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Market Analysis: Jamey Kohake

posted on January 7, 2012

Market Analysis: Jamey Kohake

Pearson: Well, Jamey, some big moves. Big moves in crude oil. A lot of concern about what's happening in Iran. Gold coming back up again. It looks like it's kind of a risk-on environment again for the commodities.

Kohake: That is right. A lot of uncertain area, again, overseas. We saw Iran some saber rattling again this week, and that pushed gold up about a $2-$3 rally earlier this week. We're back north of 100 in the nearby crude contract. Supplies are up. Demand is down. These prices fundamentally aren't justified right now, but there's a lot of risk premium, like you were saying, in these markets right now. What I've been doing is spreading crude with options, selling deep out of the money calls, 115 strike and selling like some $82 March puts, and just thinking crude will stay between those numbers. For right now the $101-$102 crude fundamentally is not justified.

Pearson: And of course, the strengthening dollar is also playing a role. Where do you see the dollar headed?

Kohake: I think the dollar is supported right out. What do you know, Greece back in the news this week, it's been a while since we've heard Greece, and they're back.

Pearson: What a joy it's been.

Kohake: Exactly. Italian banks back in the news. The euro tanked. The dollar rallied off that. I think if you are a currency trader, you stay longer dollar, as long as you stay above 80, you stay short the euro. As long as you're below 130-- and I think that's a longer term trade --that is going to be a winner.

Pearson: One of our viewers from Canada was wondering about the impact of the dollar and putting a lid on commodity prices. What's your thought on that?

Kohake: I think it's a trend to watch. I think it's very, very likely that it could happen where the dollar creeps back to 83, 84.the euro down to 124, 125, and that keeps a lot of the fund money sidelined.

Pearson: And that fund money, could help us out some. Let's talk specifics. Let's talk about the wheat market and what you see happening there. I was down in Texas. I was looking at some of the wheat crop, not looking good. There's been no break in the drought really down there to any great extent. So the U.S. wheat crop in the main grain belts looks pretty tough.

Kohake: Right, there's no snow coverage either, and the hard red winter wheat, like you were saying, the drought from roughly Wichita clear up to Minneapolis, stretching through there. Wheat right now is a follower of corn. It doesn't have much going for it at all right now. Exports are slow. We're still losing business coming out of the Baltic Sea area. For the report coming up this coming Thursday, I'm looking for the numbers to be a little bit supportive and looking to see more short covering. But I think short-term still sell rallies in wheat up around 6 1/2 is where I like to be short at.

Pearson: The USDA Report is coming out on Thursday. It will be the final look at 2011. We'll kind of see where we're headed as we go to 2012 in terms of carryout. Globally plenty of wheat.

Kohake: That's right. That's been the overhanging bearishness the last three to six months is this European wheat. The Russian wheat especially is what has put a crimp on our exports.

Pearson: Kind of bracket me in. Where do you see wheat on the basis of Chicago contract? Where do you see wheat?

Kohake: I see the basis widening out. It has already started widening out there. I think fundamentally, prices should move lower. I would sell a higher opening next Thursday if we get a bullish report. We are going to get some supportive numbers longer term off acreage, but I think until exports pick up --and the wild card there is still a dollar, like we were talking about. Until the dollar, I think, gets down below 80, do we have to keep selling rallies in wheat right now.

Pearson: All right. So your target will be about what on wheat?

Kohake: 650 I want to be short March Chicago.

Pearson: Let's talk about the corn market, like you say, is the leader. What do you see right now for corn as we go forward? Obviously that report Thursday is going to be critical.

Kohake: The number I'm looking at Thursday as the most pivotal one is the carryout. I've got my numbers about 735, 740 area. That's supportive. The trade, too, is looking for supportive corn numbers coming in Thursday. Crop size around 1235 area, and hopefully we can get a bounce off of that. But really what the market has been trading off of on this 80-cent rally that we have seen is Argentina. Serious, serious drought. Four of the last five years, they've been in a drought. 2008 was the worst one. I don't think this one right now is as bad as closer to '07 or '10 drought. There's already private estimates showing a cut of roughly 2-4 million metric tons lower than what was expected off the bumper crop two months ago.

