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Market Analysis: Jamey Kohake

posted on March 23, 2012

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.

Kohake: Thanks, Mark.

Pearson: I want to talk about that wheat thing for just a moment. Russia is announcing kind of early that they are going to approve  they are not going to slow down their export number. They've had some weather issues?
They've had some other challenges over in that part of the world.

Kohake: That's right. We can just go back here about ninety days. They were 3040 below consistently for about two weeks. So, yes, I agree that they may be jumping the gun here, assuming that they have enough crop to support their own supplies, which was the concern last year when they shut down their exports.

Pearson: And that was a big catalyst in the grain markets when that happened.
Obviously the big number that we are looking at right now is what is going to come out with the USDA. The acreage number is going to be a fascinating one to talk about, but we know from history that the intentions don't always turn out to be what is actually planted. Let's talk about what you see first, and let's talk about the wheat market. How much acreage do think we are going to see?

Kohake: I think the wheat number is very close to what the number ADM showed there. I don't think there's going to be a big jump there. We've seen the wheat acres drop off drastically the last few years. Wheat right now is a follower of corn. There's not much going on there. I think you sell sharp rallies here shortterm, but it's going to follow corn. The key is going to be stay below 80, keep export business up, what type of feed grain does China buy  They bought 350,000 tons from Australia this week  and how that with the Baltic Sea area plays out as well.

Pearson: That's going to be interesting. In fact, when they bought feed wheat, we wonder if that's going to blunt some of this potential corn demand too.

Kohake: Kind of the story this week was the government is buying the feed wheat. Private companies are still wanting U.S. corn. China's corn prices are just shy of ten bucks a bushel still. Numbers on the production from last year that are out right now, we are at bumper crop. I don't believe that they are accurate. They harvest a wet crop and they put away a wet crop; serious, serious quality issues. Then overnight Thursday night, we saw reports of Bloomberg putting out that the numbers might be off for the last three years, and that would not surprise me either. So I think China is a longterm buyer of corn and beans from us.

Pearson: Like you say, this wheat buy was interesting and the strategy that the government is taking over there. So wheat prices at this stage of the game, they have a pullback this week. What's your thinking? Where are we going?

Kohake: I think that we see one more pop in the corn market. I'm not selling 555 new crop. I like 570 December, 575. I would sell into that before next Friday's report. If you've got some old crop to sell, I would look at 660
pre report. I think the old crop is fine, though, continuing to see these stocks shrink. Bull spreads have been heavy, heavy, heavy traded. Buy May and July and then sell December.

Pearson: Where do you see as far as the corn market is going, and what kind of an acreage number do you think we will see on corn?

Kohake: I'm at 94.8 right now. I think 94 is in the market right now. I don't think you're going to see a big, big number yet. I think 95 is on the high side
Pretty much the USDA will come in at. The key is going to be fund liquidation.
Producers, speculators I think will be lined up on the short side, so the key will be if the fund is going to dump a lot, if the numbers come in really, really bearish make it move or not.

Pearson: Of course, we also have another USDA Report that comes out that same day.

Kohake: We've got our ending stocks numbers. That might take a little bit of a back seat to the acres. But all crop, I think we're not going to see that much separation. We're going to see liquidation if it is bearish across all entire contracts.

Pearson: That report has been a shocker in the past.

Kohake: Yeah, the USDA has had a tendency here the last two years, in the carryout numbers, of being erratic, and I wouldn't be surprised to see another one here on Friday.

Pearson: Your corn outlook again is what?

Kohake: I'm selling rallies 570 Dec., 560 old crop 

Pearson: That's right, you were giving me your corn numbers there earlier. I was expecting wheat numbers. You gave me corn numbers.

Kohake: Wheat numbers, I'm sorry. I like 720, that area. What I'm concerned about with the wheat is a lot of grain wheat is coming out fast, hard, still susceptible to freeze, so I'm not getting too antsy to sell wheat right now.
I would like to see if we can get more rally to sell into.

Pearson: Your corn numbers, again? Just ballpark. You were going to sell that Dec. At 570. Do you want to sell 20 percent? 40 percent?

Kohake: I would do another 15 up around 580, 583. That's your next resistance level above that.

Pearson: A lot of talk  Seems to be good ethanol demand for corn going forward. I talked with Bob Weisner this week at Iowa State, who says that's coming on strong. Maybe more DDGs in the export pictures. Maybe some exports for ethanol. Some good demand there. Again, if China materializes, that could be the catalyst of this corn market.

Kohake: Right. I think that's why you're going to continue to see the old crop outrun new crop, with all those numbers stay firm. Ethanol, though, is running about 2 percent behind last year, but it's not a big drop-off yet. Four dollar, 380 nationwide gas I think is here to stay short term. That should help out as well.

Pearson: As far as the corn market is concerned, old crop you're not in a hurry
to make sales right now?

