Market Analysis: Dan Hueber

Market Analysis: Dan Hueber

Jun 15, 2018  | Ep4343 | Podcast

Podcast

The trade was dominated by tariffs this week. The President’s move triggered a date certain of July 6th for the first round of Chinese counter-tariffs, many on agricultural products. For the week, July wheat dropped 21 cents, while the nearby corn contract plunged 17 cents. Chinese tariff retaliation overshadowed the soy complex sending the July soybean contract into a tail-spin nosediving 64 cents. July meal fell $18.90 per ton. In the softs, December cotton ended its rally shrinking $5.09 per hundred weight. Over in the dairy parlor, July Class III milk futures lost 62 cents. The livestock sector finished mixed as the August cattle contract shed a dollar. August feeders put on 70 cents. And the July lean hog contract moved up $1.12. In the currency markets, the U.S. Dollar index skyrocketed 132 ticks. Crude oil lost 68 cents per barrel.  COMEX Gold melted $24.20 per ounce. And the Goldman Sachs Commodity Index dropped more than 13 points to settle at 463.30. Joining us now to offer insight on these and other trends is one of our regular market analysts, Dan Hueber. Dan, welcome back.

Hueber: Thank you very much, always a pleasure.

Howell: Always a pleasure to have you, Dan. We're going to take a Facebook question off the top here. And of course, folks, you can send in your social media questions each week to get aired on the show. Dan, we've got a question here from Chad in Dunbar, Nebraska. Do the grain markets have a chance to regain what they've lost?

Hueber: Well, certainly we always have a chance but I think right now we have kind of beat things down a little bit artificially low and markets are trying to overanticipate worst case scenario if these trade tariffs really came into being. Even what was announced today, keep in perspective they are set to take effect on July 6th, so it does leave a little room for negotiation. And certainly I don't think China wants to get into any worse of a trade war so hopefully the cooler heads prevail over the next few days. But realistically it's going to take some time to develop demand once again, particularly in the beans. We've really seen a lack of demand, particularly from that Far East sector, China specifically and really would say we need a weather issue. Right now there doesn't seem to be any weather issues outside of what is happening in Texas and the Southern Plains.

Howell: Affecting some of those wheat acres.

Hueber: Wheat and the cotton people. But for the Corn and Soybean Belt right now we have a pretty favorable outlook. So until we can see something, get a little scare there, it's going to be tough to think we're going to get back to levels that we were here even three weeks ago.

Howell: Okay, and I wanted to touch on something really quick here as we talk about tariffs. In your newsletter this week, and I want to make sure I get the quote right, you said if it actually comes to fruition what is left to fret about? It's now fully factored into the price structure and you were referencing the tariffs there. How do you know that this has already been factored into the markets at this point?

Hueber: Well, one it's not like it was necessarily a surprise this week. We've really been talking about this since March and we've had several waves of kind of selling, washing people out of there. Certainly we can't guarantee that this is the last of it, this is the last of the story we're going to hear about it, but in the same token you can only beat a story for so long, you can only take demand down so far. It's still, on a worldwide basis people still have to have product. So I guess I think psychologically the market has probably pushed a little bit too far just in kind of a panic mode. And as I commented this morning, I think we have a new phrase to use in the commodity market, which is tariff trade terror. So it's just kind of a terrorized situation but maybe we've moved beyond the worst of it here at this point.

Howell: Well, certainly I think producers sitting at home are hoping for that. Let's talk about wheat. Are there any price indicators that you're watching to signal the market to go back or lower into July wheat?

Hueber: Certainly the wheat market is kind of the exception to the rule when it comes to the grain soy complex at this point. Now the reaction lower this week, it didn't really necessarily turn the trend down. But that said, it's kind of pushing us on the border, you've got July wheat back towards the $5 area. It wouldn't take much of a push below $5 and I think you'll start to panic longs a little bit. This market we know there's significant damage done to the U.S. wheat crop and we're certainly not going to have a robust crop here by any stretch of the imagination. You've been actually worldwide been hearing a lot of the Soviets, the Ukraine, Europe, everybody has been ratcheting down their production estimates just little by little. So if anything we're seeing the world wheat numbers start to contract. That generally means higher, steady to higher prices. So certainly wheat could go through a correction over the short-term. I don't think it's going to be the kind of wipeout that we've witnessed over in the soybean market and to a lesser extent in the corn market.

Howell: Okay. Well I want to get to more wheat discussion which you can find in our Market Plus section at iptv.org/mtom. But that's all the time we have right now for it. Let's talk about corn. New crop corn, that is of course on a lot of producer's minds. With the current high in for December at $4.29 and a half is that going to be the high for the year?

Hueber: I think at this point probably a pretty good probability. The only thing that would really change that would be a very, very serious weather issue, not that that couldn't materialize, but we're getting a little bit late in the game to really get something that serious there. That said, I don't know if we have a lot of downside potential yet either. We really returned, we've actually taken back about 50% of the rally we've seen over the last year, maybe just a little bit more than that, but we've really returned to levels that used to be resistance. If we went back to the fourth quarter of last year this was a price range that we were having a difficult time moving above. I think it should turn around and find support there. And the reality of the corn market is at 88 million acres we just aren't going to produce an excess amount of crop. We already are looking at a reduction in domestic ending stocks and in the world ending stocks an even greater percentage wise reduction so I think that really kind of limits the amount of downside pressure there. But boy, to get us moving back in the other direction we need a little weather stimulus to come around to help us out there.

