Market Analysis: Mark Gold

Market Analysis: Mark Gold

Feb 15, 2019  | Ep4426 | Podcast

Podcast

Nearly a week of no news from the China-U.S. trade talks and a major order cancellation pressured the grain markets lower. For the week, March wheat lost 13 cents and the nearby corn contract went through a 10 cent swing to finish flat. China’s change of heart on 800,000 metric tons of soybeans and an increase in yield numbers for Argentine crops pushed the March contract down 7 cents. March meal added 40 cents per ton. March cotton plummeted $2.33 per hundredweight. Over in the dairy parlor, March Class III milk futures lost 6 cents. The livestock market was mixed. April cattle cut 75 cents. March feeders shed $1.50. And the April lean hog contract put on $1.10. In the currency markets, the U.S. Dollar index rose 32 ticks. March crude oil gained $2.87 per barrel. COMEX Gold gained $3.60 per ounce. And the Goldman Sachs Commodity Index gained more than 7 points to finish at 412.85. 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, great to be here again.

Howell: Great to have you on the show, Mark. We've got a pretty good question here I think just to start right off the top, a social media question from Ben in the metropolis of Jesup, Iowa. When does Mark think the at least once a year the market gives you a chance to sell at a profit might occur? And at what price for corn, soy and wheat?

Gold: I think that's a great question. In the last three or four years we've seen those highs May and June in that timeframe. We're going to need to see something a little bit more dramatic I think which could take us into the June/July timeframe. I think it's going to be a weather event. We haven't seen -- if we can get something done with China we might get our first spike. Where can those levels go to? Certainly if we can get corn up to $4.30, new crop corn to $4.30, if we can get new crop beans $10.40 somewhere in there, excuse me, yeah $10.40 on new crop beans, that would be realistic. And wheat, if we can get wheat up to $5.40, $5.60 I think that would be a legitimate opportunity here. If we're really going to see a nice jump I really think it's got to be a summer weather. The Chinese news I think will only take us so far because we still have big carryouts.

Howell: Well, we definitely got a lot of questions about the Chinese trade negotiations going on this week and we're going to talk about that here in a moment. But let's talk about the wheat markets. They had some big swings this week. Thursday they lost quite a few cents off the board. What happened on Thursday to spark that news?

Gold: Well, the dollar has been strong, that certainly doesn't help. We did a little bit of export business with Egypt, which is a real positive, we haven't really seen that for a long time. but still the crops around the world are looking better, we don't see, it has been all about talk about Chinese demand, are they going to buy wheat and then when we had the announcements that the trade talks where they were very far apart that really hit the wheat market hard and unfortunately we're getting down to some very tight levels. If we start closing a couple of days under $5 on the nearby contract I believe it opens up the door for some lower prices.

Howell: When you talk about exports obviously we're waiting to see kind of on the Chinese deal, but USDA has us at an 11% increase from last marketing year. However, from the January 3rd report that came out we saw that we're actually running 10% behind. Are we going to be able to get back ahead and meet that USDA forecast?

Gold: It's going to be tough. We've got a smaller window to look at. When you look at some of the things like corn and sorghum there's some projections out there that the Chinese are going to dramatically increase their imports of those commodities.

Howell: And are those private expectations?

Gold: Private, strictly private expectations. We don't see that necessarily in the beans but we certainly expect a big increase if we can settle the trade deal. Are we going to pump it up past 10 million metric tons? We're still so far behind and we've got such a big carryout, we're still looking at a 910 million bushel carryout in the beans. We need something to lower these numbers whether it's the Chinese coming in or whether it's some kind of weather event. Losing a couple of million acres isn't going to make a huge dent in those carryouts. So we need to see something dramatic happen.

Howell: So talking a little bit more about the USDA export sales and what not we're going to see kind of a data dump next week with January 3rd up until this week's export sales. Are you expecting to see a lot of volatility with all the information coming into the market at once?

