Market Analysis with Don Roose

Paul Yeager: This week was full of ups and downs from optimism over tariff suspensions, a bullish WASDE and a possible break in the record runup in livestock prices.

For the week… 

The nearby wheat contract gained 3 cents and the July corn contract lost 6 cents. 

Losses in soy oil melted much of the gains from earlier in the week as lower biofuel blending levels were released. 

The July soybean contract was weaker by a penny while July meal dropped $2.20 per ton.

July cotton shrank $1.83 per hundredweight. 

Over in the dairy parlor, June Class Three milk futures improved 83 cents.

The livestock market was mixed. June cattle sold off $2.45. August feeders cut $2.70 and the June lean hog contract added $2.75. 

In the currency markets, the U.S. dollar index expanded by 88 ticks. 

June crude oil increased by $1.51 per barrel. 

COMEX gold fell $157.10 per ounce, and the Goldman Sachs Commodity Index expanded more than 2 points to settle at 530 - 95.

Joining us now is regular market analyst Don Roose.  Welcome.

Don Roose: Great to be back, Paul.

Paul Yeager: There's really just one topic we could cover all the time and that's trade. But let's start with wheat because that is caught up into it. But first from a technical perspective the bottom seems to be the easiest place to go. Is that where we're going to stay?

Don Roose: Well, you know, I think when you look at the wheat market, actually, it had a key reversal. Chicago wheat, Kansas City wheat, you know, as we got close to $5 in Kansas City in Chicago on July. So, maybe that's the start of something where the cheapest wheat in the world. You know, so we're at value. We're also moved into a feed wheat, as harvest is going to start to pick up here as we get close to June, Paul.

Paul Yeager: Speaking of the harvest, we had the wheat tour this week. Any surprises from that?

Don Roose: Well, you know, there again, the wheat market just can't find a friend. You know, from a fundamental standpoint. It's, we were, ten bushels over the five year average in Kansas. So, you know, that's, that's a lot. and then the ending stocks that we had, the beginning of the week went up for this next year also. So, I think it's really, how low is low? And maybe we've hit a world value down here where demand buys, the value eventually pull in corn.

Paul Yeager: It doesn't seem to be helping wheat, but corn specifically in the old crop sector say, hey, does anybody have any money left after Monday's report?

Don Roose: Well, you know, I think when you look at the corn market, actually, the reports on Monday were actually, positive. We just didn't have a pause or reaction to them, which is negative. But the market, very much like the wheat market, is trying to put in a technical bottom. We're down at a level that I don't think the producer is going to sell. And we're also, you know, we're about 8-10 cents off of contract lows in the DEC. And on a negative, we went into contract lows on September, so we haven't been this low over the life of the contract in September, Paul.

Paul Yeager: Well, let's finish up for a moment on the old crop. You're hearing that nobody's really selling right now? They're holding. Are they holding out for a certain price?

Don Roose: Well, I think there was pretty aggressive sales during the winter. You know, when we were up around $5.21 over $5 in July. So, you know, when you're talking to carry out that is close to 1.4 billion probably going to tighten up on the next report. I think from a producer standpoint, at these price levels, I think you're waiting to see once what the weather looks like going forward, Paul.

Paul Yeager: Well, that's what I want to talk about on the December corn we're showing right now, that five-year ahead of the five year average. But it is such a strange line of the haves and have nots when it comes to rain. The haves don't want it anymore. The have-nots are begging for something. What's that doing to the market?

Don Roose: Well, you know, rain makes green. I mean, I think that's the big overall view. And the wet areas down the southeast, not enough acres to make a big change. You know, it's too wet up in the far north again. But I think the guts a lot of the Corn Belt is favorable for the most part. And I think that's taking one of the risk premiums out of the market. And that's if we're going to get the crop planted, we probably think, Sunday night, 80% of the corn planted, 65% of the beans. And, you know, basically we're going to, go forward without problems, prevent plant acres could be less too. So that's another issue for more acres.

