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Market Plus: Apr 22, 2011: Mark Pearson and Jamey Kohake

posted on April 21, 2011

Market Plus: Apr 22, 2011: Mark Pearson and Jamey Kohake Pearson: Welcome to the Friday, April 22, 2011 version of Market Plus. Thanks for joining us here at our Market to Market website. Actually taping this program on Thursday because the markets were closed of course on Friday in celebration of Good Friday. With us this week is Jamey Kohake.

Pearson: You know Jamey you can cut all this stuff down to two things cattle and corn. You go out in the countryside that's really what people want to talk about. We've got vertical integration of the hog business. The cotton business is an old crop story by and large and it comes down to really the corn market and the cattle market. Cattle have exploded to the upside. There is no expansion. There's some challenging grass conditions and wheat conditions in Texas and Kansas with this draught. So there is a lot of interest in that. This feeder cattle market exploded on the board this week. You're not very friendly to fed cattle. Tell me why.

Kohake: Right just short term and that's on the nearby cash contracts. We've seen a nice rally the past three weeks or so roughly. - seeing some profit taking there and we've also see the fuel prices put thirty/forty cents a gallon on. Just a lot of demand talk there slowing down. The market was probably pretty much due for that in here short term but I think you just stay ahead short term with puts, leave your top side open and I think three to four weeks that timeframe coming into June/late May I'd take them off and look for a retest of old highs. Our supplies are still tight. Nothing has changed here. Tight since 1958.

Pearson: Well and you mentioned seasonals and obviously we get the grills out, things warm up, the world changes dramatically in terms of beef demand particularly for those big center cuts.

Kohake: Right and that's why I like the feeder cattle there about four seasonals coming up to get long. I think you could see a two or three cent rally very quick. A lot could depend on corn short term but I think the feeders will lead the rally off the live cattle.

Pearson: Jamey that's the amazing thing, you know, growing up that was the teeter totter. Corn went up. Cattle went down. The calf market went down. We haven't seen it this year. We've seen them go up in tandem.

Kohake: Right. There's been a lot more fun money in the beef complex this year than I think there has been in several, several years. I think once they got wind of the numbers of the number being so tight they just said we're not going to miss out on this either and I think they continue to have a big influence in here short term right now and I think they'll step into the feeders. They can't get in there too hard. There's not enough open interest but I think there will be quite a bit of money looking to buy this up.

Pearson: All right. Well, it has been interesting to watch and we will be interested to see what happens with this feeder market going forward and certainly this fat market going forward and what the impact is of these higher oil prices which you thought maybe were going to start to ease up some.

Kohake: Right, just because of the dollar being so overcrowded and everybody is bearish. It's pretty much common sense the dollar is weak and I think we're due for a flush out of - getting back to seventy-seven/seventy-eight. We'll have to wait and see what happens but I think once Nigeria would settle down, just take that little bit of uneasiness out of the market. And also I think once you see the metals kind of get toppy in here - a lot of this fun money is all tied together crude, dollar, metals, they all start taking profits and you would see a set back and all this is kind of closely tied to one another.

Pearson: We've got a strange fundamental situation in both corn and beans, very tight, but corn seems to be the one that everybody is talking about. Corn is the one that is - we're not late yet. I don't want to say we're late but certainly compared to previous years we're not where we need to be in terms of corn and planting we're not getting off to a great start. And I hate to say it Jamey but the old maxims always prove true. Plant in the mud and the crops a dud. Plant in the dust the bins will bust. Talk about the corn market. What are you telling people who are calling into you right now that are kind of panic stricken about what's going on and what's going forward.

Kohake: I'm using this weather scare/fund craziness in the market right now as opportunities to sell cash. I think when you look back probably sometime fall/late summer these are going to look really good prices.

Pearson: When you say cash are you using a hedge to a rise?

Kohake: HTA. I should have explained that more during the show. Yes, the basis is two wide. In my opinion it is only steady enough to sell the fiscal cash. So hedge to a rise, futures contracts, some type of a put call spread or three-legged option spread is where I would be at. Leave the top side open to sell more. If it is six eighty, some good resistant on the charts, and we're going to get the crop planted and I'm going to use that as an area to put a floor and say I hope this is the worst sale of the year and we keep pushing on higher. Old crop I think is bullish. Carry out hasn't changed a bit, still razor thin, and the spreads July - just lost forty/forty/five cents the last two weeks based off of profit taking and weather premium being put into December. That spread I think is going to widen back out again but I think use this weather scare as opportunity to sell cash.

Pearson: We talk about these option opportunities. These are pricey, Jamey, these option prices. This thing is expensive right now.

Kohake: Right that is why you have to sell something against it to buy a put, sell a call, buy a put, sell a call and sell a put to cheapen it up. Yeah, if you go out there and outright buy a put you're going to spend forty to fifty cents you might as well sell the board instead or start writing options against them but I don't see how corn producers are going to sit back and fourth of July weekend hopefully we're at seven fifty instead of six eighty, start a floor here, Scale into more sales.

Pearson: All right. So continue to look for fireworks in the commodities markets through the fourth of July.

Kohake: Oh I think to say the least. Funds are going to be in here. The weather is going to be crazy. We saw that this week and I think use the scare tactics, use the explosiveness on weather scares, to let some fiscal cash go.

Pearson: All right. Jamey Kohake joins us regular here on Market to Market and from all of us on Market to Market a big thank you for joining us here at our Market to Market website. I'm Mark Pearson. Have a great week!

Tags: agriculture commodity prices markets news