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Market Analysis: Mark Gold

posted on July 6, 2012

Market Analysis: Mark Gold

Yeager: Here now to lend us his insight on these and other trends in one of our market analysts, Mark Gold. Mark, welcome back to the program.

Gold: Nice to be here.

Yeager: I've got to ask you, this whether, that's the topic everybody wants to talk about. You came over from Chicago. I spent part of the week in St. Louis and coming through Missouri and southern Iowa. It's dry, but we're not even talking about it. You go downstate from you in Chicago. It's a hurting deal in Illinois.

Gold: Not only Southern Illinois, but Southern Indiana, just about the entire state of Missouri, parts of Iowa. Let's face it, Kentucky, Tennessee all hurting. This is a drought comparable to what we saw in 1988. But 1988 we made our peak highs in around June 23, I think was the date. We made the highs and I think we off after that. We continue to make new highs here. This Fourth of July weekend has been a pivotal area. We've seen highs in 2008. We made the high the day after the Fourth of July on the 5th. We did that again yesterday, made the high close for this move. So maybe we've priced a lot of this in, and now we're starting to get the attraction of that national media covering the heat story in terms of agriculture. Usually once the national media gets ahold of it, the news may be a little bit old by then. But certainly having a major impact, this heat has been devastating. We've lost some yield. It hasn't really shown up in the INFORMA numbers, which were released on Friday, but we're hurting out here.

Yeager: Those INFORMA numbers, those are some online that we follow through our Twitter account here that we're talking about that, boy, they just didn't believe them. Talk about those a little bit and what they represent. That's a private estimate.

Gold: 153.5 on the corn. Fortytwo on the beans. I think you'd be hardpressed to find a trader in Chicago that doesn't believe the numbers under 150. Some guys are 148150. There's a couple guys toward the low 140s out there. On beans, nobody I know believes right now it's over 40. So big numbers. The market really didn't react to it like you would have thought at almost a near historical high. Bad news came into the market. The crude oil was down. INFORMA was bearish. The market didn't break all that much today. So that's a little bit of a positive sign. Is INFORMA right or wrong? Certainly on the beans, there's time in the beans. We've seen beans burn up in July, get rains in August, and make a big crop. That can still happen. As far as the corn, Ken Ferry, who is one of the top agronomists in the state of Illinois, came out with a statement saying that in Illinois, there's good stands, very little disease, and if we could get rains in the next ten days, we could still say we're not looking at bumper crops, but we're looking at saving the crop and having decent yields. Without those rains in ten days, we're going to knock another maybe 5 or 10 percent off these yields and the market could still move higher.

Yeager: There is no major rain forecast, really, for a lot of areas. All it is the temperature dropping down. When you get into the 100s and the 90s, that puts an incredible stress on the crop.

Gold: Particularly this time of year, at pollination, we got the corn in early, so pollination is coming a little early. We're getting this 100degree heat right at pollination, but we've still got and I agree we've got 810 days to get some rains. We've seen rains come out of nowhere. I remember in 1988  a lot a rain that weekend in July, July 17 that Sunday, it rained out of nowhere. It wasn't forecast and changed the whole complexity of the market. I was at O'Hare yesterday afternoon at 4:00 o'clock. All of a sudden one cell went over O'Hare and, I mean, O'Hare got doused for ten minutes, and those kind of storms can trigger things. But the fact of the matter is the cooler temperatures won't really do much. We need rain. We need to replenish the soil, particularly during pollination.

Yeager: And that tenminute delay of flights really caused problems across the country, but that's another show, another time. Mark, let's talk some wheat, where they've been dry. That's been a big part of that story for wheat. Where are you seeing wheat headed right now?

Gold: Well, wheat has been following the coattails of corn. You know, certainly the demand is as much on the feed side as it is on the export side. We're exporting some good numbers in the wheat market. We've had a fast and furious harvest. It's at a near record pace, if it's not at a record pace. We've got some really high prices out here. So right now I think it's a good time to take a look at doing some marketing, not only finishing out your sales from the crop that you've just harvested, but certainly looking at 2013 as well.

Yeager: So if corn maybe has peaked, does that mean wheat has maybe peaked?

Gold: I don't believe that you can untie the two right now. So much of the gain on wheat has been due. When you rally corn $2 a bushel inside of two weeks, wheat is going to go with it for the ride. If corn breaks  let's say 50 percent breaks a dollar of that back quickly, wheat is going to get significant gains back as well.

Yeager: Let's talk about corn just a little bit. When you talk about conditions  I had a couple of viewers were wanting to know, you know, what has more upside, corn or soy. Jeff Kennedy in Minnesota wanted to know that one. What's it look like for corn on the upside right now?

Gold: Well, the corn market has got a couple of potential problems. We heard a rumor Thursday that the EPA was considering reducing the mandates on ethanol by 20 percent, taking 5 billion bushels down to 4 billion bushels and bringing a billion bushels literally back into the carryout. Now, a lot of smart analysts don't believe that can happen, certainly not quickly. The way it happens is that an individual state has to apply and get a 60day period from the department of energy, and they go to the Department of Ag, they go to one of the other departments to decide whether or not to allow this. The one time Texas tried to do it in 2008.the USDA and the Department of Energy waited until the August stocks report. That came out bearish, though. They didn't allow it. It's a statebystate case and it takes 60 days to get approved. Now, is it possible that several states could apply? It's certainly possible. Is there something the president could do on an executive order? I think that's unclear. Certainly the ethanol mandates would be one way to cool this market off in a hurry.

