Podcast

Grain market bulls sunning themselves in the light of contract highs made a move for the clubhouse as South American rains dampened their spirits. For the week, March wheat gained 6 cents while the nearby corn contract bumped up a nickel.  The March soybean contract scraped the $10 mark only to have rain in Argentina and disappointing exports create a 7 cent loss for the week. March soybean meal followed the trend falling $4.30 per ton. March cotton shrank $3.18 per hundred weight. Over in the dairy parlor, March Class III milk futures gained 14 cents. The Livestock sector had a volatile week including one limit-up session. The April live cattle contract moved $1.50 higher. Nearby feeders put on $4.20. And the April lean hog contract shed a quarter. The U.S. dollar index stopped the downward spiral but added only 10 ticks. March crude oil hit 4-year highs even with a loss of 69 cents per barrel. COMEX Gold dropped $19.90 per ounce. And the Goldman Sachs Commodity Index lost nearly 7 points to close at 456.85.

Yeager: Here now to lend us his insight on these and other trends is one of our regular market analysts, Ted Seifried. And in case you want to go over things again with Ted, you can download or listen to our Market Analysis and Market Plus podcasts online anytime at iptv.org/mtom. Ted Seifried, welcome back.

Seifried: Thanks for having me, Paul.

Yeager: Alright, Ted, so three contracts moved very similarly this week, the top three with wheat, corn and soybeans, set new contract highs early in the week and then was it all profit-taking from there on? Or what else is going on? Let's talk wheat first.

Seifried: Well, I mean, before we say that, we didn't see any of the contracts set contract highs --

Yeager: Highs for the year I should say. Sorry. Thank you.

Seifried: End of January, early February. But yes, so we did new yearly highs. And I don't think they really all traded very similarly. I think you've got a much different story with corn than you do with soybeans and wheat. To get to wheat, wheat had a parabolic move to the upside based on the crop conditions that we saw for the winter wheat crop being really the worst we've ever seen. With that I look at the very poor to poor category. That is really the concern is that there are some probably irreversible losses at this point. Now, that being said, everything in the fair, good and very good category, especially that fair category, I think has a really good chance, even the poor category, has a good chance to come around and make something depending on how weather goes forward. So at the end of the week you saw wheat kind of pull back a little bit off those highs again. I think a lot of that was technical in nature. We ran right into the 200 day moving average there for both the March and the July wheat, KC wheat. So, again, that caused a little bit of a pull back and we were really quite overbought at that point. But watch $4.85 in the March, or the July KC wheat. We left a gap there earlier in the week when we shot higher. I think we'll come down and partially fill that gap. If we don't completely fill it I think there's a chance that we're going to go back towards those highs again. I want to see another test of that 200 day moving average, possibly get up to the $5.10 area or so.

Yeager: So you sound like a hold here.

Seifried: Yeah.

Yeager: Definite hold?

Seifried: Listen, we've really put a lot of pressure on wheat because we've been so negative on it and the global ending stocks are very large. But with the issues that we had with the spring wheat and now the issues that we're having with the winter wheat there's going to be quite a bit of premium on protein. And so your better quality wheats I think there is upside potential there and I think this winter wheat thing, the strength could stick around if the weather continues to be concerning.

Yeager: So weather is also kind of the issue in both corn and soybeans but for different reasons, not in this country, you're looking at a drought in Argentina impacting corn. Is that a fair statement there?

Seifried: It's impacting corn more so right now than it is soybeans, that's right.

Yeager: So what do you see when you have, we had a high close, we had reduced acres in that debate. What is moving this market right now?

Seifried: Okay, so corn for the most part I think is a function of the lower dollar. The lower dollar helps in two ways and very important ways. We've seen exports being really strong for corn in the last few weeks. This week's export report I believe was a marketing year high at just under 2 million metric tons, that's a very good number. We really needed to see these corn exports pick up and the fact that we're seeing that is a very good thing but also suggests that global end users feel like corn is at a fair value between $3.55 and $3.60. That's a huge vote of confidence for the corn market and the prices that we're at. Also, when you have the dollar under pressure you've got large speculators that have been short corn at a time of year that they're usually not very short corn, they're usually flattening out by this time, and they have had a very large short position. So when you have that dollar moving lower that's inspiring short covering from the funds. So for corn I think it certainly does have to do with South American weather, Argentina in particular. There's also concern that Brazil, with rain delays, that the longer it takes for them to harvest their first crop of soybeans the more unlikely that they're going to get in the full boat of the safrinha corn crop, so you might see less corn acres there as well. So just a culmination of things really helping corn out. And corn had some sort of independent strength here this week, especially at the tail end of the week when wheat and soybeans were under a pretty significant amount of pressure.

Yeager: Alright, we'll get to soybeans in a moment. But do you see $4 as possible in corn any time soon?

Seifried: Well, for new crop corn.

Yeager: For new crop corn. I mean, we're close, we're close there.

Seifried: $3.84, sure. I think it's a good possibility. The thing that worries me, and we'll get to soybeans as you said in a second, is if you see soybeans come under a significant amount of pressure here in the short-term it's going to be very difficult for corn to continue to follow through to the upside. Plus, if you look at who owns the corn here in the U.S., the amount of corn on farms, the amount of corn ownership in the hands of the producer is just tremendous. So you're going to see a lot of producer selling on each penny or two we go higher. That could be fairly limiting.

