Market Analysis: Ted Seifried

Market Analysis: Ted Seifried

Oct 27, 2017  | Ep4310 | Podcast

Podcast

A stronger U.S. Dollar pulled the reigns back on modest gains as export buyers took their business elsewhere. For the week, December wheat gained a penny, while the nearby corn contract added 4 cents. Lagging export sales also held back the soy complex as the November soybean contract dropped 4 cents. December meal declined $5 per ton. December cotton stretched $1.32 per hundred weight. Over in the dairy parlor, November Class III milk futures rebounded after a couple of rough weeks to thicken 70 cents. Most of the livestock complex moved higher as the December cattle contract put on $4.23 and nearby feeders improved $3.40. The December lean hog contract was down 40 cents. The greenback was the big winner, hitting a 3-month high, increasing 124 basis points. Crude oil finished above $50 again this week, adding $2.06 per barrel. COMEX Gold declined $8.70 per ounce. And the Goldman Sachs Commodity Index added 10 points to finish the week at 411.85. 

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, Mike, thanks for having me.

Pearson: You bet. And in case you want to go over things again, you can download or listen to our Market Analysis and Market Plus podcasts anytime at iptv.org/mtom.

Pearson: Ted, wheat market, not a whole lot of movement this week. It seemed to have a little fire under it to start the week and then it just fell apart. What happened?

Seifried: Yeah, everything kind of seemed to have a little fire under it, well at least corn and wheat did. We were seeing a little bit of fund short covering Monday and Tuesday in the week, that kind of fell flat and wheat under pressure the rest of the week, kind of looking like it wants to see what is at those lows again. So that's not a whole lot of fun. But yeah, I think we're a little bit disappointed about missing out on some export business. But you look at what happened with the dollar starting on Thursday, that's a major concern.

Pearson: So what happened? Walk us through this dollar. Why all of a sudden all of the strength in the U.S. dollar?

Seifried: Well, that strength has been building for a little while. But the reason for Thursday and the big reversal that we saw on Thursday, that's coming from the ECB. The European Central Bank decided that it wants to, and announced, that it wants to start tapering their quantitative easing. They want to have a soft exit is what they're calling it. So it's going to happen over time. But the idea that they're no longer going to be adding stimulus is, it sent the Euro down at one point 2.6% there on Thursday. So what happened with the dollar on Thursday, we had made a low below the previous day's low and then we rocketed above the previous day's high, that big sweeping reversal happening at a three month high is pretty bullish. It's a pretty bullish technical signal, it's pretty bullish across the board. So the dollar there on Friday continued to move with that as well.

Pearson: And so now the trade is thinking, this stronger dollar is going to lend itself to increased export weakness, particularly in wheat I would assume as we go to the future.

Seifried: Increased export weakness, okay, how about decreased exports. There we go. That's the concern. To some extent small moves in the dollar don't have a direct impact but the perception that the dollar might be going higher could have global buyers, global end users looking to other areas to fill these orders and fill their needs. So that is a concern, that is a big reason why wheat came under pressure there late in the week and you saw it in some other markets as well.

Pearson: Well, and one of those markets we saw late in the week with some pressure was the corn market, not nearly as strong a pressure as we saw in the wheat market, but same story, had a big up day earlier in the week, really seemed like we were catching fire in this corn market, we might be testing the outside of that range and then we closed at $3.48 and change, right back into the range.

Seifried: Right back into the range, right hugging that $3.50 level on the December corn, more the same there. But I'm going to call it a pretty good week for corn, we were up 4 cents or so on the week. Going back to last Friday it looked like we were staring down into the abyss and ready to take another leg lower, which if we break those lows probably means 15 to 20 cents potentially. But we saved that. We had an outside reversal higher day, which is the third time we've done that since August 31st. And when you get a series of those happening in a market that has been trading sideways for a while after a very long downtrend, it does kind of seem bottomy. So we'll see if Monday's low holds. If it does then I think there's still potential to go higher. But the wheat I think really kind of sunk the corn's ship there at the end of the week. But we'll see what next week brings. With only being 38% harvested coming into this week we still have more producer selling to absorb. However, once we get to 50% to 60% harvested I think a lot of that producer selling is going to dry up very quickly. You look at what is happening with the calendar spreads right now and the corn market is offering a ton of carry. So it is asking, hey let's store as much corn as possible, guys are going to do that, partially because of low prices, but also because of the carry. And then tax purposes, guys this time of year would like to stop selling and then will wait until January to resume that. So when that producer selling dries up, if we don't have any new, fresh bearish news to push us down into new lows you've got funds, which by my calculation, were record short coming into this week, they trimmed a little of that on Monday but added a little bit back to that Thursday and Friday. So with record short or close to record short fund position if we don't have downward pressure they might start to want to get out of that and that could give us a little bit of a bounce, again, if and when that producer selling dries up.

