The Agriculture Department released its quarterly stocks report Friday, cutting old-crop corn supplies to just 7 percent of total production last year. Wheat supplies also were reduced and, consequently, both commodities traded sharply higher.
December wheat rallied 47 cents on the news Friday, wiping out losses in previous sessions and resulting in a weekly gain of 5 cents. Corn reacted even more strongly to the report as the December contract traded limit up Friday, and settled with a weekly move of 8 cents higher.
USDA’s projection of 169 bushels of old-crop soybeans in supply proved to be more than the trade expected. Nearby beans rallied anyway on Friday, but not enough to negate losses in previous sessions and the November contract settled with a weekly loss of 20 cents, while nearby meal prices eeked out a gain of $2.50.
In the softs, cotton trended lower this week as the December contract lost $2.60.
In the dairy market, October Class III Milk futures gained 64 cents, while the deferred contract was off a penny.
Over in Livestock, December cattle lost $3.77, nearby feeders were off $4.35, and the December hog contract was down $1.22.
In the financials, the Euro lost 140 basis points against the dollar. Crude oil lost 70 cents per barrel. Comex Gold declined more than $4 per ounce, and the Goldman Sachs Commodity Index moved fractionally higher to settle at 664.10.
Pearson: Here now to lend us his insight on these and other trends is one of our regular market analysts, Tomm Pfitzenmaier. Tomm, welcome back.
Pfitzenmaier: Thanks, Mike.
Pearson: We're glad to have you here. It's been an interesting week in the markets. Qe3, Ben Bernanke's Quantitative Easing 3, Quantitative Easing Infinity is still going on. What kind of effect is that having on the broad markets, and on the commodity market specifically?
Pfitzenmaier: I think particularly the precious metals have responded pretty strongly to it. The equity markets have too. I think that's where the real impact is has been. It's really been hard to see any impact directly on the grain markets, maybe tangentially to the livestock, but not very much there either. So I think that the macro help, I guess the question is whether that really -- liquidity has never really been the problem here, so I don't see where adding a little more liquidity is going to do a lot. So I don't really see in terms of agriculture commodities that it's going to have that much impact.
Pearson: Even when it relates to exports, is the cheapening of the dollar going to help us with these high prices?
Pfitzenmaier: Certainly the cheaper dollar under normal circumstances would be helpful. Corn experts are only 400 metric tons, and that's 400 with only two zeros. We need to run about 430-440,000 metric tons per week just to make the USDA's projection. So if you're not exporting anything, the dollar doesn't really matter all that much. On the bean side, all those exports are going to China, so the weaker dollar relative to -- might make some impact, but I don't see that as a big factor in now.
Pearson: It's not going to be a big driver going forward.
Pearson: All right. Let's look at wheat a little bit. It had a big move today after a little bit weaker week. Where do you see it going forward?
Pfitzenmaier: We had a huge fund liquidation in corn throughout the whole week. That report on Friday was certainly supportive. We've got some really dry conditions out west that are making winter wheat people planting winter wheat apprehensive about even going out and planting, so I think that's going to be a supportive factor. We have been competing, getting beat up pretty well actually. Wheat and grains out of the black sea area, their supplies are starting to dwindle a little bit. That should be supportive. So I don't see wheat going up and making new highs or anything, but I think you could see it and be well supported in here. If you had some carry through buying after the strong closes on Friday of maybe 30, 40 cents, I'd probably become a seller once again.
Pearson: Okay. All right. So you see this range continuing for a little while?
Pfitzenmaier: I do.
Pearson: In the beans, what do you see there? We saw a lot of rally here --well, not much of a rally, I guess. A little bit of a rise. What does next week look like?
Pfitzenmaier: Well, there was a little bit of a surprise in that report on Friday morning in that the USDA went back and increased the 2011 crop, which kind of caught people off guard, raised deals a little bit, raised harvested acres a little bit. If you look at stock numbers, actually, if you didn't have that 37 million added back in, a buck came in about where the trade was expecting it to. I think there's a perception anyway that the harvest reports are coming in saying yields are a little better than the trade is expecting, and I think they're starting to maybe nudge up their estimates of what that's going to be on the October supply/demand report. The other thing is, I think there's a little fear that maybe they're going to nudge the acreage up too, so there probably will be a little follow-through on Monday to the higher closes, but beans are mostly just pulled up by the corn and wheat markets. I don't really expect a lot of big follow-through therein the short run. The bean markets is very interesting, because our export sales are at 77 percent of what the USDA is projecting for exports. We're only three weeks into the marketing season. So we've sold a ton of beans and that has everybody wondering, are we going to be able to yank those out of the farmers' hands in adequate numbers to satisfy the needs. Now, our marketing year isn't really going to be a year. It's going to be six months because probably we're going to have a huge South American crop to satisfy the market's need. But drawing those beans out of farmers' hands, you're going to have contract beans sold. You're going to have a certain number beans sold hot off the combine just because the price is pretty decent. But what's locked away is going to be hard to get your hands on.
