Market Analysis: Matt Bennett

Market Analysis: Matt Bennett

Nov 15, 2019  | Ep4513 | Podcast

Podcast

Announcer: Next, the market to market report
 
Delaney Howell: Rumor of a trade deal a China deal made for volatile commodity markets as wet weather and harvest delays appear to be already factored in. For the week, December wheat lost 8 cents while the nearby corn contract dropped 6 cents. Sales to China and destinations unknown put a little fire under the soybean market at the end of the week, but the January contract still closed 13 cents lower. December Cotton December meal jumped to $2.20 per ton. December cotton improved 14 cents per hundred weight. Over in the dairy parlor. December class three milk futures continued the slide with a 53 cent drop. The livestock sector finished down as the December cattle contract lost 15 cents and January feeders shed a dollar $1.60. The Chinese dropped a four year ban on US chicken and eggs in what appears to be a search for protein pushing the December lean hog contract, 93 cents lower. In the currency markets, the U S dollar index declined 34 ticks. December crude oil gained 39 cents per barrel. COMEX gold improved $4.40 per ounce, and the Goldman Sachs commodity index lost almost four points to finish at 1485. Joining us now to offer insight on these and other trends is Matt Bennett. Matt, welcome to the table.
 
Matt Bennett: Thank you.
 
Delaney Howell: Excited to have you here. Matt. I know you are a Twitter user, so for our viewers watching tonight that maybe don't interact with you on Twitter, give us your 180 characters of Matt Bennett.
 
Matt Bennett: Basically we farm right there in Central Illinois. I also work with producers to manage risk. It's something that I've done in my whole career. I grew up in a family that had grain elevators, so uh, you know, I've kinda got several different ways of looking at the markets.
 
Delaney Howell: Absolutely. And would you say you're a technicals or a fundamentals guy?
 
Matt Bennett: Definitely more of a fundamentals guy. I look at the technicals, but I kind of rely on one of the guys on our team. Bryan Split who is a, is very good technical trader and he does really good job with analysis there.
 
Delaney Howell: All right, Matt, let's kick things off for today's discussion with the wheat markets. They had an interesting week this week, moved 11 cents higher at the beginning of the week, pulled back towards the end. What is going on there?
 
Matt Bennett: You know, the wheat market is, is, is tough to figure out. You know, obviously we continue to lose acreage. Uh, at the same time you got to ask yourself, why are you losing acreage? And you know, whenever you look at you're a Kansas City wheat for instance, you know, was the price there to get producers to go ahead and plant wheat. Uh, you know, soft red wheat was the price there to get people to push. Now, in my part of the world, actually, uh, your wheat followed by soybeans is actually been a very profitable, uh, thing to do here in the last several years. And so, uh, you'd like to still see some of that soft red wheat. But bottom line is the wheat market probably hasn't done enough, you know, to get anybody too excited about planting wheat. So you know, I think on the long run you could see a little bit of support there because we're planting less wheat once again this year. But it's so different than corn and beans in that you're seeing a huge carryout levels both domestically and worldwide that you don't see whenever you look at the corn and bean markets.
 
Delaney Howell: Right. It makes it a little hard to move too much in prices when you see so much wheat production happening all over the world.
 
Matt Bennett: Absolutely.
 
Delaney Howell: Matt, let's talk about corn because I know that's one of the topics you're most excited about talking about. And I want to start off here with a social media question. It's something you and I have talked a lot about this week. Coming to us from Shane in Bloomfield, Nebraska. If there really is a rally, Oh, excuse me, wrong question. 609 Here from Matt: With low test weights, will the market eventually reflect those claims and how long will it take us to see it on the market?
 
Matt Bennett: Yeah, and that is a great question. It is something that several of us have kind of seen coming for quite some time in that you planted the crop awfully late, so you were heavily reliant upon mother nature to be able to help you get this crop to the finish line. And we know in the Western corn belt in the upper Midwest, it simply hasn't been the case. And so whenever you've got low test weights, it takes awhile to get to where you actually see how that impacts the market. What you know, what our conversion factor is going to look like on corn usage for ethanol. Uh, what are conversion factors going to look like on feed usage and they're not going to be good whenever you look at low test weight. So hopefully producers are able to move the low test weight corn. Uh, but the bottom line, they got to get out of the field first. And so how long is it going to take to answer the question, I think that you might learn more about this in the March quarterly so you're not going to get it in January. I think that June quarterly stocks number though, that's a place where I think that could definitely rear its head,
 
Delaney Howell: B ut that's still so far out. Then Matt, does that mean we're going to push and wait for prices to react until June?
 
