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Market Analysis: Jamey Kohake

posted on November 18, 2011

Market Analysis: 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, welcome back.

Pearson: Well, Jamey, we just talked about that Bakken Shelf, the Williston Basin, and all the excitement going on up there. It was an interesting week for crude oil, come to think of it. We were up over a hundred, then fell back sharply. Not much of a change for the week. But what's happening on that front?

Kohake: We've got a lot of speculation in the oil market. The currency market is very wild. That has a lot of spillover into the energy complex. The crude market has been on about a $15 rally from the middle of October to the early part of this week. Then all of a sudden mid week we hear news of the pipeline from Cushing, Oklahoma, down to the Gulf being reversed. That blew out the Brent versus WTI spreads and saw the correction then. Once that happened, we saw a lot of profit taking; some new shorts come in once we broke 100. But the news out of Cushing that the pipeline is being reversed is what started it.

Pearson: That is an interesting phenomenon, reverse the pipeline. What's that telling us?

Kohake: I think it tells us the fundamentals are fine right now supply wise, sell rallies. I like selling Jan up around 101. I like selling calls up around 110 strike in January. Fundamentally, there is no reason to be trading 103, 104 crude like we were earlier this week. Looking at spreads, natural gas was at an all time low versus crude earlier this week. So I'm selling rallies and crude short term.

Pearson: We've had ample supplies in Cushing for some time.

Kohake: Exactly.

Pearson: That, of course, has an impact on so many things. You also mentioned the 4x markets. Let's just talk about the dollar this week, again stronger against the euro, strong against a lot of currencies. That's a headwind for us in agriculture.

Kohake: It is. And I don't know if it's a long term signal that the dollar is heading above 80 or not, but this euro currency deal, it's obviously serious. I think a good long term play there just sell rallies in the euro and just let it ride down. The French and the Italians are still fighting with the Germans. The French want to monitorize the debt. Their interest rates are high. It's still bearish news every morning which bond market is going to pretty much blow up.

Pearson: Every time a deal is done, it has to be redone.

Kohake: Exactly. It's getting real tiring.

Pearson: It is. People are getting real tired of hearing about Greece. Let's talk about it is having an impact on our grain markets. Fundamentals seem to be relatively tight for corn and beans, not so much so for wheat. What's your take on the wheat market and where are we headed?

Kohake: I this wheat short term slides lower. Sell rallies; sell March Chicago up around 660 area. You're right; the world supplies are the bigger factor over hanging the market. Exports are slow right now. Corn and wheat are following each other pretty much every single day. They've had some rains down in the Southern Plains last week, more forecasted for the early part of next week. But until the exports pick back up right now, I would sell rallies.

Pearson: Again, we're not talking huge rallies here.

Kohake: No, I think you got to get back to exactly. Back to where we were Wednesday would be perfect on Thursday, but 660 is what I am looking at in March.

Pearson: All right. Let's talk about the corn market and you see happening on that front. It was a rough week for corn. Are we headed for more of the same?

Kohake: I think short term the trend is lower, obviously. Sell rallies there too. The big selloff started Thursday. We blow stops out, run new stops, and everybody gets scared and it is pretty much out of their longs. There is no fresh news here. Exports are slow. Terrible again this week. Worldwide, our prices are still higher than most countries. We are not moving anything. There's talk of 7, 9 acres maybe coming out of CRP. Acres are already estimated to be higher than last year now, so we've just got all this bearish news overhanging the market, scaring everybody to get short. The highs are in. It is done. Still early on, I like selling March up around 650, 660. The Dec. '12 is up around 610 right now.

Pearson: Are you getting more getting more aggressive on selling new crop 2012?

Kohake: I'm not right now. I don't like selling 560. I think there's still plenty of time. There is plenty of X factors. We can play the guessing game with acres. We don't know the insurance levels for next year yet or anything, so I still like it up over six right now. The basis is going to stay strong. Commercials have very little grain on the books for JFM, Jan/Feb/March. So eventually we have to find some reason, some catalyst to price some of this grain loose, and that's kind of the rally I'm setting back to sell into.

Pearson: All right. It's been a frustrating period of time for people because selling off the combine looked pretty good, no matter how much storage you have.

Kohake: Exactly. Historically the basis is tight, really tight. We did see it widen out a little bit in Central Illinois on Wednesday about 10 cents. There is still very little movement across the whole Midwest, and I look for it to stay strong and get stronger.

Pearson: Internationally South American crops are looking good down there. There is more coming out of Argentina, Brazil, and Chile, as part that goes.

Kohake: There's no weather scare at all down there yet. Eventually they'll probably run into a little bit of a drought scenario, I think. That should help us out. There's still so many unknowns. I don't think anybody should just be throwing the towel in and sell the farm out for the next two years right now. I think wait till the first years, see how the December crop report comes in, and try to get a rally and sell into it then.

Pearson: All right. Let's go on to beans, then. Soybean market faired a little bit better this week, but still a big selloff on Friday.