Pearson: So for produces out there who are getting a better yield than they'd expected, how high do you see beans going once we get through harvest?
Pfitzenmaier: I think there's an outside chance we could retest the highs at 1780, 1770, somewhere up in there. I certainly think you could see it back up above 16, 1650 without a lot of difficulty. Plus I think you're going to see pretty good basis improvement. So I guess -- I guess I'd want to have -- any access I had I'd want to put in the bin and kind of watch it at least into that Thanksgiving/Christmas time period.
Pearson: All right. Let's look at corn. A big rally today. What do you see in corn next week?
Pfitzenmaier: They've got everybody leaning really, really hard the wrong way on corn. Everybody has been nervous about how the USDA was going to handle all this early harvested corn. Traditionally you don't have a lot of harvest before September 1. This year by some estimates, we had as much as 1.2 billion bushels harvested. So how is the USDA going to sort that out? Actually, it turns they actually did a fairly good job on it. So everybody that had all those fears, apprehensions, they sold -- as of this morning had sold almost 36,000 contracts of corn the funds had getting out of long positions. So everybody is leaning the wrong way. It comes in neutral with a little positive and, boom, up we go. So I would expect we're going to see follow-through on the strength from Friday into the Sunday night/Monday trade, and then we'll have to see what everybody's attitude is. Again, we've had fairly decent yields. We have killed off export demand. Livestock numbers are off. Ethanol industry is fairly stable, so I guess we'll have to sort it out from there. We're probably going to see corn in the trading range from seven on the low side or 705; the low we put in Friday morning, close to eight is kind of on the upside.
Pearson: So sell the rallies as they come across.
Pearson: Let's talk livestock just a little bit. You mentioned them briefly there. Where do you see feeder cattle going?
Pfitzenmaier: If you're going to have strong cattle --strong corn prices, you're probably going to see overall weakness in feeders. There have been a lot of people to chop silage because they didn't think their corn was going to be that great. They're hoping to run that through calves, and I think that's helped support calf prices and is probably going to continue to do so through the winter. So I don't --if they break back, I don't see them breaking back a lot. The fat market is probably going to be a -- hover around that 130 area. That should tend to be supportive too, so I think you can buy feeders on a good chart break here. If you get that recovery rally on corn, it breaks feeders, and maybe that's the chance to get some of those bought up.
Pearson: And you mentioned fats around 130. Do you see that through thanksgiving?
Pfitzenmaier: On the December contract, it's trading around 125, 125 plus. I think you could see recovery back around 130. We've got a lot of heavy cattle, and there's a reason for that. Everybody says why are producers putting all this weight on cattle with high-priced corn. There's a couple reasons. One is you look at the deferred contracts in cattle, each progressive one is higher priced, which is a signal to producers, hey, if I hold onto these cattle, they're probably going to be worth more. And I think the replacement costs is so expensive, you think, well, maybe I'll put a few more pounds on the one I've got and then see what happens with the projected higher prices. That's the reason --the problem is it creates a lot of tonnage and it really put a lot of pressure on beef prices this week. I would expect the lows, if they weren't put in, were close to them -- the lows we put in this week, and I would expect to seem some firming into that thanksgiving timeframe.
Pearson: All right. So firming in the midterm and then generally bullish as we look into next year?
Pfitzenmaier: Out into next year, there's a lot of optimism. The question -- and that's factored into those April/June/February cattle contracts. The question we have here is -- there is no doubt that the numbers are going to be down. The second question is are they going to continue to put weight on the cattle. And the third and biggest question in my mind is are we going to be able to sell that expensive beef. In your report earlier in the show said that pork is going to be very competitive. That's going to be a problem. Chicken and poultry is probably a problem, so the question then becomes can we sell beef at higher prices.
Pearson: All right, really quick with talk hogs. Rough week. Where do you see hogs going?
Pfitzenmaier: Hog's have worked back up really nicely over the last month. I would expect that there is a little more in those on the upside. Maybe not a lot. We traditionally have about a $10 rally. When hogs move, they move ten bucks. We've had seven or eight of that already. So a couple bucks more up and then I think you're going to see that tend to stall out.
Pearson: All right. Stall out there around Thanksgiving time.
Pfitzenmaier: Right, right, right.
Pearson: All right. So we'll keep an eye on that in the midterm for hog producers. Great. Thank you so much, Tomm. I really appreciate you being here tonight. That wraps up this edition of “Market to Market.” But if you’d like more information from Tomm 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, and streaming video of our program, as well as links to our twitter feed and Facebook account all free at the “Market to Market” website. Until then, thanks for watching. I'm Mike Pearson. Have a great week.