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Market Analysis: Jamey Kohake

posted on May 11, 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, I'd say the air came out of the commodity markets in a big way. The WASDE Report comes out from USDA, and pretty negative for corn. Pretty positive for soybeans, yet at the end of the week beans were down. Corn is down. Wheat is right there in the middle. Wheat's going to follow corn, but let's talk about the wheat market first and the WASDE numbers that came out. Production, U.S., it looks pretty decent so far.

Kohake: It does so far. The wheat numbers on Thursday were pretty much neutral. Not a big surprise either way off the pre-estimates. Like you are saying, wheat right now is a follower of corn. A tug of war there with the beans a little bit, but not much going there. I'm neutral wheat in here right now, not expecting much to happen. More of a range-bound trade until we get into the hard red winter wheat harvest. I would be selling sharp rallies. I like the July contract about 30 higher. I like the Dec., up at 675 Dec. Chicago to be a seller there.

Pearson: All right. Take some money off the table there. Let's talk about this corn market and what's going on. The WASDE Report, we're talking a bigger carryout. Again, USDA for new crop, they're plugging in a pretty glamorous average yield of 166 million bushels. That is trendline and we would expect that at this stage in the USDA's reporting. But that translates into some big numbers and some big acreage numbers this early, and it all comes off looking pretty negative. We've got a lot of weather to get through. We've got a lot of acres, but seldom have we seen the last several years where we've had the entire Corn Belt come together plus the acres that we automatically lose. So as you look at this corn market, where we finish this week, what are you telling producers? Let's talk old crop first.

Kohake: I'm saying hold right now on the old crop. I think it's completely overdone down in here off the 580, 575 area. I would look for a correction back up over 6, closer to 630 coming into the first day in June to sell into to let your last batch or a little bit more do go, if you have any. But I would not be chasing that lower again short July corn down here at all. The new crop, we hung onto $5 this week, which was nice to see. We're range bound here. I think we're in a broad 30-40-cent choppy range I think until mid-June when we see more weather. We'll see if El Niño pans out or not and how dry it does get, but 530-540 is the top side right now new crop, in my opinion, unless you throw in some weather somewhere. Like you were saying with these large acres, large carryout pushing the 12, 13 carry maybe up around 1.8, that puts a cramp into the red Dec., the '13 Christmas contract. I would be a seller up in there at 540 as well here for short term until weather turns more bullish.

Pearson: So you would maybe take a little insurance policy out on the next crop, on the 2013.

Kohake: I would. I like the 545-560zone. The nearby Dec., I like the 530-540 zone.

Pearson: It all depends on what happens with acreage. When you have $15 beans -- I don't know what kind of a shift we're going to see, but let's talk about that. We'll talk about the bean market. Obviously the $15 is now a fond memory. As we look forward, are we going to see continued pressure on soybeans? I'm thinking that maybe we did shift some acres. We're certainly going to have some double cropping.

Kohake: Right. I don't think the beans are over with. The funds are going to get out and call it you're ready. The problem here this week with the beans was the report was bullish. It was not bullish enough for the trade. So there's no follow-through pretty much on Thursday, and the rest of late Thursday, Friday, the funds decided just to take profits. They have a huge amount of length right now in the bean complex, long up over 200,000 contracts still coming into Friday's trade. I would be looking for a spot for spectators to get long in here and even do a little bit of reownership into old crop. The carryout is still historically tight, tight, tight, and I think this is just a divine opportunity longer term. I don't like hedging down in here at all. I think you still wait for around 1380, 1395 area for the new crop to step into and I'd wait and see what happens.

Pearson: So do you want to make any 2013 bean sales?

Kohake: I don't right now. I wouldn't be looking onto it longer term, but I think the beans are overdone in here and we've got more time on that to wait and see what happens. Just because the carryout is so tight, South American crop shrinking, I might -- I'm not too concerned about getting a hedge on there. I'm more focused on this corn here short-term. That could be more of a selloff longer term type deal.

Pearson: One final question because we're kind of in a hurry tonight. The corn market, as we look at it, we looked at that old-crop/new-crop transition period. A lot of early planted corn down there in Illinois and Indiana and parts of Iowa. Is that going to fill that gap?

Kohake: I don't think it does. That is what the trade in Chicago is assuming. It looks like the USDA is assuming that, you know, we can put several hundred million bushel pretty much is what they're looking at corn online here before Labor Day. And to make that carryout at a very comfortable level, we don't get into a bean situation like they are right now with the tight, tight carryout. And that's what's going to overhang this market all the way through summer, despite what China does, if they keep buying or they don't just wait this sucker out and wait until the middle of August, and we'll be okay.