Paul Yeager: Do the tighter stocks equal more susceptibility to weather?

Don Roose: Well, exactly I think you know let's look at the corn on new crop. We're at a 1.8 billion carryout. You know when you look at the yield at 181 bushels is what the government's saying. If you start to move that yield around, you know, does it go up a lot? You know, it's going to be tough, you know. But if it goes down, you could easily go back to a carry out of 1.3 billion, something like that, of course, with an expanded yield. You could go up to over 2 billion again. So there's a lot of information to go forward yet. And it's a foot race now. We're going to see once what the weather does as we go forward. But remember usually we see weather pattern changes or looks around the 4th of July, but that's always ahead.

Paul Yeager: Oh yeah, we haven't even hit Memorial Day. So we have a long way to go to that. But let's get into a question. If we could. Chris in Illinois, I had posted this. Okay. I admit it's our friend Chris Robinson. He put it as a headline of his newsletter today, was this a base or a trap door on new crop corn and beans?

Don Roose: Well, it's the wrong time of year to sell from a producer standpoint. I mean, we've got a concerning weather going forward. Noah came out with a 90 day forecast. They want a little bit drier, a little bit hotter for the summer. So anything can happen. I still remember ‘83 when it was perfect. And after the 4th of July it just quit raining and it got hot.

Paul Yeager: Well, you mentioned 1983. There's also the discussion of comparisons to 2012. Do you buy into that?

Don Roose: Yeah, I mean, it's possible. And you have people talking about the 89 year drought cycle. So, you know, it's this time of year where you, you know, you try and get scared on the weather. And usually we lose the crop 1 or 2 times, three times during the crop year. Also, you know, buyer, seller beware is what I would say right now.

Paul Yeager: Same thing in soybeans. Again, tight stocks and weather. Is that the two things they're moving?

Don Roose: Yeah I think that's it. You know, of course we have a lot of trade, out here that is very uncertain with the tariffs. You know, it looks like I mean, we're going to produce so many soybeans in the world, and we're going to consume so many. And I think from a tariff perspective, yeah, maybe China doesn't buy as many, but maybe Vietnam, some of these other countries buy more. So I think it's just a shuffleboard going on over there. But again, it's going to be just think it if you drop soybean yield two bushels an acre, there's 170, 70 million bushels just like that. You're down to 120 million carryout. So it's just too early to have a knockout punch on the grains, Paul.

Paul Yeager: I got three things we have to talk about with soybeans. Let's start with renewable fuels. And the RVO’s were lower. But as was pointed out to counter that, we've overused what the mandate has been. Is that enough of a market mover?

Don Roose: Well, you're right, I mean, it was, you know, we were going to have a larger, you know, usage on the biofuel and then it went the other way. Soybean oil did go limit-down on Thursday, due to the uncertainty. I think it was still sorting that one out. Paul, I don't think we have a clear picture on what the usage is really going to be going forward, to be honest.

Paul Yeager: Do we have a clear picture on the size of the Brazilian crop then, and what it impacts us in the trade here as we look at November?

Don Roose: Well, that's another good point. Both Brazil, CONAB and Argentina, Buenos Aires exchange, both of them put the soybean crop higher, 117 million bushels in Argentina in about, 20 million larger in Brazil. So big crops are getting bigger. And along that line on corn, they put the corn crop up 160 million bushels. But interesting, next year on the world ending stocks, you know, shake it up all the way around. Down 400 million for next year. So, versus this year. So world stocks on corn are getting tighter. U.S. corn stocks, I'd call them not burdensome. And we'll see where we go from here.

Paul Yeager: Especially with the intentions to plant more, is what you're saying? 

Don Roose: Yeah. I mean, even with the acres that we have, big acre expansion, we still end up with a carry out of 1.8 and you take a yield down, it can get tight pretty fast, but I mean, that's not a positive either yet, Paul, because we have adequate supplies. And, but my bet is on this next crop report that we get in June that the exports go up 50 to 100 million again. And being exports go up, tightening again.

