Market Analysis: Mark Gold

Market Analysis: Mark Gold

Nov 22, 2019  | Ep4514 | Podcast

Podcast

Deteriorating weather conditions for harvesting remaining acres coupled with export reports helped boost the grain markets. For the week, March wheat increased 13 cents, while the nearby corn contract gained 7 cents. Headline trading between the U.S. and China did little to improve the market as the January contract fell 21 cents. January meal declined $8 per ton. March cotton weakened $1.84 per hundredweight. Over in the dairy parlor, December Class III milk futures expanded 21 cents. The livestock sector finished another week down as the February cattle contract lost $1.13 and January feeders shed $5. The February lean hog contract plummeted $4.35. In the currency markets, the U.S. Dollar index gained 31 ticks. January crude oil expanded 8 cents per barrel. COMEX Gold fell $3.90 per ounce.  And the Goldman Sachs Commodity Index improved almost a point to finish at 421.40. 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. I want to wish all of your listeners out there a very Happy Thanksgiving. I know many of us have an awful lot to be thankful for this year. I just want to pass on those greetings.

Howell: Well, thank you. That we do, Mark. We've got a shortened trade week next week, but there still was some stuff happening this week I think our viewers would like to be filled in on starting off with the wheat market. They had an exciting week for wheat markets as they go. Export sales were high, prices were high. What is going on there?

Gold: Well, the export sales were a little bit better than what they have been but still not a good number, a lot of competition certainly from the Eastern European countries. Chicago has now not only traded 90 cents over Kansas City but it's putting a dime or 13 cents higher than Minneapolis, which we never see. I don't know what in the 40 years I've been around the business that we've ever seen that. But at any rate it continues to be strong. It's ignoring what is happening in the corn and the beans and keeps chugging its way higher. Nobody really knows what the deal is. Is it because we're planning the lowest number of acres in 10 years? That may be part of it. But when you look at these huge world carryouts and the lack of real demand out there what's going on? I've tried to sell that Chicago/Kansas City spread a couple of times in the last month thinking that once we got into September it wouldn't last. Well September came and went, the spreads are still that high, it's telling us something is going on that most of us just don't see whatever that is.

Howell: It's a little bit of an anomaly here it seems like in the wheat markets.

Gold: But you don't want to stand in front of the freight train and it has certainly had its own strength in the Chicago contract and it just doesn't want to quit. When it does quit it will really give it up. But that might not be for a while because we don't know what the problem is out there. Who is paying up for this wheat? Is it that the wheat isn't out there? I don't think that's the case. But we'll see where we go. Maybe people are anticipating just a lower harvest with the weather that we're having, the lower acres, and maybe that's enough to push it higher.

Howell: All right, Mark, let's talk about the corn markets because they had a little bit of a different story this week it seemed. Weekly gains over last week but still just an interesting trading session. Is corn due to bottom out here at end of November, beginning of December?

Gold: I would think so. You look at the basis. You've got basis normally around harvest time we're looking at 60 to 90 under in a lot of places. Now we're looking at 10 under to 30 or 40 over. I heard one place was 90 over briefly. That's unheard of. Why would there be so much basis being built into this market? One bright trader I know made the point that the USDA way overestimated the 2018 crop. It's not out there. Elevators, ethanol plants have to bid up to get this corn and that is why we're seeing this strong basis. It's a field day for anybody doing any marketing. If you've got some puts on you're making money on the puts and in the case you've got a bin keeps making more money. So it has been a double edged sword on the good side for the American farmer for a change. My point would be they need to take advantage of it, this basis may not last all that much longer.

Howell: Well and that's perfect, you set us up here quite nicely for our social media question coming to us from Chad in Maynard, Iowa. He said, a corn basis contract decision needs to be made this week. Do you bite the bullet and price it or roll it?

Gold: I would bite the bullet. You could roll it. If you roll it and you've got the corn in the bin you've got to keep a put underneath you. Both have been working. But I would be inclined to take the money and run. Take some of that money, spend 10, 15 cents, buy back a call option because I really do believe, I don't know if it's going to be the 1st of December or the 1st of January, but when we get into that WASDE report in January I really think it's going to show that we've got more problems out there than anybody wants to admit to. The fact that as of last week we still had 24% of the corn unharvested, 3 billion bushels and the market just kind of turned up its nose at that. Well not only do we still not have the corn all in but the condition of that corn is getting worse every day. So it keeps me pretty friendly corn, beans and wheat for next year. But the timing has got to be right. And I really don't think that is until after the 1st of the year.

