Market Analysis: Mark Gold

Market Analysis: Mark Gold

Mar 20, 2020  | Ep4531 | Podcast

Podcast

This is the Market to Market Report.

Yeager:

The commodity markets dealt with continued pressure from Covid 19 dry weather in South America and the ongoing spat between OPEC and Russia. A few Chinese buyers took advantage of the lower prices. For the week, May wheat rose $.33 cents and the nearby corn contract dove $.22 cents. The May soybean contract fought back from early week losses to gain $.14 cents. May soybean meal added $25.70 per ton. May cotton shrank $6.81 per hundred weight. Over in the dairy parlor. April class three milk futures gained $.16 cents. The livestock sector finished on a positive note. April cattle put on $3.07. April feeders added 6.23 and the April lean hog contract expanded $5.37 that's an increase of nearly ten percent. In the currency markets. The U S dollar index skyrocketed 477 ticks, April crude tumbled $9.06 per barrel, a twenty eight percent loss as OPEC and Russia continue to fight over production cuts. Comex gold dropped $35.40 per ounce and the Goldman Sachs commodity index plummeted more than thirty points to finish at 267 85. Joining us now to offer insight is one of our regular market analysts, Mark Gold, who is joining us from his home in Chicago. Don Rose was going to join us, but out of an abundance of caution, he will not be joining us. So first of all, Mark, this is history for market to market. We've never done this before. So

Gold:

yeah, it's nice to be here. Uh, we've never done quite anything like this and I hope it turns out well and uh, we can give your viewers a little bit of positive news, uh, to take home for the weekend.

Yeager:

Well, okay, so, but the thing is we have to deal with all these currents that are going on. So I'm going to start with this. Let's talk headwinds. What was the biggest headwind this week in the commodities? Was it the us dollar? Was it oil or was it that other thing?

Gold:

Well, I think it's a combination of the oil and the Corona virus. There's no question that the virus is putting a lot of people out to work. Restaurants are closed, uh, in a lot of places. Illinois has no restaurant business except for take out and delivery. So you know, when you kill demand out here for, for food, you know, eating out, it's going to take a whack. And we saw that happen. Uh, the interesting thing was, you know, with the crude oil that put a lot of pressure on the corn market. And a lot of people were saying that gasoline was now cheaper than ethanol. So they've been talking about shutting down plants and without the DDGs people decided to come for meal in a big way here today. Uh, we haven't closed this strong in the meal and I think the better part of a year, uh, an incredible rally in the meal helped rally the beans. Uh, the wheat was strong on its own. You know, when you went through that list of commodities. It's interesting that with all of the problems we had this week. With the dollar being so strong with crude oil being so weak, grains closed, higher meal closed higher, wheat closed higher, a cattle closed, higher, feeder cattle closed higher. So, you know, it's always darkest at the bottom, but I'm hopeful that the way we closed here today may give us a little bit of hope for next week.

Yeager:

All Right, so is the darkest behind us then?

Gold:

well, let's certainly hope so. Uh, I think it will depend on if we can see any kind of slowing in these, uh, Corona cases, uh, from day to day. If we see the Deaths slow down, uh, that'll be helpful. I believe that we can, uh, you know, come out of this thing and come out in a big way, but we've got to be confident that the U S has a handle on the virus. You know, when you see these kids down on the beaches in Florida, you know, you wonder what they're thinking except that they're Bulletproof. And unfortunately these people are going to be going back to different States and are they carrying the virus or not? Will there be another way because of these kids? We don't have the answer to that. Well, let's take it one day at a time, one week at a time. This week turned out to be pretty good for everything except cotton and corn. So hopefully we'll continue to see the Chinese come in, which was what we saw here today.

Yeager:

All Right, well then let's, uh, let's get into our regular rotation of things here. We'll start with wheat and that this week, uh, Mark, one of the government reports was talking about, uh, the improving U.S crop in Oklahoma and Texas, Kansas, a different story. We've seen retracement, uh, from September to January on this chart, but a bounce at the end. What primarily is driving that?

