With the fall harvest nearing its final stages this week grain markets moved modestly higher. For the week, December wheat gained 16 cents while the nearby corn contract moved 11 cents higher. Soybeans also rallied this week as the November contract settled with a weekly gain of 12 cents while nearby meal prices declined by $1.40 per ton. In the softs, cotton had a big week as the December contract gained $5.50. In the dairy market, November Class III milk futures lost 43 cents while the deferred contract moved 22 cents lower. Over in livestock, December cattle gained $1.77, nearby feeders rallied more than $4.00 and the December lean hog contract moved $1.82 higher. In the financials, the Euro gained 65 basis points against the dollar. Crude oil lost $1.80 per barrel. Comex Gold declined by $37 per ounce. And the Goldman Sachs Commodity Index lost nearly 10 points to settle at 655.90.
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, Mike.
Pearson: It was kind of a disappointing day on Wall Street on Friday. What brought that on?
Kohake: A lot of macro news again. We thought we might separate ourselves from that here in the last few months, not a lot of talk about the pigs anymore. Portugal, Italy, Ireland, Greece and Spain -- but Greece and Spain have both crept back up in the news again and just made a lot of the big fund managers nervous. Spain needs a bailout, that's still floating around. And just a lot of nervousness out there. Plus it was the anniversary of the '87 crash so just some guys get me out to get me out pretty much.
Pearson: Just market emotions basically in play there. All right, let's talk wheat. How are things looking in the wheat market?
Kohake: Domestically we're dry obviously. The key here with wheat was last night. The news Thursday night really supported the market hard early Friday morning and about half the day through Friday. Ukraine looks like they're going to put a ban on exports sometime mid-November and that would shift a lot of demand to us from the Baltic Sea area. That's what we really need to jump start this wheat market again. I think if this does pan out you’re going to see the wheat punch through $9.00 again very, very easily. But it's going to be all off the export business right now.
Pearson: And the Ukrainian export ban -- does that have a timeline attached to it?
Kohake: Mid-November is the talk right now, November 11th time period but it will be confirmed again but that will be the key is the exports shifting back to us. Australia was dry. They have got some decent moisture. They're back looking okay. But the big wild card is the exports and I think right now I'm looking for wheat to get through $9.00 again.
Pearson: So, advice to producers, hold onto what you got and see where things go?
Kohake: Right. I'm not doing hedging right now at all in the wheat complex. I would hold off and see what happens in here closer to the end of the year.
Pearson: All right. In the corn market we had a bit of a bounce this week. Where do you see things going? What's going on with corn?
Kohake: I think corn is more range bound than anything else. It's similar to wheat. Wheat following corn, corn following wheat right now. Exports aren't nothing spectacular at all. I think the Christmas contract is stuck between about $7.30 and $7.70 right now, same as the March. End users need to be buying $7.30 March wheat for a long hedge. Basis I think will be the key here with corn. I think strong basis levels will support the futures all the way out into spring, early summer and that will pull the futures price higher. But right now for the next couple of weeks I think $7.30, $7.70, sell the rallies, buy the breaks until we get some more fresh news off of exports or something happens in the bean market.
Pearson: Now with regard to the situation in Europe, is that going to have any effect on ongoing grain prices at all, corn in particular?
Kohake: We've seen a little bit of that the last roughly two weeks in the whole entire grain complex. Like the equities we were talking about we've seen a lot of that macro European news creep over into the grain complex with a lot of fund liquidation, especially the beans. Beans have broke $3.00 roughly since Labor Day. We've seen that macro selling in all markets. We've also seen a lot of margin calls selling and a lot of fund liquidation too off of Dodd Frank. That new bill, part of it, has gone into effect. There's some new regulations out and some of the funds have had to cut back on their size.
Pearson: All right. So, advice to producers again, wait for --
Kohake: Right. I think higher prices are coming down the road for corn. I think it's closer turn of the year, after the end of the year where we could get back to acceptable prices that everybody is looking for like $8.00. I think right now we're range bound. Even the red Dec. I'm holding off. The Dec '13 where a lot of talk has came from we're trading $6.20 here late this week. I think at least $6.50, $6.60 before you start to even look at laying any more grain off for the Dec '13.
Pearson: All right. Let's talk soybeans. The bean market we mentioned a little bit. We're seeing some of those macro effects being bearish on prices. Do you see kind of a similar trend for corn or is the export market still looking good for beans?
