Market Analysis: Angie Setzer

Market Analysis: Angie Setzer

Apr 13, 2018  | Ep4334 | Podcast

Podcast

Despite last week’s threat of a trade war, and this week’s shift in trade policy, the commodity markets continued to ask for proof of a problem. For the week, May wheat was flat. The nearby corn contract fell two cents. Even with a higher carryout and lingering tariff threats, the May soybean contract skyrocketed 21 cents. Meal, which been leading the way, fell $3.50 per ton. In the softs, nearby cotton improved $1.17 per hundred weight. Over in the dairy parlor, May Class III milk futures were 2 cents higher. The livestock sector finished in positive territory as the June cattle contract moved $1.32 higher. May feeders put on $4.75. And the June lean hog contract bumped up $4.37. In the currency markets, the U.S. Dollar index moved 5 ticks higher. Crude oil pumped up $5.33 per barrel, a nearly 9 percent increase. COMEX Gold added $11.80 per ounce. And the Goldman Sachs Commodity Index moved mover than 24 points higher to finish the week at 467.65. Joining us now to offer insight on these and other trends is one of our regular market analysts, Angie Setzer. Angie, welcome back. 

Setzer: Thanks for having me.

Howell: Angie, let's get right into it here. Let's start in the wheat markets of course. With the massive ending stocks that we of course saw this week with WASDE, how much more upside potential do you see? Let's talk Chicago wheat specifically.

Setzer: Well, Chicago wheat has always been known to be a follower so you've got to look at wat is happening elsewhere. And one of the biggest things that we're seeing right now of course is what is going on in the Southern Plains, drought conditions there and a lot of areas remain entrenched. Just yesterday it was 100 degrees in areas in the Southern Plains there with an exceptional wind and wildfires and our prayers go out definitely to the farmers down there that are dealing with that. So there’s a lot of issues down that way, not to mention wheat also experienced a pretty substantial freeze. Now it's behind in development but it obviously will be impacted by temperatures in the teens. There's discussions of temperatures in the 20s or lower even this coming weekend. So wheat always, they always say wheat has nine lives but we're definitely working on eight or nine here with a lot of that crop. Of course with the substantial amount of stocks that we have leftover the feeling is well we're comfortable with what we have, we can chew into those and work on from there, which is very true but we have to see also what's going on in the Northern Plains. So it's a tale of two different cities, you're very dry in the South but you're too wet, too cold, all of those things in the North. And so we're getting to where we're feeling delayed on planting of spring wheat and people ae going to make decisions there as well. So the overall narrative right now is we have a bunch of wheat and we're going to have a bunch more with the idea that, I've said it before on the show, wheat is either a record crop or it's dead. And right now I guess we're trading that it's a record crop in the meantime. But we'll have to see what happens. We'll be starting wheat tours here over the next few weeks in the Southern Plains and kind of seeing how that looks now that it's working its way towards heading out and getting some maturity. We'll see what happens in the Northern Plains but for now wheat is not the golden child of the market at least.

Howell: Absolutely. And when we look at weather impacting markets the weather is also impacting the corn and soybeans markets as we look at planting. We've had crop insurance dates for a couple of different states now. When you look at corn specifically with delayed plantings what is that going to do for our markets and our prices?

Setzer: Well it's definitely something that we're going to want to watch. The market itself is not going to get too worked up about delayed plantings until around Mother's Day. That's what everyone says, when does the market pay attention? I say Mother's Day. There's some folks that of course will tell you that they're already behind and they are. It is an issue specifically with reaching maximum yield potential. You can plant well into May in a lot of areas but you're going to be pollinating during the heat of the summer. And so that's something that we'll want to be concerned about. The idea for me or what I look at right now really is it's more of a bearish factor for soybeans and the idea that we can't get spring wheat planted, we may be delayed a little bit on some corn plantings, but the reality is if we were planting actively right now in corn it would be a pretty bearish situation because then we could be looking at picking up more acres, looking at the potential for 90, 91 million. That's not happening. So we can almost get to where we're married to that 88 number. Of course things can change very quickly, especially when it comes to weather, but at this point in time it is something we'll want to watch. And it is something that could end up being more of a bearish factor in soybeans here in the next three or four weeks.

Howell: Okay. The other thing I wanted to make sure that we got to touch on today in the corn markets is our corn export numbers. For Brazil and Argentina with reduced export competition for these countries what do you expect that to do to the 2018-2019 marketing year for the U.S.?

Setzer: I think it could be huge. It has been something that I've been paying attention to. I've argued for a while that the soybean production number in Argentina is big but the corn production number is potentially bigger and we'll want to be watching what is going on in Brazil where they have started their second crop corn off. They're looking at much drier than normal conditions for the next couple, three weeks. Of course it's early yet but we'll want to see if that is an indicator of a pattern. With the soybean market taking the tension like it is in Brazil and from a global standpoint too you're not going to see Brazil actively working to export corn. They're coming into their soybean export period. So I think we'll continue to see good shipment pace. This past week we saw extraordinary corn shipment pace. I think we’ll continue to see that and I think we'll continue to see interest in U.S. corn as long as we stay competitive from a global standpoint. I'm excited to see what happens during the last half of the marketing year into the first half of next year.

Howell: I think maybe even the bigger story this week was soybean export sales numbers. Where did that come from?