Gold:

Well, I think a couple of things are driving the weight. First of all, the Egyptians pulled their grain inspectors out of Ukraine and Russia, which means that they're going to be looking elsewhere for wheat. So we're very hopeful. Uh, I wouldn't say we're confident, but we're very hopeful that we'll get a lot of that Egyptian business. Uh, we had problems with the ports in Argentina. We had, uh, uh, some positive news in terms of, uh, demand out here. We see that when people are staying in, they're actually, you know, buying things like bread and pasta and things to stock up on. Pasta holds well, now granted that's Durham wheat, but the fact of the matter is it's carried into all these markets here. And you know, my opinion was oversold. It held up the best out of corn, wheat, and beans, and we saw this nice spike in this week. And that's all positive.

Yeager:

So are you making a sale right now on wheat? Are you holding a little longer?

Gold:

We're holding a little long around wheat. It's been, you know, I'm all for selling rallies. We've had a 40 cent bump in the beans. I'd like to see it get a little more. Uh, we'll see how we act Sunday night and Monday, but if the Chinese are here and they Bought wheat, uh, you know, that's a very positive indication. Uh, if we see another couple of sales, if they live up to buying the amount of agricultural products they've talked about, you know, thirty, $34 billion worth, it would be great. So do I want to be bearish down here on 10 year lows in oil and extreme lows in corn? Uh, no thanks. I'll let somebody else try the short side of that one.

Yeager:

All right, so now on corn you mentioned, uh, this morning you talk about overnights. On Friday we opened, uh, $.08 cents we rallied to then fell off and then came back for a win, a green day, uh, here in corn. But this is a lot on oil. forty one to forty four percent of corn is used for ethanol. So is that really the only factor here? Is there something else going on?

Gold:

Well, the virus is going on. What we saw, the crude oil was up, uh, uh, several bucks. We rallied at, we were down $5.00. Then it was Wednesday, came back $5.00 On Thursday, and then we were back down on the close back under $20 a barrel, briefly. The settlement was around 22 on change. Uh, but the actual prices were right around 20 bucks. So, you know, that put a pressure on the corn late in the day. Uh, corn tried to trade higher, but it was just too much of the crude oil pressure and crude oil was down $2.50 most of the day and then it broke that extra couple of bucks and it was just too much for the corn.

Yeager:

Mark. Have you ever seen oil drop twenty eight percent drop in one week?

Gold:

I can't ever. I've seen it rally that kind of price in a week, but I don't think I've ever seen it break. I mean, I don't know who the Saudis and the Russians are. You know, who's going to win this battle if there's going to be a winner? But I think the Saudis can afford it a lot better than the Russians. Uh, it makes no sense that either one of them would want a price war. And could the Saudis come out on any given day and say, we're going to shut off the spigot for a while because there's too much production and prude bumps, right back to 40 bucks a barrel. It's certainly possible if these markets have taught us one thing, Paul it's a, I've been saying it for years and years, don't tell me what a market can't do. A market can and will do whatever it wants to do

Yeager:

and no one's in charge. We're certainly finding that out. I want to ask a question here. Jeff in central Nebraska asked us via Twitter this week, he says, how much of the ethanol industry will be shut down due to recent poor margin structures? And do you think we're going to see consolidation? So we've seen the slowing of plants. Is this a trend? What's going to reverse this?

Gold:

Well, it's a nearby trend. But don't forget with people staying home, they're not driving anywhere. Uh, gasoline consumption in California, I think that, which is the biggest state for gas consumption is going to be down, New York. All these states that have these quarantines, um, we're going to kill demand for, for gasoline out here. And crude oil is gonna probably stay cheap unless the Saudis turn off the spigot. Now, that's going to keep the pressure on ethanol longterm. What percent of plants are going to close? I'm just not smart enough as an economist to give you an answer for that, but I would think, you know, twenty to forty percent might get shut down temporarily, but when this thing comes back, and it will come back. All of these markets, people getting back out, there's going to be a bounce in these markets like you've never seen.

Yeager:

All right, so for talking bounces, so do we sell right now in either nearby or December corn?

