Market Analysis: Dan Hueber

Market Analysis: Dan Hueber

Sep 27, 2019  | Ep4506 | Podcast


Dry weather coupled with pre-report positioning off-set dramatic movement in the markets. For the week, December wheat improved 3 cents while the nearby corn contract gained a penny. Near-perfect weather to finish the soybean crop limited the soy complex as the November soybean contract was even. December meal increased a dime per ton. December cotton rose 38 cents per hundredweight. Over in the dairy parlor, October Class III milk futures lost 50 cents. Trade news bolstered the livestock sector as December cattle jumped $11.23. November feeders put on $3.78. And the December lean hog contract rocketed $9.50, a 16 percent jump. In the currency markets, the U.S. Dollar index gained 61 ticks. November crude oil shed $2.48 per barrel. COMEX Gold decreased $14.10 per ounce. And the Goldman Sachs Commodity Index fell more than 6 points to finish at 410.60. Joining us now to offer insight on these and other trends is one of our regular market analysts, Dan Hueber. Dan, welcome back.

Hueber: Thanks very much, great to be here.

Howell: A surprise guest but we're glad to have you nonetheless.

Hueber: I always jump at the chance to come to Iowa.

Howell: Fantastic. Dan, I want to talk about what you saw in your journey to Iowa. But first let's talk here about really the winner it seems like in the grain markets this week and it's the wheat markets. Are they having a turnaround?

Hueber: Well, certainly encouraging action, in fact up for the week but if you look back a little further this is the fourth week in a row of higher closes in wheat. We haven't really gone through any critical levels of resistance yet. But I think there's just enough factors happening right now with concerns not only of maybe a little reduction in our crop but a lot more news out of South America, the dry weather and actually an early frost, an unusual frost in Argentina and the dry conditions down there seem to be trimming back ideas for the wheat estimates there. And then in Australia once again facing a severe drought down there. The latest forecast from the meteorological bureau and Australia say another 60 days, maybe 90 days of lack of moisture and unseasonably warm temperatures. So, again, they're pulling back on that crop size. So overall just enough news there to kind of prop it up and I think there is some idea that maybe demand is going to be picking up from even domestically on some of the feed sources and what not. So enough news to lift us off the lows thankfully.

Howell: You mentioned there resistance levels. Let's talk about the December Chicago contract in particular. Dan, where are you looking at for level of resistance right now?

Hueber: I think the critical level is just below the $5 mark. In fact, $494 and a half I think is about a 50% retracement of the entire range for this last summer. Now, if we can start pushing and closing above there the picture changes pretty quickly. Right now I guess I'm just a little hesitant to think it's quite ready. I think ultimately we're going to do it. When you look at the long-term picture in wheat yes it looks like we're probably forming a bottom and we've got some higher prices down the road. But boy the next 30, 60 days yet, particularly with the harvest of corn and soybeans coming on could be that limiting factor that really keeps us from pushing through there just yet.

Howell: Dan, you lead me right to it, the harvest of corn and soybeans that is on the mind of so many folks. In your drive here to Iowa today from Illinois did you see a lot of combines rolling? Are you seeing people getting in the field?

Hueber: Well, of course I saw mostly rain across, Illinois especially it was raining pretty hard, just enough in Iowa that certainly there wasn't going to be anybody out in the field. Interesting enough on the entire trip I saw two soybean fields that were done, they were gone, but that was it. Most of them were in various stages of maturity. Corn I suppose there's been maybe some corn for silage taken out but outside of that I would suspect we're going to be another two to three weeks away for the majority of the corn. I know in our area, again it's a very limited amount of acreage, there was a little corn planted in April and if we dry out, which that doesn't look real promising here for the next week, but if we dry out I think those fields will be tried. But a week ago I know some guys checked fields that were mid-April planted, still about 35% so particularly at these price levels nobody is in a hurry to try to increase expenses if they can avoid it.

Howell: Definitely. Dan, there have been a lot of factors we've been looking at here really since the WASDE report dropped a couple of weeks ago. We've got a question here from Terry on Twitter wanting to know, the corn basis currently is 30 to 50 cents higher in a lot of areas than the 5 year across the board. How is this indicative of a 2.4 billion carryout?

Hueber: Well, and very good question. But I think a couple of different factors that have really impacted that. One the direction in prices this year. Really since spring there has been very few opportunities to move bushels or at least into good price levels and I think farmers have tended to sit on bushels at home so the pipeline is relatively short here at this point in time. Take it a step further I think there's a number of people who have been so concerned about their crop and what the availability is going to be that they have maybe held back some of the old crop bushels either for blending possibilities or for feed needs, this type of thing. So I can speak from our usage at the feed mill or availability at the feed mill, a year ago at this time corn was just running out of the woodwork and everybody wanted to get storage empty, was ready for a big new crop coming on. With a question mark exactly how much corn there's going to be this year harvested I think people have been just a little stingy on emptying those bins here at this point in time. So the net result is better basis levels than were expected and then push harvest back two or three weeks and all of it combines to keep those levels better. Now, one final note to throw in there, you look at the spreads, the futures spreads, they're still relatively wide. So the market is still anticipating a decent amount of carry in the market and will take advantage of that if they can. But with very little corn in the books they always get a little bit anxious about getting -- so they can hedge it and start earning something on that storage.