Pearson: And if I'm a producer looking to set some target prices for grain that is coming out of the field today, what would you be watching for targets?

Seifried: Now, are we talking old crop? Are we talking about the December contract?

Pearson: We're talking December contract.

Seifried: Okay, so for the December contract a big target is $3.72 and that’s probably about, just the way things have been going and the sideways trade we've seen for almost three months, I think that might even be a little bit optimistic. However, you get a break out of the range, again you have funds really short, it could go further than that even. We'll see. But I would think by the end of the December contract we might go and test the $3.70 level or so.

Pearson: Okay. Now let's take a look at the soybean market and before we get into it we've got a question here from one of our followers on Twitter. This is from Richard @RichardJameson9. And we encourage all of you to find us on Twitter and Facebook. Richard wants to know, is the soybean market likely to trend flat to down like corn has for weeks or months going forward?

Seifried: Well, that's a great question, Richard. Thanks for the question. Hmm, there's a lot of conflicting factors there. The reason why soybeans have been in a bit of an uptrend since mid-August is because unlike corn, yield expectations have actually been coming down ever so slightly, although production didn't because we added acreage. But the idea that yield could be coming down even further has really picked soybeans up off the mat and while we haven't quite caught up to the pace we need to be at, in my opinion, to hit the USDA's export target, we certainly have seen a lot of very good exports lately. Our Monday shipment number was 94 million bushels, a huge amount, in one week. So that's fantastic. But, at the same time, since we saw that October WASDE report we've got some other things that are happening that are really not great for the soybean market, in particular the strength in the dollar and the weakness in the Brazilian Real. With that Brazilian Real coming down that's making their product cheaper for the rest of the world, it's also making it so that the Brazilian producer is taking more money in, in Brazilian Real terms. So we've seen producer selling pick up in Brazil and so that could be a problem going forward. Argentina has been very active in the meal game lately too. So the soybean meal has been under quite a bit of pressure since that October WASDE report. So we'll see. If the dollar is going to continue higher and the Brazilian Real is going to continue to go down I would think that the soybeans are going to break out of this sort of shallow uptrend that we've seen and head lower. But on Friday we did bounce off that trendline. It wasn't super impressive, I call it a dead cat bounce, although I hate clichés.

Pearson: It was the 200 day moving average, wasn't it, on Friday that we bounced off?

Seifried: Well, so I'm looking at the trendline that we've established since mid-August.

Pearson: Okay, that August 31 low.

Seifried: Well, actually the low on soybeans came before that.

Pearson: Oh okay, that was corn.

Seifried: Yeah, that was corn. But the last five times we've touched that trendline we've bounced off of that and four of the last five times we have went on to make new recent highs. So we'll see. The 4 cent bounce on Friday, okay, would have liked to have seen more than that. We'll see how we follow that up next week. But I'm worried that the meal chart is kind of telling the story and that we might have to break out to the downside and see a little bit more pressure. I'm not as worried about producer selling in soybeans as I am in corn because we're much further along in harvest, so I don't think there's that much more to come. But Brazilian producer sales may be the problem.

Pearson: Okay. Alright. Well, now let's take a look at the livestock market because that’s where we did have some excitement this week. We saw live cattle really take off like a shot beginning on Tuesday, closed the week $4 higher, went above $120, closed above $120. Ted, what does that set us up for next week?

Seifried: Absolutely, earlier in the week we saw new high closes, new highs, well it was impressive to do that especially earlier in the week coming off of a cattle on feed report that was widely seen as being really quite bearish. It was really quite bearish. So to be able to shrug off that news, great. Cold storage helped it out. But for the most part you've got sort of a bull market here.

Pearson: What happened in cold storage?

