Market to Market (November 11, 2016)

Nov 11, 2016  | 28 min  | Ep4212 | Transcript

Pearson:  Here not to lend us his insight on these and other trends is one of our regular market analysts Mark Gold. Mark, welcome back.

Gold:  Nice to be back, Mike.  

Pearson:  This was a crazy week and I am sure like a lot of folks you were up watching those election returns and trading those results.

Gold:  I was sitting there, I was actually in Wichita sitting in my hotel room and had the computer there and I am watching this volatility and it was unlike anything I have seen.  Give you a perfect example in the bond market we made and outside up day and then an outside down day all in the same day.  I don't know that I have ever seen that.  The Dow rallied 1200 points off its lows in 24 hours and to make new historic highs.  It is just amazing.

Pearson:  It was incredible.  One of the stories that I was watching as the election results were rolling in was the dollar.  As Donald Trump won states we continued to see the value of the dollar erode and then it shot right back up and we have a question here from one of our followers on Twitter.  This is from Mary Hettervig in Buxton, North Dakota @SatMonster.  Marty is asking can Mark address the U.S. 5Dollar versus the Brazilian REAL because it is a big deal now.

Gold:  It certainly is and the dollar closed back over 99 cents.  Obviously the power of a dollar even would be the next resistance and that is going to put pressure on the Brazilian REAL.  That makes their product cheaper for the Chinese to buy.  More expensive to buy our products here or anybody else that is looking to import particularly soybeans.  So, it is going to have a major impact.  The dollar strength is what it is.  If we do close it over a buck we can move it significantly higher and that will make exports even tougher, but the interesting thing is during the last couple days since the election as the dollar was moving higher we saw 40 cent rallies in beans, a 30 cent break, a 30 cent rally, 30 cent break.  It didn't really seem to have that big of an impact.  It had a little bit more of an impact on the wheat and the corn which kind of had a little bit of a rally and then sold off again.  But it will have a market impact particular if we close a dollar over par.

Pearson:  Let's assume we get to closing the dollar at or near or above par here in the short term two or three weeks from now and the Fed decides to raise interests rates in December.  Is that a catalyst at this point to take us much higher in the dollar?

Gold:  It could be.  As long as I have been around these markets which is 40 years, money travels to where the highest interest rates are and we will see an influx of people looking to buy dollars to get those higher interest rates if that happens.  So, they can go hand in hand and we can see higher U.S. Dollar prices and lower interest rates - excuse me the bond is moving lower but the interest rates are moving higher.  So that is certainly a possibility.  I believe interest rates could move higher and faster now particularly with president elect Trump than it would have under a Clinton administration.

Pearson:  Ok.  You mentioned the head winds this week on the wheat market.  We saw wheat down 11 cents.  Are we just heading back to that four dollar bottom of the range to trade still within it?

Gold:  It certainly looks like it.  We have got some issues out here when we look at Texas, Oklahoma, Colorado, Nebraska, the Central Plain States were pretty dry.  We have got this potential drought in the Southeast and a lot of people including myself believe that spring and summer droughts are generated from the Southeast part of the country.  NOAH confirmed that we are starting to turn into La Nina out here.  So, that can have an impact. We saw some problems in Australia.  We saw some problems in Argentina.  Do I want to be bearish in four dollar wheat?  Nah, I don't want to be bearish in four dollar wheat.  So if guys have sold wheat out here certainly for the next six month I would want to reown a May call option to keep the upside open.  

Pearson:  Ok.  Jumping down to take a look at the corn market.  We saw an eight cent break on the wheat despite the fact that USDA did something I have never seen before in a November WASDE which was raise North Dakota yields 17 bushels per acre, Mark Gold.  A) Do you trust that number?  B) What does that tell you for this corn market moving forward?

Gold:  I don't know if I would trust the North Dakota number per se.  I trust the general number.  The corn I have seen around this country is - we both travel and see a lot of corn.  This corn crop was in pretty darn good shape.  We had good rains.  We got it in on time.  Everything looked perfect.  So, to see these kind of record yields is not surprising to me.  What was surprising is was it as good as everybody thought?  I was in the camp that maybe we would shave it a little bit on this report to tack on another couple of bushels was a shout to the market.  The corn is out there, the beans are out there and that is where we are at. 

Pearson:  Did we price in that shock in this week well enough?  Are we now back to looking at demand on the corn side?

Gold:  Well certainly demand on the corn and the bean side is going to be critical now.  What has been keeping these markets and their head above water even though it is a pretty low level of water is been the fact that we have had the notion and the realization of huge crops but we have also had huge demand out here.  Unprecedented bean demand.  The USDA raised exports by 25 million.  That is strong. Is it going to stop any time soon?  There was some talk that maybe the Chinese were buying ahead of the election because they were worried about Trump coming in.  There has been talk that what we have seen here in the 40 cent rally that we saw in the beans overnight was the Chinese and other people getting into this market worried about what Trump could do.  Have the bought enough to satisfy what they think?  I think when it is all said and done I don't think president elect Trump is going to really dismantle our export market and some of these trade deals.  I think some of the trade deals that are really unfair, you might take a look at but the president elect has to be sitting today thinking I am elected President of the United States because of the rural farm vote period. Is he going to turn his back on the American farmers now?  I don't think he is going to do that.  I think it is long term positive for American agriculture.  