Howell: Dan, the other big story this week in the grain markets was the almost million ton purchase of soybeans from China. But it didn't seem to give the markets a bounce.

Hueber: Well, and I think we've seen this so many times this year where you start approaching trade negotiations, there's lots of talk, China is going to come in, we're going to buy lots of quantities of beans, we see that happen and then of course really we see the talks fall apart again so I think we've kind of become numb to when this happens. Now really the news, we know there has been a little over a million metric tons purchased this week. There is really talk out of Shanghai and those areas up to 6 million metric tons may be purchased coming into the negotiations here in the next week. So that is well known in the marketplace but still that is a significant rebound from of course nothing throughout most of the summer months, really throughout most of the year. Even the sales here or the exports into China during the month of August I think 1.68 million metric tons which was reflective of those beans that were bought just before the last negotiations or what were hoped to be negotiations a year ago in August, we were 275,000 metric tons. So it is a marked increase but still we'd have to consistently keep that moving to make up for the lost ground over the last year.

Howell: Dan, is there any indication of why China is stepping in now to make these purchases?

Hueber; Other than yes I do think they, as we as well, are anxious to try to get this trade war behind us, certainly is a goodwill gesture to do it. That said, we're probably getting to the point where South American beans are running the end of their course as far as available supply so they probably have to turn to the U.S. a little bit more. One other interesting note in China right now, of course this comes back to there's a two-edged sword here, we all know what the issue has been in China with the African swine fever this year and the impact that has had on the hog herd. But of course we know it has really escalated the price of pork in China. So as any livestock producer would do if you're one of the fortunate ones that you're still producing pork or producing beef or whatever the case may be you're going to try to capitalize the most you can. Well, it turns out that the Chinese pork producers are really pushing the weights higher on what is coming to market. Usually they're about 220, 250 on weights coming to market, a lot of hogs coming in over 300 pounds at this point. And of course we all know when you feed animals to heavier weights the feed conversion drops so you end up using more corn, you end up using more soybean meal, so I think that also could be giving them just a little bit of boost in the further demand for the products over there.

Howell: Dan, since you brought up the lean hog market they had an almost 16% jump in prices compared to last week. Was it because of Chinese buying or other reasons?

Hueber: I think optimism of Chinese buying that they think is going to come about. I do think when you look at the livestock sector as a whole since going back to the beginning of September when we really were in the basement on both cattle and hogs I think part of this is a response to that, kind of a short covering type of rally, even that short covering could be a lot from the hedges. I think the difficult thing there is when you look into the time of year we're at, this is not really when you think about expansion in meat demand, at least on a domestic standpoint. So yes, there could be some hope with China possibly as a buyer of meats, of course after the Japanese trade package this week I think it's more psychological than it is anything of reality so I think it's going to be pretty difficult to probably see these markets extend higher from where they've already done here in the last week and a half, two weeks.

Howell: And when you look at the protein markets let's talk live cattle here for a second. They also had a huge move this week, 11 plus percent. Was it the Japanese trade deal or other news that sparked that big rally?

Hueber: Certainly the Japanese trade deal is again I think a very good psychological factor that helped to maybe scare the shorts out of the market. I don't know if it's going to be able to carry it much more because one, yes it is an incremental deal, we aren't going to see immediate necessarily cuts. And it does, even on the statement earlier this brings to a playing field back to something level. And of course what we've just done now is caught up to everybody else who signed the TPP agreement in 2017. So it did level us out thankfully for that but we still have one major factor that is a detriment to all of these markets when it comes to the exports and that's the strong dollar. The dollar charged into higher highs again this week. And I think as long as we continue to combat that we're not going to capture that kind of market share that we really potentially could even with these kind of trade packages.

Howell: The feeder cattle markets didn't have maybe quite the gains that the live cattle and hogs did but they still had some positive gains on the week. Was that the live cattle complex pulling the feeder cattle up with it?

Hueber: I think the live cattle complex pulling the feeder up, also the idea that the corn market is just flat, it's dead and you're starting to look for alternatives to look for markets, ways to move your corn to the marketplace. So maybe we'll see something better in the placements. But here again too we really just returned the cattle market to where they can lock in some profitability so it's not like it's going to really change that demand situation dramatically other than those that are just consistent cattle feeders.

Howell: And are the feeder cattle then comfortable at these levels? Any reason to break out, continue working on I should say one side or the other?

Hueber: Not that we couldn't carry through just a little bit further to the upside but here again I think it's limited. I think it's just that time of the year. We know there's going to be a lot of cattle that need to come off of pasture at this time of the year so availability ought to be pretty strong so to see it accelerate much further I think is questionable.

Howell: Dan, your brief thoughts. Last week we had the Saudi Arabian oil attacks. We traded that news. This week has it been factored out of the markets?

Hueber: It certainly has settled down dramatically from where it was and really it was a one day reaction in the crude oil markets. Granted we gradually came back down from there. So one, I would imagine that a lot of measures have been taken to try to secure things because there was a lot of discussion, there were additional attacks that had been planned, since that hasn't happened and realistically coming into that point we had a very ample supply of oil globally.

Howell: All right. Dan Hueber, thank you so much.

Hueber: Certainly, 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 Watch our analysis, online exclusives and entire program via our YouTube channel of Market to Market. Join us again next week when we’ll break down the latest major government reports with a panel of our analysts. So until then, thanks for watching. I’m Delaney Howell. Have a great week!



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