Market Analysis: John Roach (August 9, 2019)

Market Analysis: John Roach (August 9, 2019)

Aug 9, 2019  | Ep4451 | Podcast

Podcast

Dry weather, a planned trade meeting and anticipation of Monday’s report helped the commodity markets with a strong finish. For the week, September wheat gained 9 cents while the nearby corn contract rose 11 cents. Prospects for a meeting between President’s Trump and Xi and short-covering before Monday’s WASDE pushed the September soybean contract 23 cents higher. September meal climbed $4 per ton. December cotton declined 52 cents per hundredweight. Over in the dairy parlor, September Class III milk futures added a dime. The livestock sector was mixed. October cattle cut $1.08. September feeders put on 22 cents. And the October lean hog contract rebounded $1.25. In the currency markets, the U.S. Dollar index declined 55 ticks. September crude oil lost 97 cents per barrel. COMEX Gold gained $55.10 per ounce.   And the Goldman Sachs Commodity Index fell nearly 7 points to finish at 400.35. Joining us now to offer insight on these and other trends is our senior market analyst John Roach. John, welcome back.

Roach: Thanks, Delaney. Thanks for having me.

Howell: John, I want to get just your quick headline caption here of what to expect for Monday's report.

Roach: Some price action following the numbers. We have such wide variety, a wide range of estimates on planted acres and on yield. But on planted acres alone there's a 6 million, little over 6 million acre range for soybeans and in corn it's a little over a 5 million acre range of guesstimates from the high to the low. And those are really wide numbers, a wide range of estimates and then we have similar kind of a yield estimate range. So we're all waiting to see what the USDA will tell us from a prevent plant standpoint and what actually got planted and what farmers intentions are.

Howell: So John, let me ask you this before we move onto our wheat discussion. Does Monday's report matter?

Roach: I think it matters a lot because so far the numbers that we've been looking at from the USDA, we knew the day they came out that they didn't have enough data to really be able to tell us because farmers planned on planting but then weren't able to and we don't know who did and who didn't. Now we're going to know that and so we're really going to have a pretty good acreage number. But we're not going to know about yields yet, particularly with the kind of weather pattern that we have right now. There's a pretty widespread area that is really missing out on rains and it's starting to make a difference out in the field. So the yield situation is still maybe not wide open but almost wide open. There's a lot of crop that is going to take a longer than normal kind of a growing season. And so we still have a couple more cards to play in this poker game before we know what we have.

Howell: Okay, wait and see game.

Roach: It's a wait and see game and I really think that for most we're going to need to see a combine monitor tell us what's in the field. And at that time we're going to have huge variability across one field and we're going to have huge variability from field to field and certainly from county to county.

Howell: Okay. John, when we look at the wheat market, let's put Monday's reports aside. Can September Chicago wheat break through its 200 day moving average here?

Roach: It's trying. We think so. We think that we had solid buy signals on wheat in the low trade here a week or so ago and we've come up out of that and we have attacked the 20 day moving average. We think that the spec funds will come back in and reown some of the wheat that they have sold out lately. But we've got to push that trend a little bit higher and we think that there's a good chance that we could do that.

Howell: And obviously the wheat market has been working very closely here in tandem with the corn market. Tell me, did we put in a reversal earlier this week in the corn market?

Roach: Well, that's what I would call it. The market came down and it was not able to move down any further and we reversed and came right up and we did it right in the midst of a buy signal. So the market is actually performing very well in here although all the news is about as negative as it can possibly be right now. That's wrong, not all, but certainly the demand side and the concern with the trade wars and so forth. We just had a lot of negative news come into the marketplace and the market quit going down.

Howell: John, walk me through the two scenarios here if we have a bullish report versus a bearish report on Monday for the corn markets. What could and might happen?

Roach: Well, if we were to have a bullish report we would likely jump up above what we call our green line 20 day moving average. We think that would trigger spec fund buying. Spec funds have been very strong sellers in the last three trading weeks and we think that they could replace those longs and carry the market on higher. On the flip side, if it turned out that the numbers were a negative number we'll be very quickly down attacking the lows that we've made here in the last week or so and may well dig further down into support. But I do think that the corn market has such uncertainty out here as far as yields are concerned and the bean market as well that it's very difficult to think we can take prices down very far below these recent lows. I think the users will accumulate corn as the market slides and I think farmers will shut their sales off completely and so I think the market will find support relatively quickly. I don't see a big washout, that's I guess what I'm saying.

Howell: Okay. John, when you look long-term then we've got a really great question, I think a lot of producers this has been on their mind, from Lexi in Iowa here. She said, how aggressive would you be in marketing the 2020 and 2021 crop? The markets are telling us not to grow beans in need of adding positive equity to every contract.