Setzer: Well, the one thing that we saw as soon as the tariffs weren't out there was a conversation that we had quickly is that the Brazilian farmer and Brazilian agribusinesses down that way basically pulled their offer of soybeans for May. It became one of those things where if we're going to be the only provider of soybeans in the global market structure we want to be paid more for them. And so it was really interesting to see how the cash market trades, and it actually ended up leading futures you could say because we did see soybeans rally pretty substantially this week and that was because of the fact that our foreign buyers realized okay, the U.S. is competitive, the tariffs are not in place yet, we saw unknown who typically is our friend China come in and buy big chunks of beans, we heard the Argentina story. And the one thing to be aware of in the cash market when it comes to exporting and things like that is arbitrage. So it's very, very possible that those Argentina sales could be sold to Argentina but never ever even reach their borders. And so that will be interesting to see. Do we end up crushing and shipping? Do we ship whole beans in the name of Argentina to China or something like that? So there's a lot of developments that have taken place. The global demand for soybeans remains sensational and that's something to remember and definitely something to watch as we move ahead. So it is surprising in the sense that everyone is telling you that we should be sad about the export potential but it's not necessarily surprising if you were paying attention to what was taking place and the basis and the global export market itself.

Howell: Right. And when we look at where prices have sat after the announcement of potential threats we're almost back, maybe back a contract month to where we were before this announcement.

Setzer: Yeah. We're above actually, within about a nickel of contract highs on soybeans before today.

Howell: With that being said, where do you expect soybeans to go? Do you expect us to see some further upside potential?

Setzer: Soybeans are magic, you know what I mean, at this point in time. They really, I said it the last time I was on the show, it's like pushing a beach ball under water. They remain that way. There is some inflationary feel developing in the market. If we were a year ago with the bearish sentiment that we had towards commodities a year ago we'd have probably been down limit multiple days based on the tariff announcement itself. Obviously at this point in time buyers are looking to protect their position, the funds have come in and been aggressive supporters of the market structure. We have had aggressive farmer selling so at this point in time you don't have -- typically like in corn if you get a big rally you're going to see farmer selling come in and kind of cut some top end off of rally potential, soybeans that's basically gone. There's not a lot of farmers with row crop beans left and there's not a lot of farmers with excessive new crop sales open. And so it will be interesting to see what happens, if funds will be able to protect their investment until they decide not to. And so I'm waiting for the day that we get a bullish announcement in the market and end up with a bearish close and maybe that will be an indicator of things to come but at this point even seeing that on Tuesday and Wednesday the market has not been overly excited to move much lower.

Howell: Absolutely. We're going to save the social media questions for Market Plus which you can find online at iptv.org/mtom. Angie, I want to make sure we hit the meats this week because we had a lot of news. When we look at the April contract, April live cattle contract, the cash price has been a lot stronger than the futures price. What is that indicating to you?

Setzer: It's telling me that the cash market strength is there. I tend to say in cattle, and I'm no expert by any means, but I tend to say that cash can lead futures and that's what we've seen. We started to see the cash price really kind of recover, firm up a bit, we have continued to see that here and we've seen the futures side of things start to recover and firm up a bit. The months that you're seeing the best open interest in have been much stronger here and have actually been trading at a little bit higher level and we're seeing cash announcements today back up to decent levels. It will be interesting to see what happens. I think the overwhelming expectation of bearish fundamentals kind of impacted the futures market more than anything. You couldn't throw a rock without hitting someone telling you about the lack of hook capacity come this summer, wall of cattle has been a joke.

Howell: I think it's 580 million pounds that we're going to be going into here.

Setzer: Yeah. So that's been the constant conversation is there is a wall of cattle coming, we've heard it for two years now. I guess we'll continue to see if it's working its way this way. I think what we're seeing really is the unfortunate concern over what's going to happen with this year's calf crop. That is a big issue with the weather conditions that we're in unfortunately. My prayers go out also to the folks dealing with the blizzard because that's the last thing you want to see when you have young calves. A friend of mine posted my calves have seen the sun three times this month and they're a month old. So it's definitely something we want to watch, something that will have a big impact on the cash market going forward as well because no one is in a big hurry to load out cattle. We did see weights drop off a bit this week versus a week ago, they are still a bit heavier than a year ago but we did see weights back off and that's not necessarily a bearish overwhelming factor in a market structure. So we'll want to watch and see what happens but I think we've potentially put in a short-term low there.

Howell: Really quick here before we transition into hogs, with weather affecting potential cow/calf herds what is that going to do for the feeders and placements? Is that going to impact our herd that we get?

Setzer: Well I think you could see, with the drought in the South you could see an increase in placements of course because you're going to be moving them off pasture into feedlots and so that will be something that we'll definitely have to keep in mind. A lot of folks will look at higher placement numbers and think that's a bearish indicator. The reality is you may have higher placements but your cattle in pasture or on pasture are much lower than what they were even a year ago.

Howell: Okay. Really quick here we want to of course talk hogs because they also had a big week this week. The April contract is going off the board soon and there has been a pretty good spread between the June and April contracts. While it might look like we have a bottom on the chart do you think so? And if so, how much more can we get June to rally off of that?

Setzer: The hard part right now is that we have seen the June stay at such a high level and it has seen some support. I think we got some really positive news with the Argentina announcement, that's a pretty big market. Their expansion in domestic demand down there is huge. So I think that should help support the market. But I always have a worry, the old adage --

Howell: All right, Angie, I'm going to have to stop you there. We'll let you get back to that in Market Plus. Angie, thank you so much. That wraps up the broadcast portion of Market to Market. But we will of course keep the conversation going on Market Plus where we'll answer more of your questions. You can find it on our website at iptv.org/mtom. Looking to avoid our social media channels but still want to let us know how you feel? Send an old fashioned email to markettomarket@iptv.org. Join us again next week when we examine how the dairy industry is weathering another year of low prices. So until then, thanks for watching. I'm Delaney Howell. Have a great week.

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