Market Analysis: Chris Robinson

Market Analysis: Chris Robinson

Mar 24, 2017  | Ep4231 | Podcast


Continued pressure from a large South American crop and limited weather issues domestically kept a lid on the grain trade. For the week, May wheat lost 12 cents and the nearby corn contract fell 11 cents. Bullish export reports weren’t enough to help the soybean market as the May contract dropped 24 cents. May meal decreased $10.70 per ton. In the softs, May cotton shrank 89 cents per hundred weight. Over in the dairy parlor, April Class III milk futures gave back 28 cents. Hogs lost some ground but the beef sector was a bright spot as the April cattle contract increased $3.17. April feeders expanded $3.42. And the April lean hog contract fell $1.77. In the currency markets, the U.S. Dollar index added to its string of losses dropping another 67 basis points. Crude oil fell to its lowest level in 4 months, down $1.34 per barrel. COMEX Gold gained $18.30 per ounce. And the Goldman Sachs Commodity Index increased nearly 5 basis points to finish the week at 378.35. 

Pearson: Here now to lend us his insight on these and other trends is market analyst Chris Robinson, Chris, welcome to the program.   

Robinson: Nice to be here, thank you.

Pearson: We're excited to have you. But before we get started, you can listen to our market discussion anytime by downloading our Market Analysis podcast on our Web site,

Pearson: Now, Chris, this was kind of a down week across the board, there's a lot of red on those numbers that we saw. I want to start talking about the wheat market. We were down on the week, finished a little higher on Friday. What changed, or is anything changing, in the wheat market?

Robinson: The wheat market unfortunately has been under a lot of pressure really for the past six to seven months. We've been in a narrow 70 cent trading range and the fundamental story is pretty well known, there's a lot of supply, not only here in the U.S., but worldwide, and also we've had to suffer with increasing strength in the U.S. dollar has made our exports less attractive. Every time there's a sale the FSU or Russia beats us to it. We have seen a little bit of a pickup lately, but at the end of the day there is so much supply there we still have a lot to chew through. Interesting thing is we planted the fewest amount of acres we have in 108 years. So the stage is set if eventually we can chew through some of the supply or if we get a weather issue we could be right back at it. But certainly prices are depressed and we continue to sort of be really a follower rather than a leader moving forward in the wheat.

Pearson: Are we taking, are you encouraging producers to take any action in the wheat market right now? Or is it just kind of a wait and see, see if we can get some value built back into this market?

Robinson: Well, interesting, wheat has got the one market that has some carry in it, so if you're not paying for storage, if you've got on-farm storage, there is some carry there which you can capture and you can look out there. It's not so much for corn and beans, but there is something there. But if you're paying storage it really makes no sense. We're recommending guys to not sit on it any further. Certainly if you're sitting on it keep a cheap put under it because there could be some more downside risk yet to come. But when the market turns, and it will turn, you don't want to be sitting there having no upside to take advantage of. So that's the one thing I would say, if I'm a wheat producer we're at depressed prices, and you have to keep your powder dry and wait for rallies.

Pearson: Speaking of depressed prices, let's look at the corn market, down I believe every day this week. It was just a grind lower. What happened in the mind of the trade to prompt this slow, brutal selloff?

Robinson: Well, this really started about 10 days ago. We came into the year the funds actually were long corn at one point, the managed funds have been a really big impact in this marketing year so far because we haven't had any of the weather issues to deal with. The funds went from being long to being short last week. This week they added to the short again. The commitment of traders just came out and they built that short position up to about 80,000, 85,000 contracts. So that's negative right there. They're positioning themselves for next week's March 31st USDA report, everybody is betting on what the acres are going to be. But right now the funds are betting that the prices are going to continue to go lower. They're also, they have been short wheat really for about a year and a half, they backed off a little bit but they're short about 100,000 contracts of wheat. So that is weighing on the market. And you touched earlier on soybeans, looks like this is the week they finally flipped from being long to probably flat as we head into next week.

Pearson: Okay. So on the corn side, looking out at new crop, we've yet to really get any planters turning except for the far southeast in Texas. For producers, we just watched this thing give up 11 cents on the week. Do we hold off and wait for a weather event to put some marketing in place?

Robinson: Well, everybody has been waiting for that. We've had two days, two business days where we were above $4 this year. Most guys need $4.20 or better this year, that's the price that most of our producers are looking at and I think March 1st we were there, we were at $4 and we've had, again, when there was no follow through and you saw a flip in the commodity funds that put pressure on what's going on. I think moving forward rather than panic you need to have some sort of downside protection in. There are choices out there where you can absolutely keep your upside open. But at this point with us trading at $3.80, $3.75, the contract low was last August at $3.55 so that is what all the technical guys are looking at now. That level, so that's probably your near-term risk. The upside is, yeah, if we could ever get above $4 then you'd see some movement there towards higher prices.

Pearson: Okay. Now you did talk about how soybeans made that transition from a long managed money position to a short. Watching the trade Friday, 15 cents down on the day, 15 and a quarter. Was that intensive selling by the funds? Is that what drove that on Friday?

Robinson: Yeah, it seemed, especially after about ten o'clock you could see that jump in the prices, they really started pounding on it going into the weekend and I think that was probably the biggest surprise because they have maintained that bullish stance in the whole soy complex, they were long soy meal and oil, that was their long bet. And the commitment of traders had them long about 60,000 as of Tuesday. Probably with what happened today they've probably chopped it down to 30,000, they could be flat. Again, we'll have to see, every Tuesday it comes out, Friday comes out as of Tuesday, so you kind of have to extrapolate and sort of guess. But they have certainly pared back their long position and I don't think it's any coincidence you have the same movement in crude oil. Crude oil and soybeans move simultaneously very often and unfortunately we have a huge supply of crude oil now. And let's face it, even with soybeans we have a big carryout and the question is, how many acres are farmers going to plant? The corn to bean ratio suggests that they're going to plant more soybeans. But we'll see on Friday.

