Market Analysis: Angie Setzer	(episode 4218)

Market Analysis: Angie Setzer

Dec 23, 2016  | Ep4218 | Podcast


South American weather, once again, worked at cross purposes with healthy exports and left the grain markets lower just before the Holiday. For the week, March wheat fell 16 cents and the nearby corn contract dropped 11 cents. News of a record crop in Brazil and more good weather in Argentina continued to hold the soybean complex at bay as the January contract finished 49 cents lower. January meal was carried along by the news and lost $9.80 per ton. In the softs, March cotton shook off $1.17 per hundred weight. Over in the dairy parlor, January Class III milk futures poured off 31 cents. The Livestock sector finished mixed as the February cattle contract put on 95 cents. March feeders added 40 cents. And the February lean hog contract shed $1.50. In the currency markets, the U.S. Dollar index climbed 8 basis points. Crude oil gained 7 cents per barrel. Gold fell for the 8th week, losing $3.80 per ounce. And the Goldman Sachs Commodity Index declined just over 2 points to finish the week at 391.30. 

Pearson: Here now to lend us her insight on these and other trends is one of our regular market analysts, Angie Setzer. Angie, welcome back.    

Setzer: Thanks for having me.

Pearson: Before we get started, you can listen to our market discussion anytime by downloading our Market Analysis podcast on our Web site,

Pearson: Now, as we get started, Angie Setzer, let's talk about this wheat market. We broke down below $4 here in the Chicago. Does this set us up for continued downward movement?

Setzer: A lot of times they'll tell you in a bearish market that you tend to see the next market in line trade down to where the first market at one point traded. In the December side of things it really got ugly. I think at one point we were in the $3.60 range in Chicago, I don't know, I kind of blacked out there. It was nasty. And so I think we're seeing a little bit of that. Right now the market is still focused on the Australian crop. There's discussion there that the Australian crop, the USDA came out and put it at 33 million metric ton, which is phenomenal, it's huge for Australia and now there's talk lying there that they could see another 2 million metric ton added, so 75 to 80 million bushel on an already giant crop. Talk is that Argentina also increased their acreage. So right now the conversation continues to be centered around the fact that the dollar hit 15 year highs and that production in areas that don’t traditionally, in the areas that we need to stumble first, are not stumbling. So the path of least resistance at this point seems to be lower. There's a lot of stories going forward that we should see pick up in wheat, poor quality going into dormancy, that cold weather effect. There's talk that we could see another really cold snap here another two to three weeks out in the Southern Plains on that. Wheat is uncovered at this point. No snow so that could be major. But at this point in time the dollar and big crops getting bigger in foreign countries are really weighing heavy on the market.

Pearson: Are we continuing to see the large speculators add to their short positions? Are they continuing to be active sellers?

Setzer: Yeah, they're just, if it's a day that ends in Y it's a day that funds seem to be selling wheat, unfortunately. We did get a bounce off from the really cold weather that we saw here last week, but with that not getting any legs underneath it, going into the holiday, the continued strength in the dollar again, we just weren't able to pick up the ball and run with it from there.

Pearson: Alright. Into the corn market, down following wheat or following beans perhaps to the downside. Corn dropped 10 cents in the nearby. What do you do?

Setzer: Well, with corn it's like last year all over again except for maybe we're 10, 20 cents lower than where we were trading last year at this time in that range anyway. It seems to be corn likes to run between about $3.43, $3.63. We tested, the last rally that we had we tested that $3.63 range on the March. We failed to close above $3.62, which is what I was hoping we would see happen, not because I'm a huge tech trader, I'm more of your back yard tech trader where the numbers that mattered before continue to matter. And the fact that we didn't trade above that and try to hit that $3.75 or so kind of told me that we would see it trade lower again and we'll test the lower side, the $3.40, the lower $3.40 range, which we are right now. Of course with wheat not being able to get legs underneath it, corn has a hard time rallying because with a lot of wheat out there if corn tries to separate itself too far from wheat people are going to discuss wheat feedings. I don't necessarily think that you're going to see a significant amount of wheat come out of storage to go into feed just because now that it's put away it's not really something that people are going to dig out all that often to feed, but it's still a story that you’re going to hear. So I think corn is being weighed down, that and it rained in Argentina. And right now to me everyone was focusing on Argentinian rains for soybeans when the reality was Argentina is in the middle of their, or getting into their more crucial weather pattern or their more crucial period for production. So they got the rain that they needed and here we sit.

Pearson: Alright. We've got a question here from one of our followers on Twitter. This is from Kenny in Neligh, Nebraska @reinke_farms. He's asking, is it worth the risk to wait and see how the acreage battle plays out in March to price new crop corn?

Setzer: I think when you see new crop corn get up into the range that we saw last year, we started last year for a lot of guys in that $3.85 to $3.90 range depending if they had on-farm storage or not, that was a higher level of futures. We did see the market rally from there on a weather scare. I think we will. But most of the guys that I'm working with right now we are looking to start locking in some futures in that $3.90 range, doing futures only at this point in time, we're not necessarily locking in cash just because we have the intent of rolling it out later, hopefully adding some carry because hopefully we'll see a weather rally and we'll be able to trade our harvest movement at a higher level, but to get started none of my guys this year right now are sad that we contracted $3.90 futures a year ago. And I think we're setting ourselves up without a weather issue to really trade the same ranges that we've been trading the last couple of years.