Pearson: I talked to a farmer from Missouri this morning. He said you know what, mark, this corn price comes down, you're going to see more buyers show up, so we need to keep that in mind at well. It real easy to get real bearish at this stage of the game. We've got a lot of weather to get through and a lot of global demand to get to.

Kohake: You look at one last thing on the corn; the Chinese corn $9 a bushel right now. Come on over and get it. Load the boats up.

Pearson: And they can do it. Let's talk livestock a little bit. Some weakness on fed cattle this week a little bit, but we've had a pretty decent recovery.

Kohake: Right. We've got all this nonsense out from mad cow and the pink slime nonsense out finally. It never really did do much, a one point deal anyway. But the fed cattle had a nicer tracement. I'm neutral live cattle right now. 120 looks to be a nice area for cash just to hold in at right now. I'd be selling the August board around 120.5. I think that's a nice area. I think I would be reloading the hedges on. Right now I don't see much more than a choppy trade waiting to see what the equities do. A lot of spillover off of that. Also too just to build more support for the cash next week.

Pearson: Good point. And the calf market, a little bit stronger this week, but really a lot of people are on tractor seats right now trying to get a corn crop, bean crop in. So I think that there are fewer buyers for a lot of these barns out there. Is that your feeling or is that -- what's your take on the calf market as we go forward?

Kohake: I'm bearish feeders here through the summer, Mark. We are carrying an $8-$10 premium, the futures are, to the index. 120 cash trade does not work out on the breakeven. So I think you're going to see demand slow down through the summer months and then back the calf market back off again. I think that you need to be selling the August up around 160 area pretty aggressively.

Pearson: All right. That's a good price. I don't think we are going to have a problem with that. But also, as corn gets cheaper, we might see that change a little bit if that happens.

Kohake: If that happens, I think you need to be out -- November out into to March of '13, not here on these nearbys through the August. Nearbys, I would be looking to sell it and deferreds, you need to stay a little more neutral off of 13, 14 billion crop -- corn crop.

Pearson: All right. The hog market.

Kohake: Neutral. We are due for a correction. Got a little bit of one late here in the week. Still carrying about a 3-4 cent premium in the summer contracts compared to the index. I'm not chasing this thing right now either way. I would wait and get a 3-cent rally and sell into it, but we've been on such a sharp selloff, and we need more confirmation of the cutouts hanging above 80. If we can hold 80 in the cutouts, I would look at selling some deep out-of-the-money puts. For the time, I'm going to hold where I'm at right now.

Pearson: And the strengthening dollar doesn't help right now with all the hogs we have going overseas. What are your thoughts on the dollar?

Kohake: Think it holds 80 until -- above 80 until Europe gets situated again and until we get this Greece nonsense back down. I think 80 is going to be support here for a few weeks, until Europe decides are we going to default to Greece, go back to the old currency system or not, the dollar stays firm.

Pearson: It could be messy. And Spain is an issue and France with a socialist leader could be messy as well. So Europe is going to be a continuous strain, I think, on the global economy, Jamey, but as I heard you mention before, we're also watching crude oil very close. Then we had this massive selloff in crude oil. We're starting to see prices come down at the pumps. What's your take on crude?

Kohake: I think the highs are in for the summer. Gas prices too. The highs are in unless Israel and Iran get into it, you know, sometime late, late summer. Demand is slowing down. We've got worldwide supplies are ample but demand is not there. Also, the problem here domestically is we have more crude on hand right now than we've had since 1990. So I think you sell rallies. I like July being short the board up in '99. I like selling calls deep out of the money. I think until you get a geopolitical problem, you sell rallies in the crude and the RBOB all day long.

Pearson: Real quick, your trade of the week. If you could do one thing, what would you do?

Kohake: I think you sell rallies in crude and I think you look for a spot to start selling deep out of money puts and the hogs.

Pearson: All right. Of course, the gold market was down. Five seconds. Your thought on gold, higher or lower?

Kohake: Buy 150 August.

Pearson: Interesting. All right. Jamey Kohake, as usual, you have some great insights. We always appreciate your visits with us here at "Market to Market." thank you so much. That will wrap up this edition of "Market to Market." now, if you’d like more information from Jamey on where these volatile markets just 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 links to our Twitter feed and Facebook page, exclusively at the "Market to Market" website. And of course, join us next week when we'll examine the outlook for America's wheat producers. So until then, thanks for watching. I'm Mark Pearson. Have a great week.

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