Market Analysis; Mark Gold

Market Analysis: Mark Gold

Jul 27, 2018  | Ep4349 | Podcast

Podcast

Subpar findings on spring wheat tours plus drought in Russia and France fueled the 11-day wheat extravaganza which allowed the grass to pull grains positive. For the week, September wheat rose 15 cents, while the nearby corn contract closed 7 cents higher. The EU purchase agreement, plus prices at 10-year lows, brought the bargain hunters to the table to lead the soy complex to a 21 cent gain in the August soybean contract. December meal shot up $6.50. December cotton improved $1.26 per hundred weight. Over in the dairy parlor, August Class III milk futures expanded 36 cents. The livestock sector finished mixed, as the December cattle contract shed a nickel. August feeders declined $1.38. And the December lean hog contract expanded 52 cents. In the currency markets, the U.S. Dollar index increased 23 ticks. Crude oil rebounded for a 63 cent per barrel gain. COMEX Gold weakened $8.10 per ounce. And the Goldman Sachs Commodity Index improved more than 7 points to settle at 464.35. Joining us now to offer insight on these and other trends is one of our regular market analysts, Mark Gold. Mark, welcome back.

Gold: Thanks, Delaney. Nice to be here.

Howell: We certainly had kind of a whirlwind week this week. Of course lots of news. And we're going to get to the big news that I think a lot of farmers are asking about, especially on our social media questions with the $12 billion bailout. But I first want to talk about wheat because they also kind of had a blowout week here, 32 cent gain on the day on Wednesday. What's going on there?

Gold: Well, certainly the conditions in Russia, Germany, France, Australia, Canada, all shrinking these crops worldwide and inching us closer to being more competitive around the world. We've seen world wheat prices take a big jump up. It's hopefully going to bleed into the United States. As some of these countries don't have the wheat to export we should hopefully in the next six to eight weeks, should start picking up some good business here. We've gone through the brunt of harvest so the harvest pressure is now pretty much off of us and we've had a chance to release this. Funds have been good buyers up wheat so up we went and we've had virtually an 80 cent rally in this wheat market over the last 10 days or so, which is very helpful.

Howell: It is definitely helpful. How much more of a rally could we expect here?

Gold: Well, we may have seen it hit the upper limit temporarily. We need to really close Chicago December wheat over $6 to really get something psychologically going in here. But it has been a nice rally. I hope farmers have taken advantage of it. On Wednesday on the opening and on Thursday on the opening we sold a lot more wheat, had our clients sell the wheat, because we want to reward the market. When the market gives us something good, we have a nice rally, we want to reward the market. So we took advantage of that. We're now about 75% sold on our new crop wheat.

Howell: All right. Let's move on here from wheat to talk corn crop conditions. That's the first thing I want to kick it off here with. Silking we're at 81% compared to I think 62% for the five year average. What does that mean for this corn crop going forward?

Gold: Well, if you talk to some of the people, the agronomists, they're saying that this rapid maturation of the crop isn't good for yield. And we've certainly seen as we had the early pollination in a lot of parts in Iowa we're seeing a lot of tip back, we're seeing that the heat and the dryness that occurred during that unusual pollination period is doing some damage. Now, we always have problems with the crop in difference places. Is it enough to really shrink the yields nationally? The rest of the country is in pretty good shape. We've had drought in Kansas, Nebraska, they've gotten some rains and are going to get some more over the weekend it looks like. But the vast majority of the country we're looking at still pretty decent yields as evidenced by the crop ratings. But again, the crop ratings don't necessarily unfold into yield results.

Howell: Exactly. With that being said, what do you think the market is pricing into this date for a national yield average?

Gold: I would guess 177. I'm a little under that.

Howell: Probably not a record year?

Gold: I find that hard to believe with some of the conditions we've had out there. We've got the flooding in the east so the eastern part of the Midwest is going to have some issues, Pennsylvania, New York, some of the areas we normally don't talk about that had a lot of rain. Now, rain generally makes grain, but too much rain makes a mess. So we'll have to see how that fares out. I think for the most part we're in pretty good shape and the USDA has a tendency to raise these production estimates as we go forward.

Howell: Let's talk quickly here about a price estimate or a price target for the December corn contract. We haven't quite gotten above that $3.80 mark. Is that what you're looking for? And how are we going to get above that at this point in time?

Gold: Yeah, we've been telling our clients really every dime, $3.80, $3.90 and $4.00 is going to offer significant resistance this year. And every dime, farmers make a lot of mistakes in terms of wanting to sell at $4 corn or $12 beans, whatever that exact number is, well don't look for $3.80, look for $3.78, don't look for $3.90, look for $3.88. Go a couple of cents under these benchmark numbers and get something sold and be a little more proactive in the marketing.

Howell: Okay. Mark, I want to talk about soybeans now and what has been going on with trade this week. We had the EU announcement so let's start there. Did soybeans react to this announcement that President Trump made about the potential sales or exporting to EU with soybeans?

Gold: Well, it's interesting. He announced the day after the market was closed, that night we were 10 cents higher and then we went up to I think it was $8.96 for a high that day, for that night and then we opened right there on Thursday morning and then we broke 20 cents off of that. So I think what people had a look at was yes it was an announcement that the EU would buy more beans. But where else are they going to buy them from? We know that the Chinese are going to take virtually every Brazilian bean that they can get and most of Argentina. That leaves the rest of the world needing to come to us for the grains and we're at a discount. So I don't know that it really is a major announcement. But it is certainly better than him saying we're still fighting with the EU and we've got problems. So that was a positive.

