Market Analysis: Dan Hueber

Market Analysis: Dan Hueber

Sep 11, 2020  | Ep4604 | Podcast

Podcast

A single case of African swine fever found in a wild boar in Eastern Germany rippled across the world pork market late week as another highly-anticipated USDA report day had less dramatic effect on the trade. For the week, December wheat fell 8 cents while the nearby corn contract gained a dime. The soybean complex gained more spec fund moves to the long side of the ledger while Chinese demand kept the market on a roll upward. The November soybean contract improved another 28 cents. December soybean meal added $7.40 per ton. December cotton contracted by 18 cents per hundredweight. Over in the dairy parlor, October Class III milk futures rallied 31 cents. A green week in the livestock sector. October cattle increased $1.08. October feeders added $2.08. And the October lean hog contract jumped up $6.75 or 11 percent. In the currency markets, the U.S. Dollar Index rose 60 ticks. October crude oil declined $2.41 per barrel. COMEX Gold gained $6.50 per ounce. And the Goldman Sachs Commodity Index fell 11 points to finish at 336.75.

Yeager: Joining us now to give us some insight is one of our regular market analysts, Dan Hueber. Hello, Dan.

Hueber: Hello. How are you today?

Yeager: Good. Good to have Mr. Hueber's neighborhood here. We had the word of gov. Was there any impact today on the wheat market?

Hueber: Well, the wheat market acted as you would expect with the report like we had. Granted there was nothing dramatic that came out of the wheat but it was a reminder that wheat stocks globally are at record levels and probably is going to be difficult to accelerate prices from here. Granted with the discrepancy in the corn market rally is probably going to encourage a little more wheat feeding around the world but outside of that the wheat market just does not have much of a story to even sustain these prices or certainly move much higher from here.

Yeager: I think at one point this week we had 5 consecutive lower days. So is this a corrective bounce or a trend?

Hueber: I think we're into the early stages of a corrective break. We had broken down earlier in the week, did snap back a little bit from there, but I think again today's reaction probably brought things back into reality again. So I think the wheat has just got so many things stacked against it fundamentally. It has been a great rally, it has been a great move up this year, I think surprised a lot of people already. But to make that extend from here we'd have to have some kind of a real problem and you've had some rains in Argentina, improved the conditions maybe a little bit down there. Australia looks like it's off to a great start for the year. So again, pretty difficult to make a very positive story here in the wheat market right now.

Yeager: So are you selling before you drop any lower?

Hueber: I think so, I think you want to play defense in the wheat at this point in time. Again, keep in mind I think commodities as a whole do have a little better picture as we start looking out to the next year. But at this point wheat is probably going to be the trailer, not the leader.

Yeager: A dime on corn, Dan, and that was pre-report and then we added a little bit more. But the market did respond. What did you think about the corn number from USDA?

Hueber: Well, the corn number I think was reasonable both in taking the yield down and taking the harvested acreage number down. Both of those were well anticipated by the trade but also I think this is a little bit of a wake-up call. Yes we've had some problems around the globe, we know China has really stepped up their demand and will probably continue to be a very good buyer of corn here as we move into the months ahead. And we don't know if this is the last of the reductions as far as we don't truly know what some of the damages were in Iowa especially from the storms there last month. So as you start pushing December futures up into the $3.60 to $3.70 range you're going to meet a lot of resistance. Let's not forget, you look out into next year you've got the December 2021 crop not that far below $4 a bushel here at this point. So it's going to be probably met with some farm selling and then resistance that way. The funds have kind of reversed course, we've got them on the long side of the corn market, but here again too I think we have probably a limited capacity to move that significantly higher from where we stand.

Yeager: So over $4 is not really something you see in the future for that December contract?

Hueber: I don't believe so. I think if we can challenge $3.75 to $3.80 we've probably done about the best we can here at this point in time of the year.

Yeager: So if we get $3.75, $3.80, not much more than 6, 8 cents, it's time to cash in a little?

Hueber: Pull the trigger, I think so, particularly with harvest right in front of us.

Yeager: So I'm not 100% on my Bible here, I think it was in the bean trade you work for 12 days, rest on the 13th. Do I have that right? And then on the 14th day we put in another rally. The bean market was really on a run. Has this got more legs to it/?

Hueber: It potentially could. We know when you get on a roll, you have momentum behind us, funds have been very active buyers in the beans here for the last several weeks. I think as of the commitment of traders report this afternoon I think you've got the managed money long 170,000 some contracts. So it's a lot easier or a lot more savvy to add to a winning position than a losing position. So again you've got some momentum behind it. That said we are pushing rallying against that $10 area. If you look at the November contract the entire range over the last several years halfway back is this $10 mark. So yes, China has been a substantial buyer and probably will continue but even before today this market was just starting to act a little bit weary, it was more grudgingly moving higher. So here again too when I look at that soybean market with the $10 here I think it's going to be difficult to really extend it a lot further than this with harvest in front of us.

Yeager: So you see us touching over $10. How far into $10?

Hueber: On the November contract I think $10, $10.10, right in that neck of the woods is going to be a very difficult area to get through. So I have already been suggesting if we push up against that area it's a good time to make sales. For many people that's a $9.50 bean walking out of the field or better. So those are profitable levels if you've got a decent field of beans out there.

