Market Analysis: Matt Bennett

Market Analysis: Matt Bennett

Nov 20, 2020  | Ep4614 | Podcast

Podcast

The return of curfews and shutdowns for Main Street businesses to stem COVID-19 spread weighed on the trade. For the week, December wheat dropped a quarter cent while the nearby corn contract added 13 cents. The South American weather report turning wetter tempered some of this week’s soybean rally. The January soybean contract jumped 33 cents. December soybean meal increased $5.60 per ton. March cotton gained $2.56 per hundredweight. In the dairy parlor, December Class III milk futures declined $1.70. A mixed week in the livestock sector. February cattle lost $1.58. January feeders declined by 90 cents. And the February lean hog contract improved 77 cents. In the currency markets, the U.S. Dollar index shed 37 ticks. December crude oil improved $1.98 per barrel. COMEX Gold decreased $12.40 per ounce. And the Goldman Sachs Commodity Index increased almost 8 points to finish at 372.20.

Yeager: Joining us now to give us some insight is regular market analyst, Matthew Bennett. Hello, Matthew.

Bennett: Hey, it's good to see you, Paul.

Yeager: Good to see you, Matt. I want to start with wheat just for the sense of we talked about weather in South America, we're also watching weather in the Plains, there's forecasts for rain this weekend there but there is also a global story going on here in wheat. Which one is winning out do you think and keeping the market at bay, weather domestically or a bigger global story?

Bennett: Well, I think the wheat market probably would had more excitement if Australia had had weather issues like they have the last three or four years. They finally caught a break this year and they had a pretty good crop. Putting wheat out on the world export market is tempering prices a little bit. But $6 wheat out to July is actually fairly priced I think, in my opinion, if you would rally corn and beans sharply from this point forward, which some people feel like that could happen, I could see wheat trending higher. But by all means, we have to keep an eye on what is going on in the Plains states. I have talked quite a bit lately about the fact that the national drought monitor looks fairly similar right now as it did in the fall of 2011. So I'm not saying we're going to have another 2012, but certainly if you go into the winter dry a lot of times you can really struggle to break out of that pattern. And so we've got to keep a very close eye on that moving forward.

Yeager: There's also folks that get concerned in other areas that if they are dry, and that would have been a bigger problem this year had we been dry going into the growing season. So right now are you holding on some, let's say nearby on wheat? Are you making a sale? And what is your price target?

Bennett: In my opinion, like I said, I feel like we're fairly priced. If we sell some wheat at this level my opinion would be to go long, a limited risk position would make sense, especially given the angst that we have about the corn and bean markets because I feel like wheat at this stage of the game, this point in the year is probably going to be more of a follower. So I wouldn't say I'm bearish wheat necessarily, but if I'm selling I probably would put something out there in a limited risk scenario.

Yeager: Sounds like something that some are maybe going to do as wheat closed today at $5.95 and a half on that March contract. Let's go December corn right now and this corn market, you alluded to it twice there, the relationship between corn, soybeans and wheat. What is the wheat story into corn? What is the biggest connector? Which one is pulling the other one right now? Is corn leading wheat?

Bennett: I've got to think that corn is actually, there for a long time corn was following soybeans in my opinion and then corn basically decided to get an identify of its own. And I think a couple of different things are going on. Certainly dryness in South America is weighing into both the corn and bean market. Whenever you see the Ukraine crop was downgraded the way that it was in the November report and then you continue to see things like we saw Friday morning with over 300,000 metric ton of sales, some of those were to wink, wink, unknown. And we've got to think that that's probably China. And there's a lot of rhetoric out there just guessing how much is China going to purchase. Some of the people we're talking to are thinking it could be that 22 million metric ton or even in excess as the FAS said. So it will be very interesting moving forward. I think corn is kind of working on something at this stage of the game and if you watch the wheat market probably won't fall dramatically as long as the corn market stays supported.

Yeager: It's got a little bit of support there as you said. Yes. What about that carryout number for corn? Is that a big factor? Or is it still just about China?

Bennett: Well, Paul, whenever you look at the fact that in August the USDA was 2.75 for this marketing year. Right now we're 1.7, in three months we dropped 1 billion bushels. Obviously we lost some bushels due to the quarterly stocks number getting adjusted lower, something I was calling for, for quite some time. Me and my team felt like USDA might have been a little heavy on the 2019 crop. You can call it what you want but regardless we're a billion bushels less than what we were three months ago. How heavily does that weigh in? Well, in my opinion I still think there is some work to do on the export front. I don't think the crop is going to get any bigger as far as this year is concerned. And so 1.7 might be a tough rich. I know the last time I was on here, whenever I was on with Naomi and Ted and Elaine, I suggested that we would be below 2 billion on this November report. And a couple of them were like, what? But I think they also agreed and that we would get there, it's just nobody really thought it was going to happen this quickly.

Yeager: Right, and you bring up a couple of points there. Acreage battle. We've got some great questions that we're going to get to in Market Plus and also some Twitter conversations that you've been having since we recorded here. So I want to get into the acreage battle in the Market Plus, the podcast or the video form there. But I need to ask real quickly on corn before we move on, are you selling right now or are you holding out for a little something more? And what is that target?

Bennett: The corn market, in my opinion, we've had such a good run. You get up above $4.35 and it seems like we've kind of bumped up on a little bit of resistance here. As a producer I've got to ask myself with a really strong basis what I'm waiting on. I have no issue with a producer selling. If they do I want to retain ownership though. If the corn is in the bin at home I kind of like the physical commodity. I think it has got a lot of value. I think people are really going to be hunting for the corn. But as far as if it's in the elevator I'm probably going to be a little bit more of a seller there, reown that with a limited risk strategy, because I've got to think corn ownership is a good thing for the time being until we figure out what South America is going to look like and just how much the Chinese are going to purchase.