Pearson:  Ok.  So you touched on the record bean crop which was reported in the WASDE plus the record bean demand which we continue to see every Thursday from USDA.  This break we have had, we are down here at 986 and change, are you a buyer in here reowning beans that were sold at harvest?
  16;09;50;03    Gold:  Not right now.  I have been saying for quite some time that I thought we would see a rally in October which we did.  Then I thought November mainly because of the harvest finishing up in the last bit of that harvest pressure and where we are going to put all this grain in the logistics were going to be tough.  That corn and beans would move lower in November.  We are through the election now.  We are through the WASDE report.  What is going to rally this market?  Again we have had two large rallies just in the last few days out of nowhere.  I don't believe with a 480 million carryout in the beans we are going to be able to sustain that unless we see huge Chinese buying.  This week's number was 1.1 million metric tons on the exports. That is more than half of what it - less than half of what it has been.  So, that maybe an indication maybe they are going to back off. If they back off the rest of the month could be tough and maybe even into December, but longer term starting into January I want to be long on corn, wheat and beans.

Pearson:  So, it is definitely a crop worth reowning but just today is not the right time to do it.

Gold:  I would be a little patient here.

Pearson: Let's take a look at these livestock markets.  As you mentioned record high in the stock market.  We saw live cattle pull higher.  Is this that old stock market wealth correlation to fat cattle or is something else going on?

Gold:  The numbers may not be quite as big as we thought.  Certainly the last report we had show the numbers maybe not be as big as people have been thinking.  We have the bounce.  We had a gap in the cattle.  We had two gaps in the cattle.  We filled one and left the other one unfilled.  Turned it back up the last couple of days.  We have had this stair step down and every time we do get a rally it just makes a new low. We have had at least 13 of these breaks and rallies.  Is this going to be the one that is actually the one that is going to break this down bear a trend line and push us higher?  It is really too early to know on that.  We still have a lot of cattle out there.  As you mentioned the stock market at record highs, people think business is going to be good and people are going to be having some wealth out here and the world hasn't collapsed out here and as I have said in general if you want to know where the cattle market is going to go look at the stock market.  If we can hold these gains in the stock market I think we will hold these gains and even move higher in the cattle.  If something happens to the stock market, somebody turns this thing off for whatever reason then the cattle will make another new low. 

Pearson:  Are you hedging in here at these live cattle prices?

Gold:  Absolutely.  We are going to use some put options to protect the downside.  There - you can got out April and spent three and a half/four bucks on the fats, four and a half/five dollars on the feeders to get protected and I think that makes some sense here and I hope we get a 20 dollar rally on both sides of the market.  
Pearson:  All right. You touched on feeders there again we are seeing a nice bounce this week, three dollars on the upside.  Same story and we are relying on that break in the corn.  Is that really moving us here or is it the collarly alive?

Gold:  Certainly the collarly is alive and I think that is part of it.  Again I think there is more optimism.  We have the election out of the way.  We have had the stock market make new highs.  Guys feel a little bit good.  The cash market finished just a little bit softer here but a lot better than a lot of people thought it would this week.  The big key is the next buck in this cattle market.  If we can close a dollar higher over some of these resistance areas like 106 in December cattle, then we have got a chance to maybe push it up to 112/113.  So let's keep our fingers crossed that the stock market stays intact and that the cattle market can move higher.  

Pearson:  Keep that money flow coming in.  

Gold:  That would be great  
Pearson:  Lean hogs, Mark Gold, we have had concerns for the past six months about capacity, processor capacity as these hogs are coming to market.  We seem to have found a nice range here in the upper 40s.  Can we stick in that range?  Are we past those processing concerns?

Gold:  I think so.  Part of it was the hurricane and slowing down production and backing up hogs.  Hopefully I think the markets have built that into now.  Sure we have got the winter months to get through which generally aren't that great and hopefully we can head it higher into the summer months and the way that the structure of the market now is saying it is going to get better.  As it should. Again we are pretty cheap hog prices here relatively.  Yes, am I going to keep a cheap put underneath these market?  Yes but I am not going to spend a lot of money.  I am going to spend two and a half bucks just in case there is something out there that we don't know about, but I think there is some upside potential in this market and particularly if cattle moves higher we are going to stay competitive and all that.  So, I think hogs have got a chance here particularly if cattle stays strong.

Pearson:  All right.  Mark before we let you go I want to talk to you about this crude oil market.  It was another incredible night of volatility on election night for crude oil.  Down, down, down and then substantial rally.  Where does that put us as we sit here looking out for the remainder of November?  

Gold:  I think that crude is way over valued right now, but it is going to be interesting with the new administration.  I don't think the Saudi's can make the same kind of contributions that they have made to other candidates out there and that may have an impact on our oil prices and then move them lower out there.  We still have obviously big concerns in the Middle East and the crude oil again is one of these markets that volatility can hit and hit very quickly, but I think just on supply and demand we could move the crude oil even lower in here.

Pearson:  Ok.  We are in the mid-40s.  You could see us pushing into the mid-30s.  You think we are ten dollars-

Gold:  Yea maybe, I don't know - 34 to 36 somewhere in that range I think would be a fair price, but again if anything does happen, if there is a glitch out there we can be right back at 60 dollar crude in a heartbeat.  

Pearson:  Well, Mark Gold thank you so much for taking the time to join us this week.  

Gold:  Thanks it has been a pleasure being here on Veteran's Day and I want to give our honor and our salutes to all the Veterans out there as well.  
Pearson:  You bet.  We wouldn't be here without their service and sacrifice.  So thank you.  That wraps up the broadcast portion of Market to Market but Mark and I will keep the conversation going including answering more of your questions during Market Plus available on our website.  And this week on the MtoM Podcast one of our analysts counsels you can make money in a down market.  Find out how wherever you get podcasts by searching MtoM. And join us again next week when we will examine the debate over antibiotic free labeling.  So until then thanks for watching. I am Mike Pearson and have a great week.  

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