Matt Bennett: That's a really a tough question to answer. The thing is we've got to see this thing get, we've got to see harvest happen first. We've got to see it come out of the field first. It's really hard to get a handle on it though. Whenever you've got a harvest this late in the game. Uh, it's pretty tough for anybody to be able to figure out exactly what are we dealing with. Are we going to come down from a 167 yield? Test weight is going to affect things as far as usage, but that's going to take a while to get your handle on. So are we looking for any sort of a big rally anytime soon? I think in the absence of some sort of a trade deal or something that you and I don't know about right now, it's pretty tough to ask for that going into the end of the year
 
Delaney Howell: And futures haven't been maybe as strong as what we like to see, but basis levels. Matt, I know you're watching that pretty closely. Tell me what you're seeing as far as that goes.
 
Matt Bennett: The basis has just been phenomenal. Okay. And so, you know, obviously we got a little bit of a late start this year. We know that, uh, uh, that, that basically is the reason why your basis went from like for instance in my part of the world 20 under a 20 over at, at the current time, you know, you're right there in ADM, Decatur and some of the ATM locations are doing the same thing, but they were drying corn to 19% for free. And you're looking at a 20 cent over basis. Now, a year ago, uh, early to mid harvest, we were looking at a 30 under basis. And so basis typically tells me what we're going to end up doing. At some point or the market's going to have to converge. We're going to see some sort of convergence, price discovery. We haven't seen that yet. How long could we see basis continue to get better? I think maybe for some more time, and a producer has to be very careful, is to assume a, I just want to lock in basis on everything right now because the futures are gonna rally. That might not be the right answer because what if the basis gets better and you've already locked it in. So we have to be careful there.
 
Delaney Howell: Right, and that's the thing is so many producers want to make sure that they're making a strategy, being able to take advantage of basis now when it's strong, but then it's like they're kicking themselves in the future when basis could get even stronger. How do they leverage that opportunity?
 
Matt Bennett: And so the way that I would do is I'd compartmentalize it a little bit. For a producer that's got corn on the farm at home. I've heard some of them call me and say, "Hey, should I go ahead and take corn out of the bins and lock in basis in town? Uh, what, what do you think I should do?" And so to me, I'm going to use that corn as leverage because I think the owner of cash corn is going to be King. They have been King here lately because, uh, some of these people might be posted in a 20 or 30 over or you know, the down in Hertford, Texas, 80 and 90 over. Uh, but are they going to pay more than overs and if they can't source the corn and get it originated? Absolutely. So we have to be proactive and to seek out those prices. Uh, but the thing is whenever you're hauling into the elevator, to me, I want to reward whenever I've already got a basis that is basically historically very good for this time of year. I want to reward that basis. If I want to stay long, you can do so very cheaply because the life's just been sucked out of these options and you can stay long corn for a very limited amount of money, much cheaper than what commercial storage would cost you.
 
Delaney Howell: Alright, Matt is the basis story is strong in the soybean markets.
 
Matt Bennett: You know the soybean market, the swing in basis has been nothing short of phenomenal. Uh, early in harvest we were telling producers, you know, at least if you're hauling in across the scales, uh, we felt like the huge carry and the market's telling us the market's telling us. So whereas it on the corn market, the market is saying we want the corn right now early in harvest, I think the market was telling us we really don't want the soybeans right now. And so we were putting them in commercial storage even whenever we were hauling them into the elevator. And the thing is the basis has gotten so much better that it's paid for that storage out to the springtime frame if not even farther. You look at for instance, on the river in St Louis in the last six weeks, we've seen basis improve over 60 cents basis alone, which is unheard of, especially this time of year. And so at this point, if I'm hauling in beans and I know there's not near as many beans relatively speaking as what there is with corn at this point, I'm gonna go ahead and reward the market on those beans going in across the scale as well.
 
Delaney Howell: Matt, as far as soybeans are concerned, let's talk or the November contract. It's about to expire here. What's going to happen and when it goes off the board.
 
Matt Bennett: Yeah, I think what you're going to see in, in my opinion, I, a lot of this is going to be heavily dependent upon, you know, what's going on. First of all, exports were good again this week. This trade deal continues to just be a, a cloud over our head. Uh, are you going to see anything happen there? And to me, I think it'd be remiss to think that this a soybean market is gonna rally substantially, uh, move into the January unless we see something again that none of us are, are necessarily looking for now. It was kind of a rough week early on for soybeans where we broke through some support, but really beans kind of acted fairly good towards the end of the week, which for me is encouraging. But I'm not looking for any sort of large scale rally anytime soon either.
 
Delaney Howell: So the levels that we feel comfortable, let's say in the January contract, what are the levels that you think are comfortable for the soybeans to trade within?
 
Matt Bennett: You know, I think that if you, uh, if you would stay with between that $9 and $9.45, $9.50 area is probably an area that I feel okay, if you get below $9, I'm very concerned. Okay. And so, uh, but for me personally, I think that if you do get into that $9.40 level, I'm definitely going to be rewarding the market. Uh, me personally on my farm, I'm, I'm absolutely, if I had soybeans right now to sell, uh, you know, that I would be selling them across a scale.
 
Delaney Howell: All right, Matt, let's change our attention here to the cattle markets Wednesday was an interesting day in both the live cattle and the feeder cattle markets. Let's look first here. The live cattle, what happened on Wednesday that made the train fall apart?
 