Yeager: Because you're talking about cooling demand.

Gold: Cooling demand, absolutely. Another problem is we've gone up awful high awful quick. The export figures, the export sales on Thursday and actually on Friday were lousy numbers, a fraction of what they were looking for on the corn. So we're looking at lower a little bit lower demand out there, and that can be a problem for the corn again. If we get some rains, that's a problem as well.

Yeager: Put a price tag on that topside of corn. Where do you see it ahead?

Gold: If we don't have rains in the next ten days around the vast majority of the Midwest, you could tack another dollar onto this corn market easily. Then I think the government will try to step in and do something to cool that demand.

Yeager: Let's go to soybeans quickly here, Mark. Another one, $15, 15.5. Where is that headed?

Gold: Which has got the better potential? Probably the soybeans. If we get the carryouts, very small carryouts for 1213. Losing two bushels onto that yield is going to be even a bigger hit that we can't afford, which means that soybeans could move another $2, maybe even $3 a bushel higher if we don't get the rains. If we get rains, the last half of July into August, we can still make a big bean crop and maybe a huge crop, considering the acres, and then beans will cool off as well. These are the times when you start getting toward historic prices that not only do you have to look at marketing opportunities for this current year, if you've got crop insurance, if you've got the bushels, but you got to start looking at 2013 as well.

Yeager: We had a lot of people asking about puts, whether they do them in corn or in soybeans. Is it time to do any puts?

Gold: Absolutely. Not only do you need puts to protect the downside, in 2008 we made the highs at $8 corn, December corn, on July 5. We broke that mark at $4 a bushel in the next five months by October and November. I don't know whether the market is going higher or lower, depending on the rains are not, but we do know that these economies, Europe is in trouble, China is certainly slowing down. The U.S. could follow suit, and this could be a big drag on this corn market. So getting puts to protect this price today, not only on 12 but 13, is critical. The other thing is if you have lost bushels and you know you're going to have a claim on your insurance. You've got the beginning spring price at around 5.50 on corn. You've got today's price at $7 on corn. If this market breaks, you can't pick up that extra payment. So if you know you've lost bushels, today is the day you need to be buying puts to protect it in case we go back down. If the market goes higher, you'll have a bigger and bigger payment. But if we go back, you lose a tremendous opportunity to protect that $1.50 a bushel, and you could do that for about 25 cents with a corn put today.

Yeager: Okay, let's get your best thirty seconds on cotton.

Gold: You know, the cotton has been in trouble for a long time. They've had some rains. The market we played it with guys, you know, nine months ago, a year ago, take advantage of the rally that we had in the old crop to 2 cents and get when the new crop was over a penny, take a look at doing something out here, and a lot of guys did it. We're down here at 70 cents now. I believe that we're probably getting near the lows in this cotton market. If you sold some cotton, I'd certainly look at buying back some call options to keep the upside open.

Yeager: Live cattle were a loser this week.

Gold: You know, the fat cattle held in relatively well, but the feeder cattle were the big drag. With corn prices going through the roof, no wonder feeder cattle takes a huge hit. We're well off the highs. We're trying to come back here. We may have seen the worst, particularly if the corn has made its highs in here. Then we can see the feeders come back. If we take another dollar jump in the corn, the feeders are going to remain under pressure. And that's going to be a drag on the fat cattle market as well.

Yeager: And the feeders, like you said, it's hard to buy. You're not certainly wanting to buy any feed needs right now.

Gold: Well, it's awfully expensive to be doing so. You want to make sure you've got supplies, but I wouldn't get caught into the fear of going out too far. I'd try to go hand to mouth, at least in the short run.

Yeager: All right. Let's talk about hogs. They  again, off this week but they had a better June.

Gold: The hog market's had some strength, particularly because of the heat, in my opinion. We're moving some product. It's grilling season. We're grilling some pork chops out there. Beef market has been strong. We've had good wholesale demand with the beef, but the pork market, we've got such a spread between the front months and the back months, and it's telling me that once we get through some of this heat, the only thing that that's propping up those back months, in my opinion, is the problems that we're seeing in the front. So, you know, when you see basically an old crop, if you will, push up the new crop, that's certainly a good time to look at putting on some put options to protect that back months, let's say, from February, April, on back where you're looking at 80, 82 bucks. Get some protection in case we do overproduce, in which we have a tendency to do in the hog business, and get some protection back there.

Yeager: Because what's the saying? If everybody is winning, you're going to be a loser fairly soon?

Gold: That's probably the truth. You know, we know that farmers respond to high prices, not only here but abroad. And these high prices in corn, wheat, beans, hogs, cattle, it's going to spur production around the world.

Yeager: Ten seconds. Your best bet of the week, if you have to get into something right now?

Gold: If I was a weatherman, I could give you a better answer to that. If we don't see those rains in ten days, this market is going to move considerably higher.

Yeager: Mark, thank you so much. That wraps up this edition of Market to Market. But if you’d like more information from Mark 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.
Many of you posted comments in the past weeks expressing your sentiments on the passing of long-time host Mark Pearson. We thank you for your support and want you to know that Market to Market will introduce a successor on next’s week program.  Thanks for watching. I'm Paul Yeager. Have a good week.

Tags: agriculture cattle commodity prices corn economy feeders hogs Mark Gold markets news Paul Yeager soybeans wheat