Pearson: They've had a little bit of rain. There's a little bit of rain in the forecast, but they've had that high heat, I think is the bigger concern.

Kohake: Yeah, they've been over the hundred mark several times the last two weeks, and this coverage for Monday that the market backed off on Thursday, it's only roughly about 70 percent. And one rain right now is not going to be turning the crop around overnight. The key point to watching corn right now is 665 March. Sell against that before the report. If you bust through it, you're going to run to 680 probably and sell into it there. For new-crop December, I like 603.and then 615, if you get a bullish report, right up in that area more for resistance.

Pearson: The bullishness, you think, is going to have to be a carryout in that 730, 740 billion bushel --

Kohake: Yes, there or lower. Also, too, keeping the whether bullish down in Argentina.

Pearson: We'll see how that plays out. Of course, soybeans will be impacted by that eventually. Beans aren't impacted that much by the weather at this point for the late planted beans in South America. What's going to drive this soybean market?

Kohake: Same thing, dryness down in Argentina. Roughly 4-million-metric-ton cut there already is what's being forecasted. Brazil is okay. There's some northern parts -- there is a northern part of the country that is a little bit too wet, but nothing serious. It's all Argentina there as well. I'm not bullish beans right now. I'm neutral to negative. I would sell into this rally. If we get one Thursday, I'd even let some physical beans go early next week on a rally. I don't trust this market right now. I'm looking for the carryout number to be bearish. Some up around 235, 238 is where I'm expecting USDA to be at.

Pearson: Weather rallies can be cruel. So those are you price targets for soybeans.

Kohake: I liked 1240 March and 1260. If we can somehow get up into there early next week, I would sell into it. Let some more physical old-crop beans go early next week.

Pearson: All right. So with that, let's talk livestock. Fed cattle market, we've kind of seen kind of some sluggishness on the cash trade. We came back under 200 on some of the -- some of the cow lot trade in the Midwest. What's your take going forward?

Kohake: I'm neutral to negative beans -- I'm sorry, cattle here short term as well. Like you were saying, the cash has kind of stalled out. Had some scattered trade here Friday at 121, but nothing really widespread and heavy. We've got large current on-feed supplies. Domestic demand is still the wild card in this market right now. Until it picks up, I think you saw rallies --I think August up around 127, 127 1/2 being short there. And I think a key to watch out here to this whole meat complex, pork and beef, is fuel prices. You're seeing a big jump there. I think fuel prices are going to continue to go up short-term, and I think you sell rallies here right now in the cattle market.

Pearson: And the hog market, what do you see?

Kohake: Same thing there as well. Neutral right now. We need to see a big kill number tomorrow. Watch the cutouts for a bounce to see demand pick up. The big key in the pork market has been is the seasonal bottom in place. I think more than likely we have. I've been selling deep out of the money puts in june and July, like $82 and $84 strike puts.

Pearson: So maybe these options may be a way to reduce a little bit of the risk here.

Kohake: Yeah, I would be at options in the hog market. I would be at the futures in the cattle. Sell March feeders next week. That's my trade of the week next week, and make it seasonal to get short there. And watch the April, June bull spreads -- bull live cattle spreads.

Pearson: All right. Jamey, as usual, we appreciate your insights. Thank you for being with us. That will wrap up this edition of "Market to Market." If you'd like more information from Jamey on where these markets just may be headed, why not visit the Market Plus page. It's on our website. You'll find expanded market analysis, audio podcasts, streaming video of our program, and links to our Twitter feed and Facebook page. And by the way, it's all free at the "Market to Market" website. Of course, join us again next week when we'll examine the market impact of USDA's latest estimates on global supply and demand. So until then, thanks for watching. I'm Mark Pearson. Have a great week.

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