Matt Bennett: I think people are trying to pick a top, you know, I mean, this market's been pretty hot for quite some time and you've been able to come up and, and, and yeah, we're below where we were a year ago. Right, okay. But we're significantly above where we were just a month, month and a half ago. And so, you know, you get these cattle into the mid $120s, to me that's a really good level a for producers that just six weeks ago we're sitting around trying to figure out how am I gonna make this work? And so, uh, what happened in the cattle market, in my opinion, people were picking a top. Uh, I feel like it's pretty tough to assume that we can rally the markets substantially at this time. And I do see tightness coming up ahead. Uh, but right now if I was getting close to terminal three, four, or five months out, I would certainly be buying some protection at the very least. You know, by put option a, if you really want to hedge risk, simply hedge it at this price, especially if you know that you can make money here,
 
Delaney Howell: That 127 level, that April contract high. If we break through that, what's our next upside target?
 
Matt Bennett: You know, for me, I think you get into the mid one thirties fairly easily. If you go ahead and bust through that to me, uh, people are going to be looking at where we topped out here in the past year. Uh, but bottom line for me, I don't want to be trying to market as far as the producers standpoint, uh, based upon that type of scenario. I want to, at least at the very least, I want to lock in some sort of a floor because I'm very concerned that if this market would break, it could break substantially.
 
Delaney Howell: All right, Matt, when you look at the feeder cattle markets then tell us, is that the same story that of why we fell apart on Wednesday for feeders as well?
 
Matt Bennett: I would say it's a very similar story. You know, the thing about feeders is, you know, people have been able to buy feeders fairly cheap, uh, you know, in the very recent past and since these things, uh, run up here and there, but I'm still hearing about people buying replacement heifers and throwing them in a feed lot for a buck a pound. And so there's still opportunities out there for someone who looking for opportunities. But can you still make money? Uh, you know, at this level, I absolutely think that you can. Uh, but it's definitely gonna be a little bit thinner, especially if you don't go ahead and lock in the ratio.
 
Delaney Howell: Alright, Matt, let's of course wrap things up today with the lean hog market. They're just bouncing around that $63 level, they can't get off of it. Oh, it's again to take,
 
Matt Bennett: You know, the, the hog market is kinda similar to the bean market and that you've been gripped by this U S Chinese. Every time we see some sort of news come out, you'll see the market react one way or the other. You know, I don't see, I don't look for the hog market to have any, any sort of major rally unless you see something happen here. Not obviously they're going to need protein in China. We know that, uh, if they're not going to be buying hogs off of us, they're going to be buying them somewhere. They've got to get ahold of pork somewhere. But that to me should be a rising tide lifts all ships type situation. But I don't want to get wildly bullish at this level either because, uh, you know, we've seen this market run up super fast. We've seen it run down. I don't think we're going to go down substantially, but I don't see this hog market going anywhere.
 
Delaney Howell: Okay, man. I'm going to play devil's advocate here for a second because we saw China lift the ban this week on us poultry on eggs and fresh meat products. How much of a detriment could that be to the lean hog market? I mean, that is an indication that may be trying to switching their protein sources.
 
Matt Bennett: And we pretty much knew that that was going to happen, but they officially announced it. Uh, you know, yeah, I mean, there's no question they could be looking at other places for protein, but the simple fact of the matter is if I like eating pork chops, I'm going to continue like to eat pork chops. Right? And so I think that, you know, there's definitely several different sources that they could go to for protein. And I do think one, one underlying factor at some points, beef, I mean the Chinese in the last six years have a, actually had consumption of beef go up 20% and that's the, you know, absolutely gonna be going after other sources of protein.
 
Delaney Howell: Matt, final, uh, topic here is the dollar. We continue to watch that. That's, of course got our huge impact on our export markets. What's the latest on that?
 
Matt Bennett: You know, the dollar actually towards the end of the week fell back off just a little bit. You know, we were trading the index in the mid 98. It's earlier in the week. Uh, you know, anytime you see the dollar started running up like that, it gets a little concerning, especially whenever the Real has barely, I mean reacted very poorly. I mean, uh, we would love to see the Real, uh, rally versus the dollar. Uh, well if the Real rallies versus the dollar, then our products are going to be cheaper on the world market. Absolutely. And so, you know, for me, I would sure like to see the dollar continue to slide, but uh, lately, you know, it's had a pretty good run up until this week. I was really glad to see it back off towards the end of the week.
Delaney Howell: All right, well we'll have to continue this discussion in Market Plus. Matt Bennett, thanks for joining us on the show.
 
Matt Bennett: Thanks for having me.
 
Delaney Howell: All right. That wraps up the broadcast portion of Market and 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@markettomarket.org We have some exclusive content with our justice in agriculture series. Search markettomarket.org/justice to see more. Join us again next week when will explore how one cattle feeders attempt to resume business after prison takes a tragic turn. So until then, thanks for watching. I'm Delaney Howell. Have a great week.
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