Pearson: Alright. Soybeans down hard on the week, 50 cents, broke through $10. Just global supplies again is the concern?

Setzer: Well yeah, right now the Brazilian crop looks good, Argentina looks good now that they've gotten rain, there's maybe 10% to 15% of the Brazil area that has some dryness concern to it but not really anything that you would want to write home about. Argentina is seeing the rain, again, not anything you want to write home about on concerns now, they'll be able to finish planting the crop and from the sounds of it, it looks pretty good down there. Now, granted we have to get the crop in the bin. But still even if we were to take 2 million metric ton off the Brazil crop and a couple million metric ton off the Argentina crop estimates that we're seeing right now we're not looking at a loss similar to what we had a year ago. And so I think going into this month traders had last year in mind and were willing to put a risk premium in place much greater than what they were a year ago. Last year there was no, it wasn't on anyone's radar that we would see a production loss.

Pearson: $8.50 through the entire week.

Setzer: Exactly. And then we were going to sell for $7 at harvest and Brazil and Argentina surprised us and we traded much higher from there for good reason. This year though I think that we put the risk premium in before we got there because traders of course have very short memories. Remember a year ago it worked for them, why not? And on top of that I think you did see some folks just get to where they realized okay maybe we are a bit overpriced, we started to hear the acreage discussion kick into gear, the rain in South America and here we sit.

Pearson: So if I'm planning on planting more beans this year on my farm here in the Midwest should I use these price levels even after this break to make some sales? Or do I hold off and wait and see?

Setzer: If you haven't started selling I wouldn’t be afraid to sell. If you were aggressive in the $10 to $10.40 range on the November beans already, a lot of my customers were, I have some guys that are half sold at that point because they figure if the bean market goes to $13 or $14 their average is $11.50, worse things have happened. And so I had some guys that were very aggressive. I have others that were not. At this point you’re still above $9 cash. If you are planning on increasing your acreage because of the penciling out of revenue based on where we're at I cannot argue against getting something covered.

Pearson: Right, if the upper $9 are making dollars then make those dollars.

Setzer: Exactly.

Pearson: Now let's talk about this livestock market. We continue to see live cattle put a little bit more on. Cash trade was reasonably hot for the week before a holiday. Angie Setzer, are you fired up about the cattle market coming into this holiday season?

Setzer: I'm always fired up about the cattle market because there's nothing better than a good steak. But when it comes down to it we're seeing levels that we haven't seen since late summer. If you look back even four weeks ago, probably five weeks ago now, prior to the election, if you would have asked someone if cattle was going to rally to late summer highs they'd have laughed at you and told you you were crazy so I think that's important to keep in mind. Of course with the stock market strength that we've seen that always helps. If you make good money on the stock market you're going to buy yourself and your family a nice big steak. So that has something. The enthusiasm in the consumer side of things right now, as long as that stays in place I think will help keep a floor underneath the cattle market. But it's important to keep in mind if you were really lamenting how awful things were for you even two months ago or three and we're back into ranges that you can be making money you've got to be doing something with it because overall we're still in a bearish commodity market setup. It is going to take time for inflation to introduce itself if it does. Right now we're really trading higher on the idea of inflationary fears and we've seen decent export business, we've seen other things that would help give the market a kick in the right direction. But, overall we're kind of front running this idea that with the Trump presidency things are going to, we're going to be back in the roaring '20s.

Pearson: Right. So feeder cattle just going to follow live cattle, as this corn breaks we might see a little bit more on the feeder side?

Setzer: Yeah I think so. I think there's a decent supply of feeder cattle out there. We did see the breeding stock increase. We know that there were more calves available. But at the same time with live cattle rallying the feeder market is going to get hot again, it has, so it makes sense to be taking advantage of it and it will definitely be following along I think.

Pearson: We did get the cattle on feed report out earlier today, total cattle on feed were down 1% versus last year. Placings and marketings up 15% and 17%, that going to spook the market come Monday?

Setzer: I don't know, it didn't really seem to care too much, I don't think it's really paying too much attention to it. I think with the weather that we've seen that would probably credit, you want to push those calves into the yard with poor weather conditions that we've seen. So I think the placements could be a little funky in that regard. Marketings of course with cash prices the way they were I'd be selling too especially ahead of the holiday.

Pearson: Before we let you go, Angie Setzer, lean hogs continue to run a little bit. Is there more strength in this?

Setzer: I would be nervous. Our pork exports have been huge, Mexico demand has been huge, we've seen that happen. They have slowed down a bit here recently. But it was, again, just like in cattle, it was only just ac couple months ago that you were going to be paying someone to take your hogs. So now that we've seen this reasonable rally I think a lot of it has come again from consumer sentiment, excitement over inflation, things like that. I'd take advantage and be a seller.

Pearson: Don't look a gift horse in the mouth.

Setzer: Exactly.

Pearson: Angie Setzer, thanks so much for joining us.

Setzer: Thank you.

Pearson: That wraps up the broadcast portion of Market to Market. But Angie and I will keep the market conversation going including answering more of YOUR questions during Market Plus available on our website. We've already started our year-end review with our0 M-to-M podcast where the producers of this program discuss 2016. And next week on the broadcast we'll do the same and take a look back at a year filled with earth, wind and fire. So until then, thanks for watching. I’m Mike Pearson. Happy Holidays and have a great week!


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