Yeager: Alright, so we need to answer some questions from our viewers, both Instagram, Twitter and Facebook. And this one, Ted, comes from Matthew in Napolean, Ohio and he wrote us on our Facebook page. He's asking, where does the U.S. national yield for soybeans have to be for the market to become worrisome about supply assuming 91 million or more acres?

Seifried: Okay, well it depends on how much more, but let's call it 91 million acres in soybeans. A lot of it depends on where we end up as far as ending stocks are concerned. I'm a little worried that we're going to see ending stocks quite a bit higher than what the USDA is currently projecting. There has been many years where the USDA started out with a very high number in the ending stocks and we end up with a much lower number. I don't know if this is one of those years. So, that being said, I'm going to assume a 500 million bushel carryover in soybeans. If that's the case we probably need to see soybean yield 47 or below to really have a shot at much stronger prices than what we have now. I'm worried about demand going forward. And this crop, this year's crop in soybeans seems to be a little bit problematic. There are some quality concerns there and I think that is being reflected in our exports.

Yeager: There was a story about that last week about protein, is that what you mean?

Seifried: That's exactly what I mean. I've been talking about this for a couple of weeks now. Our oil yield is 3% off of September. September was the last month we predominantly crushed old crop soybeans. So our oil yield is down significantly from last year. Protein content is down significantly from last year. So what that means is that when we or global end users go to crush soybeans our crush margins are much tighter. Crush margins are already very tight in China so China has really shied away from wanting to import our soybeans in favor of a more quality product down in South America. You saw that this week with our export sales in soybeans really underwhelming the trade expectations, but meal sales were really good. The world is saying we want the product, we don't want the soybean. That's a problem because our crushing capacity isn't big enough to offset the deficit that we might end up with exports.

Yeager: Okay, real quick before we move on, time to make sales? Time to hold? What is your recommendation?

Seifried: I'm fairly aggressive on soybeans right now. I'm worried that exports are going to add another 50 to 60 million bushel back on the balance sheet. For corn and wheat I think you can hold. You had to make some sales in wheat this week but for now I think you hold. Corn a little bit here and there just in case soybeans go down. But I think you do hold for the most part for corn.

Yeager: We're going to play rapid fire in livestock here. Let's start with the cattle. The inventory report we saw some bears show up. Is that fair to say? Or do you interpret it differently? Because there was different interpretations of that report.

Seifried: Yeah, the inventory report I thought was actually fairly friendly. It doesn't show the expansion as quickly as what we were thinking, especially when you compare it to the cattle on feed report that you saw the previous Friday. I'm fairly friendly cattle at this point. The only hiccup to that right now is the drought in the Plains so we might have cattle being pushed to market sooner than normal. So there might be an upfront sort of supply gut. But exports have been really good, domestic demand has been really good, packer margins are good. I think there's room for upside on the cash side of things. So I'm still fairly friendly for cattle and feeder cattle.

Yeager: Okay, feeders, a little more there. Again, another one of those limit up contracts yesterday. What was driving that?

Seifried: Well, partially the inventories report and then also follow that up with exports. You put those two things together and there's your fundamental reasoning. Technically we had held key support thereafter, we failed the resistance the day before, backed off a little bit, got some good positive fundamental news, and then technically we were able to break those highs and then follow through on that. So it looks good. Team 150 feeders, we finally got that in play and I think there's more upside potential from there. I'm currently targeting 154.

Yeager: Do you see more feeders coming out of fields into lots any time soon?

Seifried: Yeah, so that's the question that we have. And we've got a lot of lighter animals on feed right now and a lot of that has to do with the drought that we've got going on. So overall I think the nature of that is supportive of feeder cattle. And so yeah, with the lighter weights it is possible.

Yeager: Fundamental news was in the hog market this week there was a story about hey, everybody loves U.S. pork, it's a cheap buy right now, specifically in China. But the question becomes though what happens if there is a change with NAFTA or China? Is that playing into the market right now? What is your take?

Seifried: Well, trade relations are always something the market is watching but we don't trade anything, we've been kind of sort of fooled by it a few times before, we're not going to trade anything until it actually happens. In the meantime the lower dollar has been giving us really very good pork exports. So that has been supportive. However, futures are trading at a pretty significant premium to cash. And you look at weights being up two pounds or so last week compared to this time of year we expect to see sharp declines. I'm worried that the big supply that we have up front eventually is going to weigh on the market and at the very least take away that premium to cash.

Yeager: Alright, before I let you go, crude oil retreated a little bit. Is this retracement? Or is this the beginning of a trend?

Seifried: I don't -- I'm not sure if we have a blow off top but a reversal lower week is not a good thing for crude. When you get above $60 a barrel you really bring out a lot of production here in the States, which could be offset a bit by the lower dollar, but I'm worried that OPEC starts to fall apart with these better crude prices. So longer term I'm bearish but I don't know if it's the top right here.

Yeager: Alright, Ted Seifried, thank you so very much, appreciate the time.

Seifried: The pleasure is mine.

Yeager: That will do it for the broadcast version of this program we call Market to Market. However, Ted and I will keep the conversation going, including answering more of your questions during Market Plus, which is available in podcast and video form on our website. You want to help set a record? You could be the 500th subscriber to our YouTube channel. Tell everyone you have clicked subscribe at youtube.com/markettomarket. And join us again next week when we'll examine how urban consumers are getting fresh produce from a different kind of container. So until then, thanks for watching. I'm Paul Yeager. Have a great week.

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