Gold: Well, we had that surprise cancellation so certainly if we get all of this information at one shot it's going to take a little bit of time to sift through it but I would expect, if I was a guessing man I would say that the soybeans will be a pretty good number. We've seen some good export sales on the daily numbers. We haven't seen it so much in the corn. This week in the corn I think we had a little over 400,000 metric tons going to unknown. We assume that's China. We believe they've been sniffing around looking for corn. But I think hopefully the big change will be in a big total export number to China in the beans which could bring that carryout from 910 to some at least slightly more manageable number.

Howell: Do you have any guesses at that slightly manageable number?

Gold: I really wouldn’t want to take a guess. Could it be 150, 200 million? It could be considering what they bought over the last four or five weeks. The cancellation bothers me. So I don't want to get too optimistic. But hopefully we'll see, no matter what it comes out, if it's 600, 700, 800, it's still an awfully big number compared to where we've been historically.

Howell: Did this week's cancellation in the soybean markets have an impact in the corn markets because not only did wheat have a bad day on Thursday, so did corn and soybeans. Is that what pulled the corn markets down?

Gold: I think the soybeans and the wheat were enough to pull the corn down. We had some sales there which is positive. The corn has been just stuck in this range from $3.70 to $3.83, in that range. We need something dramatic to shake us out of it. Hopefully it will be to the upside.

Howell: But if we don't, let's talk about the scenario if we break through this $3.70 and that resistance level there. Are we headed lower after that?

Gold: Well, if you're just a technician and you look at these kind of $3.70 in the corn, $9 on the old crop beans, if you start taking out these numbers and $5 on the old crop wheat, technically these are weak levels that certainly in normal markets would open up the door. But what we've seen in these markets is every time we get some bad news that forces us into a bad close there's a reversal of comments within 24 hours and the markets rally right back. If you were trading this market over the last three months, two months, you've had at least seven good opportunities when the news couldn't be any more bearish, the market sells off, if you'd buy it and wait until they make some bullish announcement that everything looks great and sell it, you had all these opportunities in this volatility. But it doesn't help the American farmer in the long run.

Howell: When you look, Mark, then at those opportunities, should producers be looking at opportunities for new crop corn and soybeans even if we don't have planting estimates yet?

Gold: No matter where the opportunity comes from we need to be cognoscente and be willing to sell some of these rallies. Again, if we can get new crop corn $4.30, $4.40, new crop beans $10.30, $10.40 in those ranges you've certainly got to be looking more to selling more grain because if we do have a decent crop, a big crop here in the U.S. this summer these carryouts can just be so burdensome and we've seen so many problems in the farm economy, the bankruptcies are moving higher, we know the farmers are in trouble, we know credit is an awful lot tighter than it has ever been or at least since the '80s. So we want to keep farmers out of trouble here. So while we're waiting for these good opportunities there were some short-term puts, a May put, a July put, 10 cents in corn, 20 cents in beans. Are they great? No. But if there is a real selloff here because we're expecting a big crop, we don't get a Chinese announcement, it could really be saving the day for a lot of folks.

Howell: Okay. So speaking of a Chinese announcement we have a question I think specifically touches on the lower end of that. Ethan in Maddock, North Dakota said, could we potentially see new lows if no trade agreement is reached with China?

Gold: Absolutely.

Howell: How low are we going to go, Mark?

Gold: Well, if you look at the charts there's an awful long way down.

Howell: Are we talking a dollar, 50 cents?

Gold: I think you're talking 50 to 70 cents in corn, I think you're talking a dollar to a dollar and a quarter in beans. There's still an awful lot of risk. And if that happens before we get into the summer markets it looks like we've got a big crop you can extend those even farther down.

Howell: When we looked at weekly export sales for the January 3rd week there we had a net negative for export sales. How much did that shock the trade this week?

Gold: I think that was certainly a good part of why we moved lower. And again with the trade talks not, at that minute not going well and them saying that they're far apart it was enough. Now, we've had these kind of announcements and these shocks, the market goes down, and miraculously it just seems to come back. We get a positive announcement, we're just in this cycle. So even if we do start closing under these numbers I think you've got to be careful which is why the put option I think is such a valuable tool here. You can spend the money. If we do go higher great, you'll lose some money on the put, sell grain at higher prices. But if there is a bigger problem coming between now and let's say mid-July if we've got a good crop here those puts could be very valuable property four months from now.