Roach: Well, the trouble I have with doing that is that first of all I'm in the wrong time of the year. The market peak was 50 cents or more ago and I'm just coming off of buy signals. And so talking about selling it's sort of like violating every rule I know. And when I look out and talk about selling next year's crop at price levels that really don't have much of any profit in them where we still have to go through a growing season in this country in the next month, we have another growing season in South America and then another growing season for the U.S. before we have to sell some of that 2020 crop. So the whole idea that we're rushing out to sell things because we're scared to death, in my years of doing this business that is the biggest mistake you can make. You make sales because it makes sense to make sales and your signals and your indicators are telling you to do that. And right now we don't have that. What we do have is fear and the fear is what is driving people to make what I think are very --

Howell: Rash decisions?

Roach: Rash, that's a good for it, rash, rash. I think it's a rash decision to be selling out of fear for this next year.

Howell: John, was it fear or something else that enticed some strong closes on Thursday and Friday in the soybean markets?

Roach: I think it's the realization that the spec funds are already heavy shorts and I think as the market started to gain some momentum they had to come in and cover up some of those shorts. And I think that we really have very few people who want to sell any soybeans right now, there's too much uncertainty. So when the buyers come to the marketplace and there's really not sellers on the other side prices have to rally, they have to go up and find the seller.

Howell: Right. And were there any weather concerns built in there as well or is the weather concerns more pertaining to the corn markets?

Roach: I think it's very much pertaining to the bean market. I met with a group of people west of Oskaloosa, Iowa, southeastern Iowa, which is kind of a garden spot, but they haven't had rain now for several weeks and their crops are starting to deteriorate a little bit in the areas where the lighter soil is and beans really need good solid August rains in order to bear big yields or good yields and we're just not getting it.

Howell: John, I've got one more really good social media question I want to just squeeze in there so we can talk about a little bit of the South American competition that's going on. We've got Phil in Dresden, Ontario @agridome on Twitter said, he's reading reports that higher prices and premiums for Brazil soybeans since the recent increase in U.S. tariffs have momentarily stopped Chinese buying of Brazilian soybeans. At the end of the day with global soybeans is it about the lowest price?

Roach: It usually is about the lowest price. The buyers around the world go to who has the cheapest offer. However, political decisions come in there as well, particularly in a centrally run economy such as China. And when the boss at the top says no, don't buy any, then price is not what's most important. However, the other people in the world will come to U.S. soybeans rather than pay the premium to take Brazilian soybeans. So there's a certain amount of that shifting that occurs. But one of the things that people need to notice, soybean oil has just pushed up to the highest level in two years in China. Their crushing process has slowed down. Their meal has stockpiled a little bit and so they're running short on oil and we're seeing a pretty strong move in palm oil as well. So the oil market can help carry the soybeans a little bit and that may be the thing that people are missing this week is it's oil that has led this market up.

Howell: John, when you look at then the relationship between the soybean markets and the hog markets obviously direct correlation there and in China in particular. Are we going to see China follow through on U.S. purchases of pork? We saw the U.S. pork cutout values at their highest levels in two years.

Roach: Well, this week we saw business to China and business to of all places Australia where apparently they have sold out their pork supplies that they're having to reimport from the United States. We're also seeing meal demand to go into poultry all around the world that is helping to fill that protein gap left by the pork shortage because of the African swine fever. So it's interesting how the movement of commodities goes on around the world and we're seeing that export demand showing up for pork.

Howell: And when you look at the export demand for pork in particular, Australia sells to China or whoever sells to China and then turns to the U.S. as a customer. Is there much price action or price opportunity missed out if we're exporting it to other countries besides China?

Roach: That's a good question. Whenever you have a market that is restricted, particularly when it's a large buyer that has done the restricting, it definitely changes the economics and it's not as an efficient market if you will. So that means that somebody is paying too much and it just, that's just how trade is when you get into inefficient situations and particularly when you're running into some short supplies.

Howell: So your next fourth quarter here estimates for the hog market and let's throw in live cattle too since we didn't get to touch on that much. What are your outlooks for those two markets?

Roach: We think we have bigger supplies coming ahead. We think the market can bounce up but we think that we'll put more tonnage, particularly on cattle, as we move into the fall. And so we think we're going to have some tough sledding here as we move through the October, November, December timeframe.

Howell: Okay. John, I'll save feeder cattle for Market Plus. Thank you so much for joining me.

Roach: Thank you.

Howell: That wraps up the broadcast portion of Market to Market. But we will keep this conversation going on Market Plus where we’ll answer more of your questions. You can find it on our website at Market-to-Market.org. Using Twitter allows you to stay in the loop with just a few characters. We share news, pictures and behind-the-scenes information on our feed of @MarkettoMarket. Join us again next week when we explore how the U.S. leather industry is searching for new markets. So until then, thanks for watching. I’m Delaney Howell. Have a great week!

(music)

(music)

(music)

Trading in futures and options involves substantial risk. No warranty is given or implied by Iowa Public Television or the analysts who appear on Market to Market. Past performance is not necessarily indicative of future results.

Market to Market is a production of Iowa Public Television which is solely responsible for its content.

Grinnell Mutual Insurance
Sukup
Accu-Steel
ICN