Market Analysis: John Roach

Market Analysis: John Roach

Jan 31, 2019  | Ep4424 | Podcast


South American harvest conditions were overshadowed by news of progress on Chinese trade negotiations. For the week, March wheat gained 4 cents and the nearby corn contract lost 2 cents. The commodity market chewed on Southern Hemisphere weather conditions and an unofficial breakthrough in trade talks with China that was short on details. Both failed to push the market higher as the March soybean contract fell 8 cents. March meal dropped $2.10 per ton. March cotton dipped 49 cents per hundredweight. Over in the dairy parlor, February Class III milk futures gained a dime. The livestock market headed lower. April cattle cut 57 cents. March feeders retreated $1.10. And the April lean hog contract shed $2.00. In the currency markets, the U.S. Dollar index plunged 15 ticks. February crude oil jumped higher by $1.59 per barrel. COMEX Gold added $18.90 per ounce. And the Goldman Sachs Commodity Index fell increased 4 points to finish at 413.25. Joining us now to offer insight on these and other trends is one of our regular market analysts, John Roach. John, welcome back.

Roach: Thanks, Paul, nice to be here.

Yeager: I thought at this time yesterday we were only going to be talking about one thing and one thing only and that was an announcement made in the Oval Office. We'll get to that in a moment with China. Let's start with wheat, though. I guess that's what we call a tease, right? We'll lead it that way. Let's talk about weather this week. Wheat, what's going on there because the rally was 4 cents, but I take it this winter kill didn't really kill the wheat?

Roach: Not to anyone, no one is really trading that. What really happened in the wheat market was a break from the highs that we had a couple of weeks ago and that break bottomed and we ran right down into export buying. Russia is virtually out of exportable supplies and we're suddenly the store left in town and so our offers are competitive now and we're getting some of the business and that brought the wheat market back up and closed nicely today.

Yeager: So I think the Russia story has been out here for a couple of weeks. Is there any further story fundamentally that will change things that way? Or are we in a technical pattern here for a little while?

Roach: Well, it's an important time for wheat producers. We're going to bring wheat out of dormancy so the weather conditions as we move forward here through the month of February are always important. We frequently will make a high in the wheat market during this time of the year. So we're kind of expecting that. We're expecting this rally to carry further and looking for opportunities to get some sales made here over this next month.

Yeager: So the next month, time to pull a trigger on some sales?

Roach: That's what we're looking for, yes.

Yeager: All right, let's get to corn. To use the weather analogy, it looked like the corn bulls maybe ran out to the outside without a shirt on. They kind of just stopped. There a Twitter question that we got from LJ in Southeast Minnesota similar to the point here, John, as we were talking. He goes, I'm hoping that this past month is not the yearly high for December '19 corn. Is there much room for a rally to $4.30 and above? Or should I continue to be let down?

Roach: First of all, this is the wrong month, this is the wrong time of year really for corn to make a high trade. Typically this time of year you have farmers that are trying to get bills paid, they're figuring out what they need to move out of the bins and they're active. And so the corn market tends to be sluggish. We tend not to get to the kind of prices we like to sell new crop on until that March, April period. And so we're just being very cautious, careful and reluctant to sell, optimistic that we'll have some better prices on corn. The fundamentals on corn are actually tightening compared to where they were a year ago. Our export shipments are the best they've been in 10 years. Ethanol is down just a little bit but we're still looking at better numbers as we move through this season rather than poorer numbers. Our supplies are actually tightening. And so we need to adjust markets for that. We also need to adjust for the acreage. Currently a lot of farmers are talking about just maintaining their rotation pattern. The market is going to encourage farmers to plant more corn and fewer beans so that we need to distort the relationship from where it is, or need to move it, on new crop corn and beans, we need to cheapen beans relative to corn or have corn come up relative to beans.

Yeager: So there's plenty of questions that we'll get to in Market Plus that are similar to that. They're wondering if some of this soybeans news that is possibly coming from China is going to mess up that rotation that you're talking about. What do you think besides a major price uptick or major news from China is going to dramatically change the acreage projections that are being made for corn?

Roach: I don't think we're going to drastically change it but we need to move them some. So when people have acres that they need to make decisions on, that the decisions come up in favor of corn. That's the kind of adjustment, it's not necessarily dramatic, but it's incremental.

Yeager: But that's what we saw, the direction was kind of headed that way anyway here over the last month, right? Isn't that what we were hearing without a government report to lean on was yeah, we're planting more corn, we're going to plant more corn?

Roach: Well, that's the talk maybe in some areas but the traders don't believe that. Most people believe that farmers are not going to plant enough corn and so the corn market still has a little bit of a job to do relative to beans price relationship.

Yeager: All right, am I selling anything right now either near-term or -- ?

Roach: We were big sellers of soybeans this week. We think that the soybean market has a problem with carryover and fundamental surplus although the Chinese news moved that needle today, take 5 million tons of increased exports and 5 million tons of reduced carryover, you change the size of that carryover bar that we look at on our chart but you don't change it enough. We're still dealing with one of the largest carryovers in history and we need more business and if we can get that business then we can talk better about the soybeans. But until we do we have to be willing to sell these rallies not only on the old crop but also some of the new crop.

Yeager: China bought 32 metric tons in 2017, dramatically lower last year. If this '19 starts and continues to what we've seen here in the last 24 hours is there optimism that we're going to split the difference between '17 and '18? Or where do you think our sales are going to be to China?

