Market Analysis: Ted Seifried (May 10, 2019)

Market Analysis: Ted Seifried (May 10, 2019)

May 10, 2019  | Ep4438 | Podcast

Podcast

The trade dispute with China, wet weather, and the WASDE report all were unfriendly to the commodity markets. For the week, July wheat dropped 13 cents while the nearby corn contract plummeted 19 cents. Unresolved trade negotiations with China and lower export sales cut the legs from under soybeans as the July contract plunged 33 cents. July meal lost $10.90 per ton. July cotton fell $7.23 per hundredweight. That's almost 10%. Over in the dairy parlor, June Class III milk futures lost 31 cents. The livestock market remained mixed. June cattle lost 98 cents. August feeders put on 45 cents. And the June lean hog contract shed $3.07. In the currency markets, the U.S. Dollar index lost 12 ticks. June crude oil retreated 41 cents per barrel. COMEX Gold added $6.30 per ounce. And the Goldman Sachs Commodity Index sank nearly seven points to finish at 434.70. Joining us now to offer insight on these and other trends is one of our regular market analysts. His name is Ted Seifried. Ted, welcome back.

Seifried: Hey, thanks for having me.

Yeager: Good to have you here. So it's not very welcoming though when I'm going to open up and make you do a quiz right away. Pop quiz right off the top here. And it came from one of our viewers that you and I both talk to quite a bit and that's Glen in Bryan, Ohio, @glen_newcomer. And he's got a question for you of what had the greatest impact on the markets this week? Reduced production from planting delays, so weather? A new USDA commodity purchase program that has been talked about? Or a trade or not trade agreement with China?

Seifried: First of all, hey Glen, how's it going? Wow, I think it's extremely obvious which one of those things had the biggest impact on the markets this week and that is by far and away the trade deal. I mean, go back to last Friday, we went home thinking --

Yeager: We had roses.

Seifried: Yeah, we were all but certain that we were going to get a deal done this week, it was going to be announced on Friday, all was going to be well. And then over the weekend we got the tweets with the additional 15% going on the 200 billion and oh boy, Sunday night was just terrible. As the week went on it just continued to get worse. We hear sort of why Trump did that because it comes out that oh China came in and revised the --

Yeager: Scratched out a whole bunch of stuff on the agreement.

Seifried: All the stuff, all the stuff we really needed. And then China Wednesday says we're going to retaliate. And then we say we're going to retaliate to your retaliation and it's like being on a recess school yard, two guys about to get ready to fight is how that feels. So that did not go well. Then we had the WASDE report which was surprisingly bearish, I'd say especially for corn. That didn't help us end the week on a positive note at all either. Wet weather, we really want that to kind of drive the market now. We're just not there yet. And after looking at this WASDE report today how much does it really matter because if we're looking at a 2.4 billion bushel carryover for corn next year, I've done the math, you can take away 2 million acres and 2 bushels an acre on yield and we're still right at a 2 billion bushel carryover. We need a weather problem.

Yeager: We do. And I'm going to go to wheat first because in wheat country we got a lot of rain, Kansas, Oklahoma, flooding in Texas. They finally got to plant some in North Dakota and parts of South Dakota. But the market just continues to fall. Is this thing going lower or have we hit a bottom?

Seifried: I'd like to say it would be a good time to find some bottoms in a lot of these markets. Wheat, you look at the production numbers, they came in a little bit less than expected today. However, ending stocks were bigger. That's a demand problem. We know we have that. We've got a strong dollar. It's very competitive. Yeah, spring wheat is having a really hard time getting in so keep an eye on that. At some point that might become more of a story. But as a whole it's really tough to get excited about the wheat market simply because we have oversupply of really everything and a big component of wheat demand, or part of it, is feed. Well, if we've got a lot of corn around to feed it's going to be tough to boost that category. Really we need exports. And, again, the strong dollar really gets in the way of that.

Yeager: Well, the export story will be something we talk about in soybeans. Real quick, do you make a sale, I'm sorry, do you make a buy if you're an end user on wheat now?

Seifried: I think wheat has the best looking chart at the moment so I think from a chart perspective yeah, I think you have to be thinking about that. Fundamentally I don't know, if it needs to go higher it might just be sideways.

Yeager: All right. Corn, we were at 23% planted on Monday, we don't think a lot got added. If you agree with Scott Owen from the University of Illinois he had math that said there's no way we can be at 50% which would be the projection for this week. We're behind. The saying rain makes grain is the worst thing that somebody wants to hear right now if they're in corn country because there's rain everywhere. What is going to jumpstart this market?

Seifried: Well, on my drive over today, Northern Illinois, the I-80 route I saw no progress, nobody out in fields and a whole lot of standing water. It's going to be a little while. Yeah, the forecast this week got a little bit better. There's a window of opportunity a few days out. But it's a very tight window and I don't know if much is going to get done. That is definitely going to become more and more of a thing. That will now that we've got the trade deal not out of the way but the expectations for a deal this week that didn't happen, we factored that into the market, I think we factored in almost certainty that we're not going to get a trade deal probably until November or at least November of 2020. So now that these things are out of the way --

Yeager: 2020?

Seifried: Well, there's a significance to that date, Paul.

Yeager: Yeah, I know.

Seifried: So, we've gotten that out of the way, we've gotten the WASDE out of the way. Now I think we need to start paying more attention to weather. But that WASDE really took a lot of that weather oomph out because again at a 2.4 billion bushel carryover in corn we need to lose some acres or yield or both to really put us in a position where we have a reasonable carryover once again.