Gold:

No, I'm looking for a little bit higher levels here yet.

Yeager:

How much?

Gold:

You know, you know, if we can get another 20 cents out of December corn. I don't know that I want to sell it there. But these puts have been trading just fantastically. We've had puts on, taken money out of them a couple of times. We just bought some calls for some grain that we sold earlier in the year. So if we get anywhere around $4 December futures, you gotta look at a $3.80 or a $3.90 put, whatever the prices are. If you want to go to a short dated December $3.90 put, that's fine. You know, spend 15 cents to protect this thing if it's not all over. But the funds are still short, we could get a bump in here, and when you buy that $3.90 put for 15 cents you hope corn goes to $4.50 or 5 bucks for whatever reasons, and you lose that 15 cents. But if we come back to $3.30, you've got some pretty good protection there.

Yeager:

All right, good, good insight there, Mark. Alright, soybeans. We have issues where basis is changing on, I guess is the basis changing where we're seeing borders close? Let's talk specifically to the north with Canada or Mexico. Is that going to impact this soybean market moving anything with borders closing or is there other issues that are going to push this market higher?

Gold:

Well, certainly the border closing is there in a, you know, we're not going to, they say they're not going to stop commerce as I understand it. So it will beans still come across the border? That's possible. Basis, if the meal continues to be so strong, guys are gonna want to crush beans to get the meal, and to feed that market. So I'd imagine basis will stay pretty firm. I'm more concerned about the basis in corn. You know, we've been pleading with farmers for the last three or four months. Take advantage of this corn basis. Sell your old crop grain, buy it back on with a call option if you still think there's higher prices out there. But the fact of the matter is this bid corn basis could get ugly.

Yeager:

Right. And that is something that we've been watching it. It kind of, it was higher and stronger later in the year than normal. And you're saying that's starting to evaporate?

Gold:

Well, we've seen it just in the last week or so. Guys are pulling their bids. It's not that they're closing, but you know, they just don't want to get caught with something they can't hedge out. So you know, basis is going to take a hit on corn. Hopefully guys have at least locked in the basis at these higher levels. And you know, it's like we've always said, you've got to take advantage of the opportunities when they're there. You just can't be sitting on your hands.

Yeager:

All right, let's finish up our bean discussion before I get you into meats. Soybean-wise, we rally. That was, Monday was brutal, but we came back. Where are we at on this nearby crop? $8.62 was our close today. Is that thing headed higher? Or are we at one of those dead cat bounces?

Gold:

Well, it's a tough question. You know, we've seen this meal get explosive on its own and maybe go up to $3.40. That could be another, you know, $15 a ton, which should be another 20 - 30 cents in the beans as long as the oil doesn't drag it down. So, you know, can we get a little bit more out of this? Kind of push up to $8.90, 9 bucks? I think that's possible. Again, if we get those kind of rallies and you're worried about selling grain, just buy the put. You know, a bean put, a short-dated bean put will probably cost you 20 cents for something legitimate out there. But if it is just a dead cat bounce and this thing gets really ugly, you know, you can get through it. I don't think we, hopefully the government's going to help out the American farmer one way or the other. American farmer can't subsist on $85-$90 cattle, $3.30 corn and $8.50 beans. So, hopefully there's more in it for the American farmer from the federal government, though we haven't heard a word about that. But anyway, you know, hopefully things straighten out. We spend the money on the put and hope for whatever reasons, beans, beans go to $9.50 or 10 bucks. But if we haven't learned anything in the last couple of weeks, you've gotta be prepared for these kind of black swans that come into the market for whatever reasons. And the only way I know to do that is with put options.

Yeager:

We will discuss cotton in Market Plus, Mark. So let's spend some time on the meats. You've seen it. I've seen it. Everybody has seen the run at the grocery store. Carts, counters empty. But the farmer was asking Friday over the weekend, Monday, Tuesday, where's my take in all of this? Where is their take in this?