Seifried: Well, cold storage came in less than expected. So to see a marketings number a little bit lower than what we were expecting, and then following that up with cold storage that was less than expected, it sort of makes sense and it really does kind of say that domestic demand is pretty good. So here's the thing about cattle though, we're trading a pretty decent premium to cash right now and it's kind of an odd time of year to be doing that, especially when we're looking at pretty robust supplies going into the end of the year. So we really are going to need to see a very stout domestic demand, which I think could be the case because economy wise or at least from the stock market perspective things are strong. But at the same time we also need to see good export demand. And that's where the run might be because again the strength in the dollar we talked about when we're talking grains, that might have a pretty big effect on cattle, hogs too. So keep an eye on that dollar, that dollar could be maybe a bit of a black swan event if it does continue higher. And one last note on the dollar, there are some reasons here domestically to think that that dollar might not need to have to go much higher. A lot of it is going to depend on what happens in Europe. But we really haven't priced in, well we have priced in almost certainty that we're going to see rates raised in December. But the next chance we're over 60% as far as fed funds are concerned, is out in July. So we're not expecting another, at least the market doesn't really seem to be expecting another rate hike, until mid-next year. Now, if something were to happen from the fed and the language would get a little bit stronger on further rate hikes and sooner that would add strength to the dollar. But if we're going to do December and then wait six months, well then that could take some steam out of the dollar and come back down. So we'll see what happens.

Pearson: Alright. Well now let's take a look at the feeder cattle market because, again, on fire, up $3, almost $3.50 on the week. Of course the continued strength from live cattle with corn in a range, is that going to continue to drive that market? Or how much higher can we climb feeder cattle?

Seifried: Yeah, that's a good question. When you look at the cattle market as a whole and you've got live cattle rallying and feeder cattle rallying you really would like to see feeders leading the way. And this week we really didn't see that. So I wonder if we're kind of getting into a little bit of thin air up here. But placement numbers, marketing numbers, I like the fact that we've seen strength in feeders. I think at the moment we're fairly value priced. I think we have to see what happens with live and that will tell us what happens with feeders, also what happens with the corn price too because if corn does break out to the upside a little bit that's going to put some pressure on feeders.

Pearson: Yeah, that will make the air real thin under feeder cattle. Now let's talk lean hogs. You mentioned we might see some export headaches with a stronger dollar. As we sit today though these lean hogs have staged quite an impressive rally, a little bit of a correction this week. Where do we go from here?

Seifried: Wow, that hog market we've been seeing daily reversal after daily reversal. It has been really, really choppy up here. I don't like that sort of volatility when you're in an extreme. A lot of times that can be indicative of topping or bottoming. I think you've got a fair amount of speculators that became interested in the hog market because we put in that sort of month and a half bottoming process where we tried to go through the lows multiple times and held. I think your technical traders look for something like that and that brings interest, certainly the cash market has been helping the hogs along. But overall, lots of supply in hogs. And while domestic demand has been pretty good, if we're not following that up with some really stellar exports, which we had seen a few weeks of and they've been good, but if we're not following that up and continuing with really good exports I have a hard time seeing hogs hold these prices. I think there is maybe downside. Now I don't know if we need to see new lows. Maybe what we've done is just sort of define the range that we're going to trade in for the next few months.

Pearson: Call it a 55 to 65 --

Seifried: Yeah, right in that neighborhood, right in that neighborhood and we might be at the higher end of that range now. But we'll see what happens. If the dollar starts to come back and we can have more hope for exports again that might breathe new life into things and if the domestic market is competing with that and cash stays strong then there could still be some upside and you know the speculators like to, want to trade that trend if that trend is going to continue.

Pearson: You bet. They love the trend, they love a story. Ted Seifried, thanks for taking the time to talk to us this week.

Seifried: Always a pleasure, Mike, thanks a lot.

Pearson: That wraps up the broadcast portion of Market to Market. However, we will keep the conversation going, including answering more of your questions during Market Plus available in podcast and video form on our website. Sometimes 140 characters is all you need to keep connected while in the combine. Our Twitter feed of @MarkettoMarket is here for news, photos and links, so give us a follow. And join us again next week when we'll see how a new variety of apple could revolutionize the orchard. So until then, thanks for watching. I'm Mike Pearson. Have a great week.

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