Market Analysis: Ted Seifried

Market Analysis: Ted Seifried

Aug 5, 2016  | Ep4150 | Podcast

Podcast

The commodity markets spent a large share of their time fending off reports of good growing weather and predictions of more than adequate supplies to finished mixed. For the week, September wheat grew 8 cents, while the nearby corn contract declined 10 cents. Sun and rain at the right times woke sleeping bears as the September soybean contract lost 32 cents. September meal went along falling $15.50 per ton. In the softs, December cotton gained $2.70 per hundredweight. Over in the dairy parlor, September Class III milk futures advanced 40 cents. The livestock sector finished mixed as the October cattle contract moved $3.80 higher. September feeders improved $8.62. And the October lean hog contract continued its search for a floor losing 75 cents. In the currency markets, the U.S. Dollar Index added 65 points. Crude oil gained a scant 20 cents per barrel. Gold lost $23 per ounce. And the Goldman Sachs Commodity Index lost more than 2 points to finish the week at 341.40.

Pearson: Here now to lend us his insight on these and other trends is one of our regular market analysts, Ted Seifried. Ted, welcome back.

Seifried: Hey, thanks for having me.

Pearson: We are glad to have you here. This is the first week in quite a while we've seen substantive gains in this wheat market. We're up 8 cents on the nearby. What tripped that trigger? Dollar is higher.

Seifried: Dollar is higher. Well, the dollar has come down pretty well over the last couple of weeks. So take that with a grain of salt. As far as the wheat market is concerned we've had some issues with the European crop, we're talking about France and now there's some talk about Germany having some issues. So while these aren't areas that are going to be big enough production areas that are going to have a significant impact on the global balance sheet and really increase our exports significantly, you do wonder if maybe the worst of the news for the wheat market might be behind us now at this point. And you've got a very large speculative position, a very large fund position that is very short. And if these guys need to get out of the short position or start to peel back on that short position, it could have a very large impact on trading in wheat and could give us higher prices without having any real good, fundamental reason to do it. But at this point you do wonder if most of the negative news has been factored in already.

Pearson: Are you putting positions in place today in this wheat market to count on that move higher as those shorts come out?

Seifried: I would not aggressively be buying wheat futures at the moment. And I'm not so sure that we've got the lows in right now. However, what we have done is we have started to buy a little bit of the wheat calls, and call spreads in particular, to maybe offset some of the production sold at harvest, just to give us a chance to participate in a fund-led short covering rally, something of that nature. But I don't want to be very spendy because my confidence isn't very high that wheat is going straight up from here. But it's a better time now than, hindsight is 20/20, but I feel more comfortable doing something like that now than a few weeks ago.

Pearson: Alright. Well now let's talk about this corn market, down another 10 cents. We continue to get yield estimates in the 172, 176, 175 range. Where does that take us here on price?

Seifried: Yeah, I've been talking for a couple of weeks now that as we lead up to that August WASDE report we're going to start hearing a lot of yield estimates and those yield estimate are mostly going to be based off of the good to excellent condition that the USDA, NASS gives us. So at 76% good to excellent that's 6% better than last year. Last year we came up with a 168.4 national average yield. This year the USDA is looking at 168 as trendline. So the fact that we're 6% better has guys adding onto that yield pretty significantly. And I understand that, from a statistical basis I get that. But I do wonder about that because these USDA numbers, or the NASS numbers, crop conditions numbers aren't a perfect science. So, take soybeans for example, I know we're talking about corn, but take soybeans for example, in 2014 we never dropped below 70% good to excellent and we ended the year with a 47.5 national average yield. Last year, 2015, we never got above a 65% good to excellent and we ended up with a record yield of 48 national average. So there's a big difference there. Almost ten percentage points and yet we had a higher crop on the lower rated year. So we've got to take these USDA numbers with a grain of salt. You wonder what lingering effects this heat has had on the corn. You wonder about test weights. You wonder about kernel depth. You wonder about tip back.

Pearson: And all of these things kind of lead us to our Twitter question I want to throw to you as we get a little closer to harvest. This one is from Adam in Woden, Iowa on Twitter. He asks, to what extent will the markets believe upcoming crop tour yield reports? Once we get past USDA next week, will we put a lot of strength behind these crop tours that go out in the countryside?

Seifried: Yes. And that's a great question because statistically we know that it's a good rated crop and we know that the USDA's model really favors for corn rainfall during the month of July and we know we had a lot of rain, but we also had a lot of heat. So there's a big question mark this year as to what sort of effects that had. I would much rather listen to a crop tour than a statistical analysis. You've got to use both of them because you've got to understand that that USDA is heavily weighting on their crop conditions, but the crop tours are going to answer some questions and I'm really looking forward to it.

Pearson: Perfect. Now we are going to dig into this topic deeper on our Market Plus segment that you can find online. We want to talk demand with Ted Seifried. But next I want to jump into the soybean market, another 32 cents to the downside, Ted, where is the floor in this market?