Kohake: Export market is still looking good for beans. They were a little more stagnant this week. The weekly number was just pretty much average. But beans are going to be the leader of the whole entire grain complex all the way I think until summer pretty much. And we need to see what type of crop South America has before I think beans, you know, break lower and hold lower. The trade this week was wanting to buy beans at $14.75 hard. That was an open chart gap area that would have been filled. Never hit there, rallied hard on Thursday and kind of left everybody back behind. $15.70 is where I would take profits if you are long. I think we're just going to be range bound here as well. We're waiting on fresh news from China again on some exports. The rumor is out late week. But to here right now $15.70 is your top side, that's Jan. And your bottom side $15.20. I would play to those ranges. Global balance sheets are very, very tight so I don't see beans breaking $15 and holding down there for a very, very long period. Based off the global tightness the trade to be in with beans here is to buy the March and sell the red November, Nov '13 and I think that will be the trade through winter with the beans.
Pearson: All right. Now, with regard to -- with regard to the beans, as you're looking to sell, as we're looking through December, January, February how is the South American crop looking so far?
Kohake: They were bone dry as of pretty much two weeks ago. They were right on the borderline of pretty much a drought scenario in some of the areas. They have gotten a lot of moisture down south, southern Brazil and they're sitting pretty well. The crop did germinate, is germinating right now so there's really no major issues. But I think the funds want to see, want to be proven that there is a crop before they jump out of their longs in the beans.
Pearson: So we've got kind of a window of opportunity here before the news from South America comes in while we're still working with solid exports to China. Capture the rallies in here. Sell --
Kohake: Yeah, you're exactly right and I think that will be that way until early spring where we're -- being the market is supported on breaks, buy the breaks and we're just waiting on to see what globally happens with the bean market.
Pearson: All right. Let's talk cotton. There was a big move in cotton today. What happened there? What's driving that?
Kohake: It's been a wild week in cotton. A lot of quality issues with harvest supporting the market. A lot of the crop has not been ginned yet and that is supporting the market. I think cotton has more up side. I'm looking for Dec. to get up around $83. I would buy the breaks right now until we get more of some quantifiable information of how bad or how short the crop is. It's just the crop has not been ginned and there's quality issues.
Pearson: So this is just market uncertainty out there is playing out in the prices.
Kohake: Exactly and cotton is a wild market, no mercy market. Either you're right big time or you're wrong big time and I think there's more up side yet to come.
Pearson: All right. So hold.
Kohake: Yeah, hold longs, buy breaks. If you get a two cent break I'd buy into it and look for a rally up towards $83.
Pearson: All right. And now as far as global demand of cotton goes we've talked about that a lot of recent weeks, stagnant, slowly dropping. These high prices going to have any impact on that as we look towards next year?
Kohake: I think they will if we would go back plus $100 where we were two years ago. I don't think up here in the 80s will make a whole lot of difference. Globally you're talking global demand there with cotton, we did see GDP numbers from China this week 7.4. That is seven quarters in the row of lower GDP numbers. Everybody would say well that's obviously bearish. It surprisingly wasn't. It's actually proven China may be stabilizing and it could be looking for a better economy here short-term which could increase demand. Let's wait and see if that pans out.
Pearson: All right. Well let's move over to livestock a little bit. It's been kind of a strong week for livestock. What do you see for feeder cattle?
Kohake: I see a topping action. We've got about a $6.00 window that we're playing with right now. I like selling Jan feeders right in here where we're at, putting a stop up over $152, closer over $152 you get out. This whole cattle complex, feeders, live cattle is all supply side, it's all placements. We had a cow on feed report out today. It was, to me, not a big surprise. It showed that the placement number is bullish but it was right in the range that was expected. So I think it will be supportive come Monday morning but I think the feeders are toppy and I like short in Jan and putting a stop close about $152.
Pearson: All right. And live cattle, same advice?
Kohake: Same advice there. It's all the placement number, bullishness there. Long return but I think there's still more up side in live cattle. But they're starting to trend towards overbought. I would look for a pullback in the December contract back to about $1.26 1/2 and look to get long there.
Pearson: All right. Now, we mentioned the news out of Europe, slowing economy in China perhaps. As far as demand goes domestically what do you see for live cattle?
Kohake: I see demand staying strong. Population -- world population is growing especially over in the Asian countries, Malaysia especially. I don't see demand backing off a whole lot. I could see it here domestically a little bit that we've seen just when fuel prices get high, meat prices get high but it's not a long-term situation right now where I would be throwing all my hedges on all of a sudden.
Pearson: All right. Let's talk hogs a little bit. Where do you see the hog market going?