Howell: Yeah, I think the question I've heard from a lot of producers this week was, well wouldn't we already sent those beans to the EU? Was this really an announcement to get the markets to react?

Gold: And I think that's why we kind of broke off because it really, when you look at it, it really isn't that significant. But the fact that there was nothing negative spurred the market but then we had the initial knee jerk reaction and then sold off of it.

Howell: Absolutely. The other thing that we might have had a knee jerk reaction to, I want to get your thoughts on it, was this $12 billion bailout program. Did the soybean markets have a knee jerk reaction to that?

Gold: We've had a nice rally in the soybean market, better part of 70 cents, partly because the funds are short, partly because of the bailout, partly because of the weather. As we head into the real tough growing season of August for soybeans there is some talk of dryness out there. We don't know what is really in this $12 billion Farm Bill, if you will. We expect it to be somewhat supportive and helpful for the American farmer. But we need to see more trade, we need to see what the real dollars are, how are the monies going to be allocated out and under what terms. So there's still a lot of confusion on that. But the fact that we've been able to rally off the low significantly and maybe shrinking the crop a little bit I think it's all positive for the market.

Howell: Okay. Mark, I want to take a social media question here about fuels. As we're looking at ethanol this week we had some ethanol announcements and oil prices. Lannie in South Dakota has a question saying, nothing is ever talked about in the fuel markets or crude markets in regards to tariffs. What are some long and short-term effects if any? And should I be looking to lock in my fuel prices before going into harvest?

Gold: Well, when you're looking at fuel prices we certainly advise clients to look for the good breaks in the market. So when crude is down $35, $40 a barrel we want to be looking to buy some call options to protect the upside price in that. As far as the tariffs go, if tariffs are placed on things we're going to certainly see a negative response to that. But what we did see the EU say is that we're going to take more liquid gas, natural gas, and that's friendly. Again, we're not putting on tariffs, we're not doing anything negative there and they promise to take more of that. We've got a lot of natural gas here that we can get them. They've got a lot of natural gas. But it's all positive, there's no tariffs, so that's all helpful.

Howell: It absolutely is. Really quick here your quick thoughts on cotton. Have they been feeling the reverberation of retaliatory tariffs as well?

Gold: No, but we've had some dryness and some weather problems in the cotton. We pushed cotton up to pretty good levels historically and we're certainly advising clients to look at buying an 80 cent December put to protect the downside.

Howell: All right. Let's transition here to talk about livestock. I was reading an interesting article this week about USDA cold storage numbers I think were up 8% year over year. Mark, what are we going to do with all this meat that we've got sitting in cold storage?

Gold: It's a problem. We've got more cattle coming in. We still, it looks like we've got another month. Some of the wildfires out west are going to play havoc with this cattle market bringing some cattle forward a bit. Demand has been great in the cattle market but we've seen these cash prices kind of hang between the $110, $112 mark. We had a wild day during the week, $4, $4.50 range from $110 down to $107 and change. The market volatility is telling us that there is still more risk out here. And when you're looking at feeder cattle well over $150 and you're looking at fat cattle well over $100 I think it's time to be looking at buying some puts just to protect yourself in case there's any major problems out there with price. But keep the upside open because hopefully we'll see demand pick up, maybe cattle numbers back off a little bit at some point. So I'm relatively hopeful and in the pork market we've seen very cheap prices in December hogs. Can they go lower? Yeah I guess they can. But I think there's some upside potential there, at least Feb and April of next year.

Howell: I want to ask here about the reversal that we saw here I think it was Thursday, reversals in both live cattle and August feeder cattle. Where do we go from there in the August contract?

Gold: Well, that's the problem. It was kind of a bearish formation on the charts, making guys a little skeptical. We came back in the fat cattle at least in the August contract on Friday. But the volatility is telling me that there's more risk out here. And with the wildfires and with funds still long cattle I think it's prudent to look at doing some risk management out here.

Howell: Okay, let's transition here to wrap up our conversation talking about pork. Pork processors over the last couple of weeks have been facing a lot of weather, I know some here in Central Iowa were affected by tornadoes, reduction in slaughter. What will this do for the hog markets because it is such a highly contracted market?

Gold: Yeah, we've seen these prices move to really unacceptable lows mainly because of the tariffs that the Chinese have put on. We're hopeful but we don't see any real relief there, which is going to keep a Damocles sword kind of over this market for a while. But we're hoping that with some of the production issues and some of the problems that we have seen maybe we can get a bounce. We have bounced a little bit off the lows. But to say the bottoms are in while the Chinese and the President are both digging their heels in I don't know that it's prudent to say we can't make a new low.

Howell: How much lower are we looking? Let's talk August contract specifically.

Gold: Well, I would think another $6 to $8 would be tops but it's still going to be painful. The American farmer has gone through a lot of pain with these tariffs over the last six, eight weeks with these low prices and there may be more out there yet.

Howell: Mark, appreciate the conversation, we'll continue it in Market Plus.

Gold: Thanks.

Howell: 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. Market to Market may be airing in different timeslots due to fundraising on PBS. So, if you find value in our program, please consider making an investment in a service that provides you with the news and market analysis you’ve come to know and trust. Join us again next week when we look at new uses for next generation cover crops. So until then, thanks for watching. I’m Delaney Howell. Have a great week!

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