Kohake: Yeah, early on. Didn't close the corn and the bean market that bad at all on Friday. A little bit better news here. China is actually buying beans at a fresh export number again. On Friday for the weekly number was not too bad at all. But we can't separate the weakness from the corn pit and the wheat pit from pulling the beans down. Beans looked technically horrendous early Friday. They broke support 1160 Jan. Ran it down around 1153. If we were to stay down in there, 1125 was the next target. I think you've got to sell Jan at 1205 until we get the corn and the wheat market to show some type of bottoming action there.

Pearson: All right. And you're not in a hurry to sell 2012 beans at all?

Kohake: I would be closer to the end of the year or January. I'm going to see what the funds do in here toward the end of the year, if they book short or not. But here short term, sideways to lower in the grain market. Wait till mid Dec, late Dec. See what happens to the funds coming into January crop report to sell into.

Pearson: All right. We've got a La Niña pattern. A lot of people are concerned about what that could means in terms of weather volatility. So far, though, our main growing season right now is still South America, and things are looking good.

Kohake: Yeah, the whole Southern Hemisphere is looking okay right now, including Australia. So we need something there to pop up to light a catalyst. All this grain market needs is a new catalyst, exports, a weather scare down in South America, Southern Hemisphere somewhere. Disperse some short covering. I don't see that on the horizon. So I think you're looking mid to late December before we get out of this range.

Pearson: All right. Let's talk cotton here real quick. The pullback there to 95. Again, these are still good levels, Jamie. But are you selling here?

Kohake: Yeah, I think you have to, Mark. We were on a $7 rally coming into Thursday's overnight trade. You got caught limit down twice this week. China is the only reason we've been up over a hundred as of the last week. So you've got to sell the rallies 98, 99 area in March.

Pearson: All right. The president is overseas. He's got meetings with China, critical buyer of our products. A lot of issues over there. It could impact the livestock sector and the pork sector certainly. What about the beef market? What do you see ahead for that one? That's been a bright spot here pricewise. Not so much in production because we lost so much out on the plains this year.

Kohake: Right. We had a cattle on feed report out today. It was bearish. I like bearish spreading the whole meat complex, cattle and pork, selling nearbys, buy the spring contracts. The live cattle market I think put a high in the cash market last week. I'm bearish through year end right now. I like selling the Feb. up around 126. And I think just look for this thing to grind lower into the mid part of December. After that if the market trends back higher, exports are still very, very strong. I don't see those backing off right now. But short term the market has topped out, in my opinion.

Pearson: Calf market, what do you tell the rancher out there?

Kohake: Long term the market is still bullish. We got a little bit overbought early this week. Spring contracts were all over 150. And I thought it was just a good short term play there to get short, but I think holding out, wait until spring and see what happens.

Pearson: Everyone I've talked to, everything I've heard, still no expansion. Kohake: supplies are still the tightest since the '50s.

Pearson: All right. Well, talk about hogs. Very export dependent. What do you see there?

Kohake: I still see strong exports. Even though supplies are up 1 percent versus a year ago, the movement is still very, very good. We saw cash back off this week, which kind of slowed a little bit of the new money coming in. Bearish spread here, selling nearbys, buying the spring contracts short term. I just don't see anything fundamentally to see a big run, a huge run on the nearbys through year end.

Pearson: All right. As far as a producer is concerned, what would you recommend? I mean we're in a period of time here where we've seen bigger numbers than we thought we were going to see.

Kohake: Right, for the hogs. I think you sell the Feb. contract here versus Thursday's high. Get up around that 96 mark is what I was looking at earlier this morning. You sell into it there. Actually 9130 is what I was looking at on the Feb. Take advantage of the early next week and hold it through year end. Then I think you let everything shuffle out, take your profits early next year, and look for a retest in the highs again then.

Pearson: Challenging thing has yet been to get feed needs covered with these high basis values, really for both corn and soybeans. What's your recommendation to producers right now? With this pullback in corn and beans, are you taking some coverage?

Kohake: I would. If I was end user, I would try to come out and buy some calls next week on a setback again. Let us retest today's lows early next week. And if we can't do it then, buy some calls them.

Pearson: Jamey, I always like to ask you about the gold market. People ask me about it all the time. We've got a pullback. What's your take on gold?

Kohake: I like buying Feb. at 1680. There's a lot of rumors out this week that the IMF was selling gold, that we were selling gold, add that had market shook up early on. But I think it is still a good investment long term.

Pearson: What's your target?

Kohake: I think 1850 area, that area, 1870. I think 2000 is out of the window right now. Just because of the euro crisis and the dollar hanging relatively firm. I'm not looking for 2000 anywhere short term now.
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.  And be sure to join us again next week when, we’ll examine the outlook for a Thanksgiving staple -- cranberries. Until then, thanks for watching. I'm Mark Pearson. Have a good week...

Tags: agriculture cattle commodity prices corn economy feeders hogs markets news soybeans wheat