Kohake: I would sell a little bit at 660 and sell another 10 percent of what you have left, pre report up around the 660 area may.

Pearson: Soybeans.

Kohake: Right now the oldcrop beans are probably the most bullish in the entire corn sector. Seeing the same thing here. A lot of bull spreading, buying old crop, selling new crop, buying newcrop beans, selling oldcrop corn.
A ton, a ton, a ton of spread action. The key is going to be exports here with China, when do they ship their demand to South America, and I know how long does that take to process that in there. Brazil is about 3040 percent harvested.
Argentina is getting started. Brazil's numbers are continuing to shrink.
Their crop is getting smaller and smaller. Prereport I would be looking at 1340 November. If you're nervous of a bearish report coming there, plus 75 million acres is where I would lay some off at.

Pearson: So there's some good strategies. You mentioned the fact that the Brazilian numbers continue to shrink. That's been a trend, Jamey, almost yearly, where we thought we had a big crop coming in and then it's continued to shrink as reality sets in.

Kohake: That's right. We start up in the low 70s for the crop size and end up in the mid 60s, low 60s. Brazil is by far the worst bean crop down in South America. The Argentine numbers I don't think are going to be anywhere close to as bad as where Brazil's are.

Pearson: I want to talk real quick about cotton. A move this week, what's your thinking? We've got the situation with India, but we've had this global concern about cotton with demand. What's going on?

Kohake: It seems the short covering finally. I saw a big down trend. Like you were saying, the market got a little overbought and finally seeing some profittaking. I would sell some December up around 93 is where I would be at in cotton. I think that the key is to keep the dollar weak, below 80, to keep enticing foreign exports.

Pearson: Absolutely. Very export sensitive. And the livestock sector anymore, the beef market, what's been the selloff in beef? It seems we have a good rally going. Beef demand seems to be holding up and the futures have fallen out of bed and the cash weakened up some too.

Kohake: Right. The cash market finally came back a little bit this week steady to a dollar higher, which was nice to see. But what happened was the market got way overextended  overbought, was due for a correction. Was the $8 selloff too much or not? Probably so. But we did try to catch a couple minor technical bounces this week, but not a whole lot on Friday. We saw new lows put back in for the move and came back up and closed above the recent lows. We're still in a downward trend shortterm. I would look at around 132 for October live cattle as a sell point. I don't like where we are right now. We sell two bearish reports this week, cold storage on Thursday and also the cattleonfeed on Friday. I think both of those numbers should be in the market come Monday morning, and hopefully we'll get some more short covering next week to be able to sell into.

Pearson: This calf market broke down too, inspite of the fact we had a break in corn prices.

Kohake: Right. Close to an $8 selloff there in some of the contracts.
Feeder cattle market got more technically overbought than the cattle  live cattle contracts did. What I look at is back up around 160, 161 to be a seller there. I don't like chasing these lows, recent lows and hoping for more of a shortterm correction. Technically we're too overdone in here.

Pearson: All right. Real quick on the hog market. What do you see happening there? That's become so export dependent. This dollar is critical 

Kohake: Right. And we're not seeing a big selloff in the weekly pork or beef numbers. Pork is still cheap to the beef and the chicken market right now.
Hogs are having a hard time separating themselves from the cattle market right now. I'm not worried about hedging down here where we are at. I'm actually looking at selling like some June 86 or even 88dollar puts. Just collect that premium, looking for a correction to sell into. I did on Friday take some futures hedges off and converted them into options, thinking that they might close to a shortterm bottom and wanted to bank those profits.

Pearson: All right. Okay, good strategy. But let me ask you this with the time we have left, which isn't much, talk about crude oil, what you see happening there. Obviously we had this spike up. When you look at it from a technical standpoint and you think that spike up looks like it could be foreshadowing something. Is it?

Kohake: It could be but we came back down and settled pretty much right smack dab in the middle of the daily range on Friday. I think we are still in that 104 and 109 range right now. The dollar and the geopolitical standpoint in the Middle East is the key. The big news pretty much in all these broader markets, metals and energies, this week was the PMI Index coming out of China. We saw 1 percent lower number there than what was expected. That's a signal for deflationary markets. I don't think crude is ready for that, but metals I think are close in here, just seeing some more fund money come out.

Pearson: Fifteen seconds, what's your trade of the week? What's one trade you'd like to make this week?

Kohake: Speculation wise, I like those hog puts. Those 86 in Junes, selling those is right on top in my mind right now.

Pearson: All right. So some hog puts might be an interesting way to go. It's going to be an interesting week. And gold futures, real quick. You think you're going to be pulling some money out?

Kohake: Right. I think the funds are going to see some liquidation.
If you're long metals, I'd be looking to take profits on rallies.

Pearson: Jamey Kohake, thank you so much. That wraps up this edition of Market to Market. 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 again next week when we'll examine the impact of increased domestic oil production on gasoline prices. 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