohake: Bearish report on cotton. I'm kind of surprised. Kind of disappointing with all this dryness we've had down in the delta for the last six months, but some of the Eastern Cotton Belt like Georgia did have a decent crop. I'm selling December up at 108. I think you have to be short up in there, the numbers
The damage we've done to the charts, the damage in the grain charts, I don't think they are ready to shoot back higher. So I'm selling Dec. cotton 108.
Pearson: Decent price, really. Let's go back and talk about the livestock sector and what you see happening on that front. Obviously with the situation in the panhandle of Texas and Oklahoma and throughout your area in Kansas, we lost a lot of cows. What is your take for 2012 and the fed cattle outlook?
Kohake: I'm still supportive cattle. Supply bulls are still running wild and are going to be wild I think through the first or second quarter of next year. We've seen a rally here lately in the cash market. We've got a little bit of a drop off this week back at 119. We got a big tug of war. We've got the packers that are operating in the red. We've got supply bulls talking 130, 140, so we're fighting back and forth right now. The chain rate is being cut back. The packers are trying everything they can. I'm selling December around 126. Fed at 127 area. That's kind of steep right now, but I think if we can get one more push, we can see those levels. The USDA Report this week for beef showed us producing about 25 billion pounds next year. And that's roughly about 13 percent I'm sorry, 5 percent lower than this year's numbers. And we are officially going to be a net exporter next year of beef, first time in a long, long, long, long time. So I think cattle supplies through the second quarter of next year remain very, very supportive. Right now in the short term, it's looking for a little bit of a correction. The charts have been pointing up, maybe a reversal today. I didn't see the close, but we could have a reversal today. So I'm just buying some puts short term and looking for short term correction to get back on again.
Pearson: What about the calf market? What do you see there?
Kohake: I think supportive prices. We're still the tightest since the '50s right now supply wise. I like January feeders up around 149 to take a short sale there. Markets pricing there is going to be overbought here short term, so I'm just looking for a cheap play to watch the charts track back down.
Pearson: Let's talk about the hog market. These trade deals are past, as we talked about them earlier in the show, particularly this South Korea one. Big deal for pork producers. Pork producers kind of gave up a lot trying to get this thing done, and then finally it's happened. Now hopefully by 2016 they will start to see the fruits of their labor. But tell us what you see ahead for the hot market near term. You talk about maybe a stronger dollar. Obviously they've become very export dependent in the pork world.
Kohake: Yeah, this whole beef and pork really here this last year is based off strong exports. They're huge over into Asia. And the USDA Report this week on pork is pretty much neutral as well. We are going to be producing about 23 billion pounds of pork next year. Right now you look at the pricing structure on the board, they are ridiculous prices. We are talking 90 cent hogs all over the place. Defer cattle, contract highs this week. I've been buying puts here late this week and selling some few calls. But I think as a hedger you have to take advantage of this rally that we've seen and put a floor underneath this market. I've been using options just for volatility has been so big. Same in the cattle, you know, margin calls. But I think short term the market does stay in here. It probably goes sideways and then gets spillover from cattle if you put another
Pearson: Are you covering feed needs now with this pull back we had last week in the corn? Would you start to cover feed needs back towards that 610 on corn?
Kohake: Absolutely. 580, 610 area, somehow we'd trip back down to where we were. I'd say, yeah, that longer term buy zone, 610, march, I would be buying for sure.
Pearson: Let's talk about some of the other markets that we like to touch on. And of course, gold and oil come to mind immediately. Oil market is strengthening just a little bit this week. We've had a pretty good pullback. From an input standpoint, is that one we want to jump on with another $2 or $3 break on crude?
Kohake: Crude right now is about a $15 range. 91 to 76 off the December board. If you get back down around 78 to 80, I would be a buyer for sure. I've just been playing the ranges, selling calls up around 95, 98. We had 88 to 90 and then we ended up sitting around the high 70s. There's a lot of influence in the crude market right now. A lot of spreads versus the Brent. We have this currency market that's all over the place off of European news. So I'm just playing the ranges right now until we can get some fresh, new news. We did see a drawdown this week in supplies surplus; I'm sorry, build up to 3 million barrels.
So I think short term I would be selling rallies. There's just too much weakness globally with the news to hold that up around 90 right now.
Pearson: Talk about the gold market. That's kind of how we take the world's temperature. We were up this week, but we've had a pretty good pullback here.
Kohake: We have. I like the 1590 area for December to be getting long down along there. That's another play off the dollar. The dollar can move softer. It will push higher. I started buying breaks long term in gold and in silver, and it's still looking for inflation rallies.
Pearson: All right. Again, we're watching what's happening in the foreign exchange markets. Next week is going to be critical. We'll see what happens with Greek debt holders. All these things impacting the agricultural markets. And as we look forward, it's like we've seen a little bit of a pullback, some of the bloom come off of commodities, Jamey. Do you agree with that?
Kohake: We have but the rallies are holding in better. The selloffs aren't seeing a spillover for two or three days in a row. The Dow was a thousand points off the low here lately. The S&P is holding in -- is hanging around 30. Grains, when we get done 10 or 12 in corn, we don't go straight to 30 lower like we were three weeks ago. So I think the bearishness is getting built in.
Pearson: 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.
Pearson: And be sure to join us next week when we'll explain how one college team revisited a play from the 1980s and used football to help farmers. Until then, thanks for watching. I'm Mark Pearson. Have a good week...
Market Analysis: Market Analyst Jamey Kohake
posted on October 14, 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.