Yeager: Last question on beans, this is hard to say, but are you worried that there doesn't seem to be necessarily fundamental news other than some China buying that is pushing this? Are you afraid, we'll get into it now, let's just do Aaron's question now. He's asking, why the 20 cent bean rally? Report was slightly bearish to expectations and the funds already so long. So where is the price going once the combines roll? And this is what triggered the thought, might be an escalator up and an elevator shaft down. Are you concerned about an elevator shaft down?

Hueber: Not really an elevator shaft down. I think a correction would probably be in order but even the report, yes the numbers as far as yield, as far as production were right at maybe just a touch higher than what the trade was anticipating. That said, we're really predicating the next year on not only a decent crop here, that was still a record or close to a record bean yield that the USDA has predicted, but also they have upped the Brazilian yield for this coming year, the Brazilian production 2 million metric tons. So everybody is counting on a record Brazilian production for this coming season and with La Nina in the cards that could bring a few concerns out there. We're not saying that it will necessarily turn into a problem. But the world definitely is counting on that Brazilian crop to be a record again. So yes, there's a lot of question marks that are going to remain unanswered for the next several months and as long as China remains in there as a buyer for all intents and purposes and they try to rebuild their hog and poultry herds they're going to be strong buyers of the feed grains.

Yeager: The hog market, we need to talk about that a little out of order from the meats. You have the case of African swine fever, a wild boar in Germany. South Korea says hold on the German imports. You know that's going to ripple across the world. We've gone limit up two days in a row. Do we have a third when this flips over to Monday?

Hueber: I think even today you've already started to see the market lose a little bit of that enthusiasm. Yes we could turn higher. There's an old theory that you'll gap three times until you reach the top so if we did happen to leap higher on Monday that's a pretty good indication we're exhausting. But that said, Germany has really stepped up their exports this year because of the African swine fever in China, not that that couldn't shift a little more demand into the U.S., we could really stand to pick it up. Through the end of July we were running behind a year ago levels on our total exports on pork and beef so it's restoring some profitability in the hog market and I even look out in the next year, you push some of those summer months into next year into the 80 cent range so it has really taken us up to levels that for the last number of years have said this is where you really want to start pricing and lock in some values for -- after what we've experienced in the last few years in the hog market a very welcome change of pace for what we've grown used to here.

Yeager: I think hogs in the neighborhood of $11 over a two week period. So do you think the bottom is in, is that safe to say?

Hueber: Yes, we've probably printed bottoms in all of these commodities at this point in time. That said, when you look at the values we've moved up into there's also going to be coming some price resistance not only domestically but on the international market.

Yeager: Live cattle, who is buying right now? Where is this interest coming from, anyone?

Hueber: I think the general across the board people I think have felt a little more comfortable even though we're kind of beyond the summer barbeque season, we've felt a little more comfortable, the economy is turning around, we're spending a little more money for some higher priced meats and you've had some restaurant trade turn around and open back up and we know that has been a big void in the meat consumption this year. So I think as people go out to eat again we're tending to see a little more beef consumption.

Yeager: Was there a little bit of a maybe carryover late week Thursday, Friday because of the hog situation?

Hueber: Certainly they’re all going to lead off of each other and that probably left the feeder cattle market up a little bit which has been somewhat of a correction. But that has been probably more of a seasonal trade than anything else.

Yeager: Are you selling anything right now in cattle?

Hueber: I think when you look out anything in the front $110 or better, you get to those summer months at $140 absolutely. I think those are usually pretty good numbers. If you've got a good margin -- there's no reason not to be locking that in.

Yeager: The feeder story remains the same, we keep putting some weight on, we keep moving into the lots, gained more than $2 this week. Are you selling into the feeder market?

Hueber: I think the feeder market probably has a little more room to run to the upside. I think most of the break has been more seasonal by nature, plus it coincided directly with the corn market turned higher probably psychologically thinking -- it's probably again by no means a runaway to the upside but I think we could have another week or so of a little bit of strength in the feeders right now.

Yeager: For how much longer? Is this a month, a two month thing, rest of 2020?

Hueber: You're talking about feeder cattle again?

Yeager: Yeah, feeders.

Hueber: I would think sometime between now and the first of October.

Yeager: So a short window. All right. Real quickly before we finish, cotton. Kind of the same question that I had for live cattle. Who is buying this right now?

Hueber: Again, I haven't looked into the background of the cotton. It doesn't seem to have any -- none of the news was Earth shattering, it wasn't negative, it wasn't positive. But we have tended to turn up and I think part of that is based on seeing the world's economy open back up, maybe a few people start wearing dress shirts again, using cotton for the products that are out there. But it has been a long run, it's been a good run and I've been looking for the cotton market to falter and push to the downside and every time we see the push against that bottom area where you think it's going to fall apart we snap back again. So I've been quite impressed that we've been able to hold on as long as we have.

Yeager: I can tell you where the cotton market is going, I needed another hooded sweatshirt. It got cold this week. Dan Hueber, thank you so very much, appreciate it.  That will do it for this installment of Market to Market. We will talk more in Market Plus, so join us. You can find it on our website MarketToMarket.org. The secret is out - our YouTube channel is booming with full videos of our stories, program and Market Plus. Subscribe now at YouTube.com slash Market to Market. Next week, we’ll look at how dredging is making way for more commerce on the lower Mississippi River. Until then, thanks for watching and have a great week.

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