Gold:

Well, the farmer is, what is typical in the American economy, is getting the short end of the stick. The demand at the counter is obviously huge. It's funny if you go to some of the bigger stores, they may have some issues about getting in product, but we've got several smaller groceries right around us here in Chicago. My wife went shopping this morning, got a couple of pounds of hamburger, some lamb chops, a couple of steaks, and we had no problem getting beef. The only thing that's a problem is toilet paper and hand sanitizer for the most part. So I'm hoping that these cattle prices that have been so cheap that when we see apparently, a lot of these packers are gonna switch from restaurant grade meat to retail meat. And I think we're going to have all the meat that we're going to want, all the pork we're going to want, prices are cheap, they're gonna slaughter - hopefully the slaughter doesn't stop with the virus affecting some of the plants out there. But, I don't think product is going to be in short supply in the long run. I think if you get to the stores early in the day when they put out fresh product, you'll be just fine. But the fact of the matter is the farmers isn't enjoying the benefits of this strong demand. And it's unfortunate, but hopefully these, you know, the packer will pay up for some beef and give some of these farmers a break, but I wouldn't expect them to be that benevolent out there.

Yeager:

It's not the holiday season. We're not in the giving mood right now. Cattle on feed report today, that was, estimates were 100.1 on feed, placement was going to be down. How did we finish out on that?

Gold:

The on-feed was a hundred percent, placements were 92, marketed 105. So those numbers I think are a tad friendly out here. But you know, I've been saying for a long time, if you want to know what the cattle market's gonna do, watch the Dow Jones, and never has that been truer in the last three or four weeks. And if we can see the stock market turn around, regardless of what the fundamental news is out there, I believe the cattle market can rally. There's demand, there's no question people want to eat. And it's just a matter of getting the meat into the supply chain to get it out there. You know, thank God for the people that are in the plants. Thank God for the truckers who are moving this stuff around. Thank God for the American farmer who's producing all of this. So, you know, it's a time where we all have to buckle in and I certainly hope the president realizes what the American farmer is doing for the Americans as a, as a group.

Yeager:

What about those hog farmers? They, they've been up and down. We've been dealing with China again this week. A rally, nearly 10%. The thing is, Mark, I can't go out, I can go out and grill - maybe not today; It's like 30 degrees here - but soon we're to that season. But the problem is that product. Is that a, is this the same issue as in the, the beef market, in the hog market?

Gold:

Well, you know, I agree with ya. You know, this pent-up demand I'm talking about. You know, this is March 20th. We're really five weeks away from getting into the grilling season. People will be able to hopefully get out of their homes by then. Can you imagine all the grilling and all the demand for pork and ribs and beef and steaks out there and hamburgers? And when we get back our sports and all the hamburgers and hotdogs that'll be sold at the stadiums? They're going to need an awful lot of beef and people eating out again? I mean I think the demand is going to just go through the roof, but we have to get through the next two or three weeks. Now these are futures markets. They tend to absorb all the worst news well ahead of time and then you know, over time we bottom long before the fundamentals might justify it, so hopefully what the markets are telling us here this week with the lows being made, and then corn and wheat, corn and beans coming back, then maybe we've seen a little bit of too much discounting on a lot of these products and like I said, cattle at $85 on the June contract, in my opinion, is nuts. What it is, what it is. We've rallied since then. I hope the rally will continue and we can get out there and grill and enjoy life as the American lifestyle that we've all become accustomed to. This is, you know like..

Yeager:

This is good. Mark. Hold that thought, Mark. I have to cut you off. We're going to talk about that in Plus, about your grandparents, okay?

Gold:

Okay.

Yeager:

All right. Thank you, Mark. That wraps up the broadcast portion of Market to Market, but we will keep the conversation going on Market Plus where we'll answer more of your questions. Remember we're going to talk about cotton and we're also going to talk about Mark's grandparents and that painting behind him by the way. You can find it on our website of MarketToMarket.org Hey, have you made it into the field already or you're calving? Post your pictures on our Instagram feed. Tag us: market to market show. We'll repost it, put into our stories and everybody from America can see some of those behind the scene shots. Search our stories again for market to market. Shell, join us again next week when we'll explore how the next generation is learning the art of the hedge. So until then, thanks for watching and have a great week.

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