Howell: And then you look at weather issues. Is it the same story in the soybean market? I think we put in a low in June last year, June 23rd. Do you expect us to follow that same pattern unless we have a weather issue?

Hueber: I wouldn't be surprised. Again, I guess the question then is how much can you really rebound? If it's going to come it's probably going to be via the help of soybean meal and demand in the meal. Interestingly enough I was looking at the bean market this morning, returning to the $9 level which is exactly where we were a year ago at this point in time, but if you look over the last three and a half, almost four years, 169 weeks we have only spent a total of 29 weeks below $9, very limited amount of time here. So it does seem to be a value area on the soybean market. So yes I'd like to think we're going to stem the decline but here again we need a stimulus to bring us back out. We could easily see yes, technical rebounds, but unless we see a real resurgence in the demand on the meal side or of course a weather issue maybe later in July or August the upside is going to be limited for now.

Howell: If I'm sitting on some old crop beans should I be looking to sell them now? Or do you think that they'll get a corrective bounce back up?

Hueber: Tough, if you've sat on them this long it's going to be a little bit taxing to try to wait for that bounce. But if I was in that situation yes, I'd probably sit tight and see if we couldn't get a rebound before I'd price them.

Howell: Okay. Let's move onto the livestock markets. With futures at a $10 approximately cash discount to cash, or at a discount to cash, is this market signaling further strength or further lower cash prices?

Hueber: I really think the hog market in particular right now really looks to be turning the corner. Now, two days ago we really had pushed through some resistance that has held us back here for the last 30 to 45 days. You're starting to see some of the cash, the spreads between the various cash markets narrow up in that hog market, which I think is indicative that I don't think it has ever truly been reflected some of the health issues that we witnessed over the winter months. Now that is finally showing up here in the slaughter levels and I think that is really what is kind of lifting that hog market out of there. Psychologically absolutely we were beat down thinking that these tariffs are really going to make a big difference in the trade, not that they couldn't be harming but I think it has been more psychological than anything at this point. We're still looking at a 9% increase in exports on hogs this year, we're up about 12% in cattle. So the demand has been there so we just need to kind of move beyond this concern that we're not going to be able to get our product out of this country and maybe start focusing more on the numbers.

Howell: Are you concerned about boxed beef values? I think they have fallen to the lowest levels here in quite a while.

Hueber: Yeah I was going to say, I should have moved right into cattle, cattle a little bit different situation. Yes we have, plenty of cattle on feed, certainly the demand is not quite there, the numbers don't seem to have any issues tightening as we move ahead so it may be a little bit tougher road to move the cattle out of these levels without seeing a great stimulus and moving beef somewhere out of this country. And of course you have the other caveat there is with the dollar now pushing into new highs for the year it certainly doesn't help out that cause either. So a lot of headwinds in the cattle market especially.

Howell: With that said about the dollar do you expect that to effect just exports in general?

Hueber: And granted it's difficult to look at a one-to-one relationship. Just because the dollar went higher that doesn't mean corn exports are going to suffer or necessarily even cattle or hogs. That said, it does psychologically impact commodities as a whole. And if you look at them over a very long-term perspective they seem to have an inverse relationship. So yes, if there is demand for any specific commodity sure that's going to remain there. But they might be hunting around just a little bit more to where is the best price going to be. There's probably one of the good things in the soybeans right now is we have beat it down to where we're absolutely competitive versus South America again so that could help us stimulate a little more demand in that market. Of course in the livestock trade not a lot of other avenues to go to, particularly for the hogs. So again that's where I'm a little more optimistic on seeing some extra business in the hogs right now.

Howell: Absolutely. And speaking of hogs, July hogs closed at their highest level on Wednesday since February 27th. What happened there?

Hueber: Again, just what I touched on a little bit earlier, I think we are finally starting to see a few less numbers coming in, in certain select markets, than was anticipated. Probably just was never really reflected, like I say some of the issues were with health over the winter months and the death loss that was out there. So between that and nice summer demand as we move further into the barbeque season I think has kind of lifted them up. So, again, from a technical side about a week, week and a half ago the hog market just really started to act like certainly we had a change at foot and it looks like that kind of came to fruition this week.

Howell: Absolutely. I think to tie this all together here, if I'm a livestock producer, an end user, should I be looking to lock in my feed needs now? And if so, how long out are you looking to lock them in?

Hueber: Certainly of course we are in the feed and livestock industry so it's something we've discussed pretty intently here this week and yes we did, with the breakdown we saw yesterday and today we did start looking at locking in both corn needs and soybean meal needs as we move out between here and the fall. So certainly you don't go in with both feet necessarily but we think of it as time to kind of start dipping into the water and start taking a little protection in there.

Howell: All right, definitely looking to take some protection. Dan Hueber, thank you so much for your time today.

Hueber: Certainly, my pleasure.

Howell: All right, well that wraps up the broadcast portion of Market to Market, but we will 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. Check out our YouTube channel as well. Tell everyone you have clicked subscribe at youtube.com/markettomarket. Join us again next week when we explore how one creamery is cashing in on its high quality dairy fat. So until then, thanks for watching. I'm Delaney Howell. Have a great week.

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