Seifried: Well the global end users seem to think that the floor could be somewhere in this general neighborhood. If you look at the last 8 days we've had significant export sales on the daily flash report. And then we saw on Thursday we had a very good export sales report, which really even pre-dated a lot of these sales as well. So global end users are stepping up to the plate suggesting that we're at good value here. You could see this number, you could see bean prices come down between now and our harvest lows, and I think you will because, again, just like corn, I think we're going to start hearing higher and higher yield estimates. But, you do wonder, how much lower do we go from here because demand is really very solid --

Pearson: Are we looking back at those mid-$8 as a floor on this market, that wintertime trade we saw in the Nov contract?

Seifried: Very much depends on where we end up with national average yield. The bigger the yield, the bigger the carryover, the more demand, the more we can absorb this spike in demand that we've seen recently. What we do know is that demand is good and improving and a lot of times that's a really good sign that the global end users, which are pretty savvy, are feeling like that we're at value here. But if that yield continues to creep up and that demand isn't taking a whole lot away from the carryover, well we still might have some work to do to the downside. So we'll see, in the month of August is still a very, very key month for soybeans.

Pearson: And we're just getting started.

Seifried: A lot to be determined there yet.

Pearson: As we have started the month of August we have seen this nice rally in live cattle futures continue, we put another almost $4 on this week, and yet this week we were also greeted by news that now we are going to begin trade with Brazil, both directions. We've got a question from Rodney in Edgar, Wisconsin. What implications will that deal with Brazil have on this live cattle market?

Seifried: That's a great question, Rodney. Any answer I'm going to give you right now is speculation because we don't, I don't know for sure what's going to happen with that. But, like you said, that's trade going both ways. So the bright side of that is that hey, that opens up the door to more exports potentially. For corn we're going to be sending more corn to Brazil because of their crop issues that they've had. So that potential is great. But it can come the other way too. So I think that you want to look at it as a positive sign for the market or a positive input to the market, but cautious optimism I think is the way to go with that.

Pearson: Do you think we're getting close to a top in here? Are we aggressively selling this rally or do we have more room to the upside?

Seifried: You look at commitment of traders here today there was some pretty significant buying here this week. A close above the 50-day moving average, that was very nice. Yesterday we trimmed a lot of the gains, came back down and tested key support. We answered that with a nice bounce higher here again today. I'm looking for the October lives to go and push the 118 hopefully into the 120 area and then we might be looking at some pretty significant resistance. But I think it's looking good for now. Of a little concern is we did leave that gap down on that chart near the lows and at some point we might have to go test that. If we do though, what we could be doing is putting in a multi-year low potentially. But in the near-term I'd like to see more upside potential, the price action feels good to me so I'm not aggressively selling cattle just quite yet.

Pearson: Feeder cattle $8, almost $9 higher this week. Can we take out $150?

Seifried: Well talk about live cattle, I like a feeder-led rally. So can we? I don't know. That's going to be -- the $150 level is a big technical and also psychological resistance level. So that is going to be proving ground, that is going to be a big test and we'll have to see what we do when we get there. I would not be surprised to see a pull back from that level before we maybe try it again, try it more than one time or more than two times, you keep knocking on that door eventually you think you're going to get through. But I wouldn't be surprised to find some selling in front of that just because we know it's resistance. Absolutely.

Pearson: Lean hogs. Can we buy this lean hog market yet or do we have more room to the downside? You talk about knocking on that door, every week we're knocking on that door and every week it opens to another stairway to the downside.

Seifried: That's absolutely right. And we get very, very oversold, to levels on the RSI, relative strength index, that are considered extreme cases of being oversold. And then we have a little, tiny bounce and trade sideways just for a brief enough period of time but long enough to correct those RSI's a little bit and then we slam it again. I don't know. It's really difficult to think that hogs have that much more downside potential left in them from where we stand. Yes, fundamentals are a bit bearish compared to what we were looking at just even three or four months ago, but we factored that into the market and then some maybe.

Pearson: And the bearish factors, we've known supplies are growing. Is it primarily the drop in export demand? Is that the lead of the bearish factors?

Seifried: Well the drop in export demand is part of it, the drop in export demand, but not only that, disappointment that the export demand hasn't really gotten stronger. We've been hoping or really planning on exports to get strong, especially from Southeast Asia, China in particular, and that has just really never shown up. So a lot of these bullish speculative bets that had been made in hogs, based on the idea that we were going to see this big influx of Chinese exports, that never happened and that had to come out. Now you think that we could be getting close to that, and you do wonder, China made some cancellations, this is a game that they like to play before they make some bigger purchases potentially.

Pearson: Perfect. Ted, we'll pick this up in the Market Plus. Thank you so much.

Seifried: Absolutely, my pleasure.

Pearson: That wraps up the broadcast portion of Market to Market. But Ted and I will keep the market conversation going including answering more of your questions during Market Plus available on our website. While you're there check out the Market to Market Classroom. It's a place where students of all ages can find stories on the business, technology and science of agriculture. And join us again next week when we'll examine how USDA is throwing dairy producers a lifeline. So until then, thanks for watching. I'm Mike Pearson. Have a great week.

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