Kohake: Toppy there as well. It's been on a nice rally, a really sexy chart if you look at it. $9.00 rally for December hogs and I think they're toppy. I like to get short Dec. up in here around $80, stop close $80.80, that's where I'd be out of went back above it. But the cash market has been on a tear, loins and just a whole entire cut out complex and this week singled to me that we're seeing a little bit of a slow down there. So I think we're setting up for some profit taking. I don't think we're going back down to 69 in Dec. or 72, I think just a 76 to 77 cent pullback, a three cent pullback just on profit taking and start back over there. But just a little bit overdone right now.
Pearson: All right. And you see that taking place in the next week to two weeks possibly?
Kohake: Yeah, I do yeah. I'd like to get short up in here over 80 and just get a tight stop on it.
Pearson: And then longer term what do you see going forward there?
Kohake: Longer term is going to depend on grain prices. Are we going to see plus $8.00 corn again this summer or not? We've seen the June hog contract trade around $100 off and on the last couple of weeks. I have sold some there around $100 and going to trade in and out a few times. But it's all the wild card, X factor is corn.
Pearson: Is corn prices. With regard to corn prices, how far do they have to drop do you think before we stop seeing whatever liquidation we've been seeing in the livestock markets?
Kohake: I think you probably have to see, you know, the cash price get back down in the sixes, that area. I don't think everybody is going to jump right back in. I'm out for two months, now I'm back in 100% so I think it's going to take maybe a full crop season to be able to prove to guys to be able to go to the bank and say, hey, I want back in.
Pearson: All right. So, we're looking fairly long-term.
Kohake: I think it's at least until next fall, yeah.
Pearson: All right. One thing that's been in the news a lot recently, I'd like to get your opinion on how the market is reacting to it, is the upcoming fiscal cliff at the end of the year. Is the market trading that news? How is it adapting to that?
Kohake: It really hasn't traded that news at all. I think it will be here Thanksgiving time period, post election obviously through New Year's and I think what it could do is spur some liquidation. The fund money will come out, the market will get scared, the wild card will be the dollar index. Are we going to go back above 80, 82 and that's bearish where raw commodities are not. The bond market is going to be wild too if there's interest rates. Do we get downgraded again maybe? Who knows. There are so many factors out there that I think could spur some downward pressure. Short-term everybody is kind of bullish equity wise, stay long stocks to the election assuming there might be an up side or not. Either way it looks to be bullish for the stock guys. But come after that I think you’re going to see some profit taking.
Pearson: All right. And you mentioned the election. Bullish for stock guys. Does the election have an effect on the commodities guys?
Kohake: It does. It's the money flow. It's the money flow with stocks spilling over into raw commodities, dollar raised higher, raw commodities sell off. It's all macro money flow and also too if Europe would have another meltdown watch out. I think it would just be an excuse for everybody to say I'm done for the year, I'll take my money home, I'll start back over after next year.
Pearson: All right. And you mentioned the dollar index and we've seen the dollar all over the place really in the past three months. Where do you see the dollar going based on what we've got so far in the next three months, through the end of the year?
Kohake: Right. This week we have put in monthly lows. I think you stay short until they get back above 80 and I probably could see that happening up to the election time period and see some money come out. But right now we're back into a downward trend. The Euro is back by 130 again so there's your two triggers points. 130 you stay long above, stop it at 130 and the same way with the dollar, you stay short until it gets back above 80. But I think the dollar does stay weak here short-term.
Pearson: And do you think that's going to have any noticeable effect on exports if we keep the dollar weak?
Kohake: Not here short-term. I think you have to get back down into the mid-70s, 76 or below to see a big uptick in exports based on the currency market. That's just because there's so many unknowns weather wise and export wise. With Ukraine like we talked about, weather in South America, Australia has been dry at times so I think that is overriding the weak dollar right now.
Pearson: All right. And something that has been on everybody's mind is crude oil prices. Crazy week there. Where do you see crude oil going?
Kohake: I think it is range bound. 87 bottom side, 94 top side. Fundamentally we should be trading probably, you know, 70s or 80s. We've got the most crude oil supply right now since 2010. Really bearish supplies. But it's another macro deal here. Israel and Iran, Turkey and Syria, a lot of unknowns, a lot of uncertainty just keeping the market edgy and one little hiccup over in the Middle East supply lines shut down -- you're probably 120 and the market is just staying supportive around 90 based off that unknown.
Pearson: All right. And you see that going real quick for a couple of months?
Kohake: Yeah, until January, 87, 94.
Pearson: All right. Jamey Kohake, thank you so much. 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 website. 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. Be sure to join us next week when we'll examine the efforts to preserve America's agricultural heritage by saving seed. Until then, thanks for watching. I'm Mike Pearson. Have a great week.
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