Howell: One final soybean question for you, Mark. Even as we look at the lower prices we've been having here in the U.S., Brazil's soybean prices seem to be a lot more competitive. China is turning to Brazil. Are U.S. soybeans then going to have to lower to meet that competition? And will they lower?

Gold: Well, we know that the Brazilian crop is big. We also know that it has been moving to the lower side. The latest USDA estimate was 117. KONAB came out under 116. And a lot of people think that number is high and it could go 114, 113, 112, somewhere in that range. So yes they're going to export a lot of beans. They're about a third of their way done on their harvest. It's prime time for them to be selling grain and that's going to be the natural seller to the Chinese. We're losing our window of opportunity every day that goes by. But that being said, it doesn't stop the Chinese if they want to build some stocks, if they want to buffer themselves and buy some grain at cheap prices, they come in and buy things that we wouldn't normally expect in a timeframe we wouldn't look for. So hopefully lower prices will generate demand worldwide for soybeans.

Howell: Is that going to be the case for the cotton market? We've seen them drop two plus this week, a dollar plus last week.

Gold: The cotton market, it looks like they're going to pick up some acres and I think that is really what is behind all of this. When you look at the profitability and the return on investment cotton isn't bad compared to certainly soybeans in a lot of areas. So I think the trade is telling us that we're going to get more cotton acres out here and obviously more acres, possibly more production. And that 80 cent level historically isn't a bad level. We backed off of that. But there's still a lot of risk out there with a big crop. So certainly again we'd  be a little bit on the defensive side and want to protect it with a put in case we do go lower.

Howell: Mark, you know what my next question is going to be. Acreage, how many acres are cotton going to steal away from soybeans?

Gold: I think it will be a million to two million total whether it's going to all come from soybeans or could come from sorghum or even wheat acres. I think they're going to pick up a couple of million acres wouldn't surprise me. I'm not sure we're going to lose as many bean acres as we would think we would. It has been, the talk has been 4 million acres. I think we're closer to 2 million acres. I think corn will move up a little bit. But I think there's some economic returns in place that soybeans are still favorable out here, that bankers would probably want to lend more money on soybeans because of the lower costs. So I don't know that soybeans will lose all that many. And how much of that is going to go into cotton or corn we really don't know yet.

Howell: Mark, seasonally live cattle hits a top at the end of winter. Is that going to hold true for this marketing year?

Gold: Well, this is the week that we made our highs last year and we've been bucking up against that $127, $128. We saw the fat cattle drop a dollar and a half to $123.50. Everything tells us, when I was here in December I said we could be at a high here, I think we're around $124, we've rallied a couple of dollars past that which is fine but we still view that the cattle market has got a lot of risk. We know that moving forward we're getting more animals come June and August and the demand has been strong for the cattle, the Dow Jones has held in there. When we see the Dow Jones back off we see some problems in the cattle industry. The Dow Jones has rallied significantly since February 1st and I think that has helped the cattle market but I think the market is a little soft here, we make these seasonal highs and certainly at these levels we would certainly be looking to buy some puts to protect the downside.

Howell: What about in the hog market? What's the story there?

Gold: Well, do we have any kind of a China deal? Every time we seem to think we do the hogs can rally. Every time we don't the hogs break. We've had this big discrepancy between the spring hog prices and the summer hog prices. I think those are legitimate spreads for the time being. Can summer hogs move up to that $85, $90 area?

Howell: Mark, I'm going to save that for Market Plus. We're going to continue with that discussion right off the top. That wraps up the broadcast portion of Market to Market. But we will keep this conversation going on Market Plus where we'll answer that question and more. You can find it on our website at MarketToMarket.org and check us out on Facebook where we posted a classic episode of Market to Market. Give us a like to see more. Join us again next week when we'll take an in depth look at trade ahead of a major deadline. So until then, thanks for watching. I'm Delaney Howell. Have a great week.

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