Yeager: How much more are the Chinese going to purchase in beans? And what is that impact on the trade going forward?

Bennett: The interesting thing on beans is you come in here with a 190 carryout, you drop 100 million bushels and exports weren't even touched and some people feel like if you drop that number down enough that some of that was going to be due to exports. So whenever you lost it all due to production and no export adjustment it's kind of exciting. How much more are the Chinese going to purchase? I think that is part of the reason why this South American weather is so important. If the Brazilians are not able to export as much as what China would like to see there's no doubt in my mind if this weather doesn't change significantly in the next few weeks the Chinese are going to just continue to purchase U.S. soybeans. So in my opinion I think moving forward it's a tight situation that is probably going to get just a little bit tighter yet.

Yeager: We have a question from Phil in Dresden, Ontario, Canada and you kind of alluded to it a little bit about looking backwards and if we knew what we talked about then what we know now -- Phil is asking, the upper grain price levels have defied logic in some ways. Take me back to July 30. Was it clear as a bell then? What were we thinking? What was missed? Will it be beans in the teens in January? And I'm going to let you off the hook just a tiny little it, Matt, because you were last with us in October and we were, you said the panel was like oh I can't believe that number, below that number. So even harder going back to July, what were the signs? Were they there at that time?

Bennett: You wouldn't have thought that we were going to rally $3. We have to be completely honest about the situation. If we're going to talk a 2.75 carryout in August you're looking over 600 million for soybeans and you cut that thine basically you're less than 20% of that right now. And so Phil makes a great point, a lot has changed though. Whenever you look at the fact we had an extremely dry August and start to September it definitely robbed bushels for both corn and soybeans, nobody would have thought the Ukraine was going to be exiting the export market like it had to due to the weather issues they had and while we all felt like China was going to step in with massive purchases they had not manifested themselves by the time July 30 rolled around. So you top all that off with dryness in South America, getting the crop planted late and you've had a lot of things go right for us if we're totally honest. One or two of those things would have gone the other way we probably wouldn't have had such a massive rally. But it has certainly been nice to see.

Yeager: Real quick, how much more rally is in that tank? Are we talking teens?

Bennett: If we are, from a producer standpoint, I see no reason, I don't think it makes sense to get super bullish at $12 beans. I like selling the beans and keeping ownership, once again, with some sort of limited risk. I don't want to put much on the table because, you know what, three months ago if you would have told me $12 beans everyone would have sold all of them and now we've got angst about selling $12 beans.

Yeager: Oh how quickly things change. And it has also changed in the livestock market. Cattle on feed report today, that has been an absolute up and down ride, COVID has been an impact, went away, now you're dealing with feed input costs. What did cattle on feed, quickly, 101%, placements 89%, marketings 99.9%. What did that report tell you?

Bennett: 89% in my opinion has got to keep me pretty hopeful on down the road. I think it would be very interesting to see. Obviously you've got to balance this whole COVID fear and if people are going to be going out to eat or what not. What we found back in the spring is that when people didn't go out to eat I think they bought even more beef to cook at home because they can afford more steak. But bottom line the demand has been pretty darn good. Placements allow me to be pretty friendly Q3 and Q4. Up front obviously we've got some supplies to wade through. But I guess we're kind of in the middle of a range in my opinion. Back to that low, we saw the last cattle on feed in October down around $105 and then you raced up to $116. We're kind of right in the middle of that. I can't get super friendly in the front months but by golly I think later on down the road you could be seeing some real excitement, especially if this vaccine comes through and you start to see people get a little more excited about being able to get out and about and go out to eat and things like that. I do think that this beef demand is going to be very strong on down the road.

Yeager: What is later for you? February? March? April?

Bennett: For me you get into May, June timeframe I think you could really see some strength there.

Yeager: Last week Shawn Hackett and Sue Martin disagreed on the direction of the hog market and one up, one down. This week it kind of did both. It went up and then it went down. That trend on the chart that we've got on the TV screen right now is headed down. Is that line going to continue lower or higher?

Bennett: That's a pretty tough call. In my opinion, last time I was on we were looking at some of these 70s and mid-70s that we were talking about, the areas we could hit on resistance, I thought boy I'd be a seller in there and I felt that way. But mid-60s I don't know that I'm too bearish at this stage of the game. I feel like we've gone down enough for the time being but at the same time I guess I'm not going to go out and be buying, speculating on hog prices going higher. I can't get super friendly at the same time. So similar to the wheat market I guess for me I'm fairly priced at this point in the game.

Yeager: Do you buy some of the China coming back online, maybe not as much interest in the U.S. product? Is that weighing on our market?

Bennett: Yeah, you know what I'd like to see, this week I guess going back to cattle, beef export sales were at an all-time record and if we saw more of that as far as pork was concerned then I could get maybe a little more friendly. You've seen flashes of it here and there. It's just we haven't seen enough consistency.

Yeager: Real interesting there, Matt. I know I didn't tell you I was going to ask dairy but maybe we'll talk dairy in the Market Plus. And, like I say, we've got some great questions coming ahead. So, Mr. Bennett, thank you so much for your time, appreciate it.

Bennett: Thanks for having me, bud.

Yeager: That will do it for this installment of the TV show we call Market to Market. You can watch the full show again or Market Plus on our website, that's MarketToMarket.org. And we do have a teensy tiny request. We'd like some space in your podcast feed. We have three different offerings, the Market Analysis, which you just heard, Market Plus, the program that you won't see on TV, that's online only and the M-to-M, that's discussions with the voices of agriculture. Subscribe today to all three wherever that you download podcasts. Next week we'll look at the economic health of rural America. For all of us here, thank you so very much for watching and have yourselves a great week.

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