Howell: Mark, what is the story when you look at the soybean market? They were sub-$9 this week which is the first time in quite some time that we've seen that trade below that.

Gold: Well, what is happening is the oil has taken over the leadership role in the beans. That is never a positive sign in the beans in my opinion and the meal has been taking it on the chin. The soy oil has been so strong because of what is happening in Malaysia, there is talk about the Malaysians adding palm oil into their biodiesel type situation and the Malaysian palm oil has gone through the roof. That has dragged the U.S. soy oil market up with it. So as the spreaders are buying oil, they're selling meal. The meal is the bigger share of the bean complex so the beans have been moving lower. The other obvious part of that is the Chinese. There's no deal. They keep pushing whatever deal was going to be done by the end of the month now it's maybe next year. The President is going to delay maybe putting new tariffs on. But we have no deal. Until we actually get a deal I think the markets are going to be a little bit on the defensive. But again, after we turn the page in the next year and we're looking at a political year, an election year, does the President want to lose the farm vote? No way. So I think he will be compelled to do something positive for the American farmers out here.

Howell: Mark, turning our attention to the protein markets there was just kind of a dumpster fire this week in the live cattle and feeder cattle complex, especially on Friday's trading session. What happened?

Gold: Well, I think everybody was getting set for the cattle on feed report. They were talking about 112% on the placements which would have been the highest on any October number in years.

Howell: And that was such a large trading range.

Gold: And the Feb cattle hung in there, the December cattle hung in there, until Friday it was really looking pretty positive. We've had a $20 rally. But then today the feeder cattle gave it up $4 at one point in the feeder cattle, that dragged the fats down with it. I think that was all in anticipation of this report. The report came in 110% rather than 112% so it's still a big number but it's not as bad as people had been thinking and certainly some of the early estimates were even quite a bit higher. So are people going to look at it and say well it's not as bad and we can rally it from here? Or are they going to say it's still a big number, we've got a lot of cattle coming in? I don't know the answer to that. I do know if we start closing the nearby cattle over $121 it's a very positive sign. As a risk manager would I be spending $3 on a put on a $21 rally out here? You bet I would just to protect the downside. Today it worked, gave you a little bit of an edge, but long one can we break this $5 or $10? I think we could in a hurry.

Howell: Okay. Mark, finally we've got to talk about what is going on in the lean hog markets. $63 for so long, they've been trading underneath. This week they touched $60 and potentially I think they might have touched $59 there too. Why is there still such a discrepancy between the cash and the deferred contracts?

Gold: Well, it's all really about China. When we don't have a deal with China it makes it very tough. The Chinese bought a lot of Danish pork, that really kind of put a kibosh on the hog market. I'm still convinced, maybe I'm way off base on this, but I think one of the things the Chinese will buy is the hog market. They have depleted their supplies 50%, they need the protein, they want the protein and I think they're itching to get something done to get more pork. And I think it will be American pork they come for.

Howell: So it's really just the deferred is built in, there's some premium built into the deferred because we're still banking on being able to export U.S. pork?

Gold: And I think that is going to happen one way or the other. The world needs it and in particular China and if there is a trade deal to be made I think the hogs will be a big beneficiary of that.

Howell: Mark, how much upside potential will get added into those deferred contracts if and when we see that agreement?

Gold: I would think $20 fairly quickly. If you've sold hogs out here, would I be buying some call options back to keep the upside open through April and maybe early June, something in that nature? I would because again after the 1st of the year I think this thing can turn higher. We've done a lot of damage in that hog market and people say well the Chinese are going to be ramping up their hog production as well. I agree with that. They want to ramp it up. But what is that going to take? It's going to take a lot of meal and a lot of corn to do it.

Howell: Mark, we'll continue this discussion in Market Plus. Thanks so much.

Gold: 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. We have some exclusive content with our Justice in Agriculture series. Search market-to-market.org/justice to see more. Join us again next week when we’ll crack open a wild North American crop. So until then, thanks for watching. I’m Delaney Howell. Have a great week!

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