Paul Yeager: Is that because we've had some agreement with China? Is that why you're hedging it on that?

Don Roose: No. That's just the old crop demand okay. But that is a good point. When you go to new crop, actually the government put exports on beans up 75 million for next year on beans. And they left corn pretty much the same. So with all these tariffs, that was our first look. They're not really saying we're going to lose export pace.

Paul Yeager: But how much before the market needs to see. As I said something in the intro versus I just said I had a deal.

Don Roose: Well, you know, I think proof is you know, we need certainty to see once what we have going forward. I mean, it's, it's a whole new era from that standpoint. But, I don't think we're going to lose a lot of demand on the export front, but I do think it'll shuffle around, Paul.

Paul Yeager: Let's get to a live cattle, because you mentioned the tough day in soy oil on Thursday. Cattle - Wednesday, Thursday pretty tough. Friday, stabled a little bit. But I guess the big question everybody wants to know is this finally the end of this bull run?

Don Roose: If you're a technical trader, you would say that we just put in our multi-year top this last year because this last week, because you had a key reversal, in the cattle market close. We've had four of those so far this year, but we moved further into the cycle. So I think you have to be very careful. The only thing that's holding this up technically is cash. Cattle traded again, steady towards the end of the week. Here's one box beef hit an all-time record, on Friday, 353. The highest record we ever had before was 343. The highest cattle market we've ever had in history before. This year was 2014, just over 191, June. Cattle this week went to $218.62, did have an $8 slide on the front month, but bounced back a little bit Friday but shaky up here.

Paul Yeager: The consumer really starts to balk when box beef gets to that point. They will see that effect? Will that be enough to maybe end this run?

Don Roose: Well that's the key. I mean when does, uh, you know the Packer doesn't know who's going to buy next. You know the weekend and it just doesn't clear. So beef last week was 8% higher than a year ago. The ground beef is 12% higher. Pork 2% higher. In chicken, 1.5% higher than a year ago. So, yeah, it's standing up here pretty high from that standpoint.

Paul Yeager: Are you hearing anything about feedlots and pastures empty and some cattle keep producing areas for feeders?

Don Roose: No, I think the problem that's happened, and this is how the cattle market tops out, Paul, is the packer, so far, less. Look at it. He's lost, this week, about $180 a head. The feedlots are making about 280 cow calf guys making about $670 a head. But how a cattle market tops out is he pushes the beef up high enough to confuse consumers, stalls, and then you start to back up the cattle in the feedlot, big weights, and eventually that starts to pull the market back. And by the way, I mean, we're coming into a time frame where the seasonal demand, Memorial Day buying is probably behind us. So you've got these big holidays, in the rearview mirror.

Paul Yeager: And you had a nice run up in hogs, too, this week.

Don Roose: Yeah, the hog market, well, seasonally on hog market usually does start to go up this time of year. BLT season, gets in actually, you know, when you look at it, bellies usually go up about 40% into the summer. And that drags the hog market up. And the technicals, on June hogs are about $5, up $105.17. There's a gap. Gaps usually get filled. So that seems like that's a target maybe.

Paul Yeager: Are you hearing people making sales right now? Yes or no?

Don Roose: In the hogs? Well, I think when you look at the hog market, when you get over $100, you start to get a little bit cautious. So yeah, you're seeing some catch up sales.

Paul Yeager: All right. Don, good to see you. Thank you so much.

Don Roose: Thank you Paul.

Paul Yeager: We are going to pause this analysis and continue our discussion about these markets in our Market Plus segment. You can find both Analysis and Plus on our website of markettomarket.org. This is also the place to register for our next live event June 3 in LeClaire, Iowa. Information about the gathering is on our website.

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Next week, a look at the many sides to a renewed water fight in south Texas.

Thank you so much for watching. Have a great week.

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