Yeager: And we will see how acres might shift to soybeans and put further pressure on them as a continued thing. But in the soybean market is this a matter of too much doom and gloom? You've got a couple of horrible combinations if you're trying to sell this market right now of huge carryout and maybe more acres. That doesn't equal higher prices.

Seifried: No, it doesn't. I will say this, the funds are record short soybeans right now and this is an odd time of year for that. We hit 12.4% on the relative strength index. That suggests that we are not only oversold but we are in an extreme case of being oversold in soybeans and it is maybe the most extreme case I've seen in really any market. We don't stay down there very long. It doesn't necessarily mean sharply higher prices but it should mean some stabilization at some point and I'd say relatively soon. But it's really tough to get excited about soybeans right now without a trade deal. That is the thing that can make soybeans exciting. Aside from that we've got to look to weather. But there too if we're adding acreage and looking at a billion bushel carryover in soybeans we've got a lot of weather cushion so it's got to be a very significant weather issue.

Yeager: We had soybeans below $8 for a time this week. The last time we've been below that was December of '08. It has been a long time. And then I was telling you before we rolled looking at charts on this date in 2017 soybeans were at $9.63 the July contract, but the 2018, so just a year ago, we were at $10.03. What is the biggest change between 2018 and today on soybeans for you?

Seifried: Well, aside from we've doubled, more than doubled, well doubled the previous record carryover that we've ever seen and we're in a trade deal or trade war at this point, I'm going to call it a trade war, we're in a trade war with our number one customer, our number one customer that bought 84 million metric tons of soybeans last year, the number two was the EU and it was around 15 million metric tons. There is no close comparison. There is no other one that can come close.

Yeager: Okay, we have to get to cotton and normally we save this one but this was a 10% loss and sometimes they are ones that see extra acres go to them. What is going on in that market?

Seifried: Well, there is extra acres going to cotton down in Texas, it's a very good cotton producing area. But go back to the trade war, there again that dominated the markets this week. You have a trade war with your number one client and you're going to see lower prices. Now, cotton today was really running into some very key support, trendline support if you go back to November of last year. From a technical perspective I was lifting a few shorts here this morning. We'll see how that works next week. But I think today was a good day to lift some shorts because, again, this was a panic week. Next week probably won't be such a panic week. And a lot of these markets might stand to try to recover a little bit.

Yeager: Famous last words, not a panic week next week. All right, live cattle. The cash is the premium to the futures right now. The packers have their story. You've got all sorts of things happening there. You've got this meat alternative coming in that is getting some headlines. What is the leader of this movement?

Seifried: Well, the leader had been the funds exiting a long position because they had been sort of piggybacking the cattle position along with the hogs position because of ASF and everything like that. And unseasonably we had been strong, but given the weakness in pork and again the seasonality of cattle, they exited and they exit in a hurry when they do that. It just seems like they always do that in the cattle market. So we were just sharply lower. We had gotten very oversold there too. Now it feels like we found some footing. As we get closer to our peak demand, grilling season, now is a good time to be a little more optimistic. Like you said, that discount is not necessarily normal at this time of year. I see some upside potential in cattle. It would help though if the hogs can turn it around.

Yeager: All right, hogs, hold that a moment. Quickly on feeders, any optimism on them? They were up this week just a little bit.

Seifried: Yes, yes. I think feeders have held in much better than really everything else. Yeah, upside potentially but we need to get the live cattle moving as well.

Yeager: All right, hogs. Again, back to China where we saw a huge run up there in the hog market, now all of a sudden we've seen that thing. Are we back into where this should be? Is this all African swine fever? Is that done? Is this we've replaced? What's the story?

Seifried: Well, it's far from being done. ASF I believe is going to be around for a few years. But they have somewhat slowed the spread. I'll also say that they had imported a fair amount of pork to sort of satisfy their near-term needs. That being said, we've seen video this week on Twitter, Twitter is a wonderful drug, of Chinese customers standing at a butcher shop and all the shelves are empty and they're bringing in the whole carcasses, which is their thing, and they're basically cheering this. And there is a lot of demand there in China. But there too the hope was to get a trade deal, get the 62% tariffs that they have on U.S. pork out of the way, and that would inspire a lot more pork exports. The last two weeks of pork exports have been really disappointing to see, or to not see China on the list. If they liked it at 98 why don't they like it at 88? That's a problem. But yeah, I think China will be around. We've heard talk that Smithfield, the Chinese company, is revamping some of their plants, or one in particular, to send, to specifically produce for China. So I think there will be, we'll see a lot more business with China on the pork. A trade deal would help but even without that I think we're still going to see some strength in the pork.

Yeager: You were reading ahead on some of our questions that came in from Twitter and Facebook about Smithfield and pork and we will discuss that in just a little bit. Ted Seifried, thank you so very much.

Seifried: The pleasure's mine, Paul. Thanks for having me.

Yeager: We will continue that discussion. In fact, we have a whiteboard, we're going to have some Ted picks coming up in a little bit. But that will do it for this edition of the broadcast portion of Market to Market. We will keep the discussion going on Market Plus and you can watch it, listen to it, download it on our website at MarketToMarket.org. Now, when you subscribe to our YouTube channel you will get notified when the program and Market Plus are online. You can find us @MarketToMarket. Join us again next week when we'll explore how an economic matchmaker is linking new owners with established rural businesses. So until then, thanks for watching. I'm Paul Yeager. Have a great week.

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