Pearson: And we did get a question in from one of our followers on Twitter. This is from Marty in Buxton, North Dakota @SatMonstor on Twitter. He wants to know, speaking of large carryouts, will the soybean crop in Brazil be higher or lower than 110 million metric tons? What's your thought?

Robinson: Well, every time they adjust it higher, which we get the private forecast either from Conagra or from the other firms that do that. It keeps getting bigger. So my guess is big crops will continue to get bigger. You had seen a reluctance on Brazilian farmers to move any grain so now they're starting to, you saw some push this week. But at the end of the day, they have the biggest crop ever and we're looking at here in the U.S., again, we have a big carryout and so it's a situation where the world is producing more of what it doesn't really want right now.

Pearson: Right, and potentially more acres coming next Friday.

Robinson: Yeah, we'll see, that's the big guess is what are the acres going to be for soybeans? Soybeans close to $10 was profitable, corn below $4 not so profitable, so you might see a push towards higher acres. But that's the general knowledge, the general opinion of what they call the herd, all thinks that's going to happen. So the surprise will be on Friday is if we get something out of whack north or south of 90 million acres.

Pearson: When everybody gets on one side of the boat and you get spooked it's a big reaction a lot of times.

Robinson: Right, right.

Pearson: Now I do want to talk to you about the cattle market because that is really the one bright spot in the trade this week, live cattle just keeps screaming higher. Where is the top on this thing, Chris?

Robinson: We made one year highs in fat cattle, live cattle, contract highs now for the deferred months in feeders. And remember where we were a year and a half ago, two years ago, up $150 above there and I can remember nobody thought we'd ever have the correction that we did. Interesting year this year, you had the managed money, again, I talk about that a lot but they have a big impact, they're like a force of nature, they have been long fat cattle really for three or four months and now suddenly with the Brazilian, I guess you call it the debacle or whatever you want to call it, Brazilian issue, now they've got a fundamental push behind them so they're actually buying more. Managed funds when they get a good one on they continue to add to it. The only problem you have with that is the rubber band has gotten stretched pretty far, we've come up about $12 in the past just few trading sessions. So we'll see how high is high. The market, there's that old expression, the market can remain irrational a lot longer than you can remain financially liquid. So it's not a freight train I'd want to step in front of. I think if you're a producer, this is why we always caution guys about getting oversold, because the market can run a lot further than you imagine it will. Right now there's a big disparity between the board price and the cash price. Cash sale prices were up again $3 or $4 again today for the week. We've had a little bit of weakness in the boxed beef but we'll see if that continues. But we've been telling guys that if you can make some advance sales don't be afraid to because then you can just reown it with a cheap call, keep your upside open. But I'd say a lot of money has been lost in the past three or four weeks where guys thought that the market was topped out.

Pearson: Now, before we move onto feeder cattle, I wanted to ask you a question from Calvin Steege on Twitter. He wants to know, the cattle on feed report released Friday, was it bullish, bearish or neutral?

Robinson: It was neutral, pretty much nothing out of whack there. The kill this week was huge, there's a lot of animals out there. Normally I think if we weren't in the situation we had with this, again, this Brazilian issue and that’s going to play out and nobody knows how it's going to play out. Are they going to suspend exports from there for is it going to be two weeks, two years, nobody knows. But it is long-term it should be a positive not only for our cattle ranchers but also it should spill over into the lean hogs as well because it's another source of protein. And China already, they stopped all exports of chickens --

Pearson: Right, South Korea no more poultry imports, China no more poultry imports, all from Brazil. Just to clarify, Brazil packing plants are under investigation for bribing inspectors allegedly for sending out perhaps tainted meat. So you did mention lean hogs, that strength hasn't spilled over quite yet. We're down $1.77 on the week. Is it just going to take some time? Do we actually need to get some export sales booked to get that market moving?

Robinson: I think you're going to have to see if that plays out. There was a big concern earlier that we were going to run into problems with our demand towards Mexico. We actually held in pretty well considering where we're at. But the market, again, it's well supplied, the whole producer versus packer issue, it's pretty well known. I think looking out if I'm a producer I'm more concerned about the deferred months rather than what is happening right now. And same story goes, if we can get a shift in demand it would really help. Now, we've seen a lot of demand coming out of via Smithfield out towards China. China has been, a lot of people thought they were frontloading their needs not only for lean hogs but also for soybeans, we saw a lot of support there in the first three months, especially right after the election. And I would watch that carefully because at the end of the day they're a good export partner for us.

Pearson: Alright. So we'll have to see if they just keep buying.

Robinson: Let's hope so.

Pearson: Alright. Chris, thank you so much for taking the time to join us.

Robinson: Yeah, it was a pleasure.

Pearson: That wraps up the broadcast portion of Market to Market. But Chris and I will keep the conversation going including answering more of your questions during Market Plus which is available on our website. We have a new offering for our online viewers. Now you can see all segments on our YouTube channel where you can watch Market Plus and our feature stories. The links are available through our Facebook and Twitter page. And join us again next week when we reconvene our blue ribbon panel to examine the impact of two significant government reports. So until then, thanks for watching. I’m Mike Pearson. Have a great week! 

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