Roach: It's all a political decision. And the interesting thing about this and also sort of depressing is that the outlook and the future on our soybean sales hinges upon their willingness to not steal U.S. trade secrets and so forth. That's really where the argument is, to get China to follow all the world laws and to reduce some of those things that they have been accused of.

Yeager: Did you expect a little more bounce in the markets this morning on overnights after the news yesterday that came out of the White House?

Roach: Actually not really. We've been in a sell signal on soybeans for 4 days. We thought that this was a great opportunity to add to those sales. And so no, we didn't expect a big runaway. We think a lot of farmers have a lot of beans that they need to sell. And so what we've seen is every time the market runs up into this price area farmers are happy to sell some beans and we get pushed back down.

Yeager: I think you referred to it in your newsletter a couple of times this week, there's going to be a lot of beans celebrating their first birthday in a bin. Do you think that's going to continue?

Roach: I think absolutely. Somebody is going to have to carry beans into the new crop. And so nobody really wants to do that. If we talk to them today they say no, no I don't want to do that. But what the market is going to do is it's going to make that your best choice. If you don't pick a price and get your beans marketed your best choice eventually will be I'll carry them on into the New Year.

Yeager: Okay, so how much longer do you think a sell signal is going to last?

Roach: I think we may, well actually it closed today, we lost it on the close today.

Yeager: All right, I have to get it real quick in here. I know they told me no on cotton but I want to get it in anyway. John, this week cotton has been one of those things where it has been stuck in a range. Is it tied to some of this bean discussion? Or is it on its own island right now?

Roach: No, I think it's in the same situation. We're dealing with political situations having the biggest impact right now on agriculture prices.

Yeager: All right. Livestocks now, in cattle we had a good run up here and again, same metaphor, the cold just really snapped this back. New contract highs but then all of a sudden we fell back from that. What's going on?

Roach: Well, we had a rally up into some very good prices and very good profit levels and we issued a sell signal on cattle and I'm presuming a lot of people around did the same thing and so the market had a big reversal day which left an ugly picture on the chart. And we'll probably have some more pressure from it. But we're not negative on cattle longer term. We think this cattle market can still move better into the late spring but right at the moment we've run about as far as we can, the dressed beef came under pressure and so the market stalled out here for a moment and it may take a little bit of time to get through, we don't know for sure how much weight we've lost on cattle and how much we've backlogged and so our slaughter numbers out forward are a little bit uncertain at the moment. And so we think we kind of shake that out, we think the market will come on higher.

Yeager: Is that mostly tied to weather?

Roach: It's kind of numbers. We've had a rising cattle market and strong demand really for several months here.

Yeager: Okay. Did I miss my chance to make a sale?

Roach: If you did, you did by one day, so usually that's not a bad deal. If the market rallies back up sell into it.

Yeager: The feeder market, we talk about this cold, it is hard. The thing is the cold didn't get to some of the major cattle regions of this country, most of the Upper Midwest, that's not the big numbers. Is that what is playing in this market that dropped here at week's end?

Roach: Well, the feeder cattle market was stronger in the primary feeding areas and we were seeing, when we look at what percentage of profitability are we looking at right now on heavier weight feeders you're at the 94th percentile of how much profit you've ever had to buy the feeders and sell the fats and buy the corn. And so the feed ratio or the cattle crush they call it sometimes, you're in actually as close to being as profitable as we normally are.

Yeager: When you say profit in feeders all I can think of is Walt Hackney saying, how much damn profit do you want to make, something like that. Let's get into hogs. This is still something, again, back to China. We didn't hear much news about the fever this week. Is African swine fever done?

Roach: No, but it has slowed down. The attitude is that maybe they've seen the worst, hopefully so. We all got dressed up for a party. The hog market was going to, when I was on in the late fall of the year was we're really setting ourself up for good export demand. We haven't seen any of it yet. So the Chinese swine fever problem has not brought itself to our shores as demand for pork. And everybody anticipated it would. Meanwhile our slaughter numbers are running bigger than what the hog and pigs report indicated they should so we've got bigger numbers out there than were anticipated into a weaker demand kind of market and so we're just stumbling over ourselves here until we can get these supplies cleaned up.

Yeager: Well and we're also, do you run in a little conspiracy that maybe we're not getting the most accurate news out of China? Maybe they're fudging either how good or how bad it is and that's influencing us? Are you a conspiracy theorist, John?

Roach: I'm not so much a conspiracy theorist but I don't believe them. We just have to be careful. Their reporting and so forth is different from ours and it may be politically tinged, we don't know. And we've seen their numbers make big changes and so their reliability is a little bit uncertain. But what we do know is they have not come to our marketplace and been buying our pork and we really anticipated that would happen.

Yeager: All right, John, a little tease here. We have a gift for you that we're going to give you in Market Plus so stay tuned for that. For now, John Roach, thank you very much. That wraps up the broadcast portion of the television program we call Market to Market. But we will keep this conversation going in Market Plus, present John Roach a gift, and we'll answer more of your questions. You can find it on our website at And you know what, find us on Facebook. Search Iowa PBSMarket and get behind-the-scenes information and other stories of interest. Give us a like today. Join us again next week when we'll look at the East Coast industry working to rake up new markets in the Midwest. Until then, thanks for watching. I'm Paul Yeager. Have a great week.

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