Market Analysis with Arlan Suderman

[Yeager] The arrival of harvest brought pressure to the market as a large crop has begun moving across the scales for the week. The nearby wheat contract lost a penny and the December corn contract fell by $0.06. Late week movement in the soy complex hung on a U.S. to China phone call. The November soybean contract sold off $0.21, while October meal decreased for 70 per ton. December cotton shrank by $0.50 per hundredweight. Over in the dairy parlor, October class three milk futures gained $0.80. The livestock market was higher. October cattle added three. 60. October feeders put on 830 and the October lean hog contract improved by $0.85. In the currency markets, the U.S. dollar index was up five ticks. October crude oil found $0.28 per barrel. Comex gold added 27. 80 per ounce, and the Goldman Sachs Commodity Index was lower by more than a point to settle at five 4875. Joining us now is regular market analyst Arlan Suderman. Hello, Arlan.

[Suderman] Good to be back, Paul.

[Yeager] Good to have you here. This wheat market, do you consider a $0.01 loss a victory for the commodity?

[Suderman] Yeah, I kind of do. Now futures market of wheat is different than corn and soybeans because just a small percentage of wheat traded in the world is actually traded on the derivatives market futures market. So, the cash market really drives things. And that cash market is really set in the Black Sea with Russia. Russia has some quality issues this year, and they've struggled to export what they wanted to export because the areas where they grow the biggest portion of exportable supplies is where they had quality issues. So, they're having to pull them from further, which costs more money. So therefore, they're not able to drop prices as far. And so, we drop down to around the $225 per ton level for their market. And it's finding some support there and drifting back up to 230. And if that continues, then that could give us an opportunity for our cash for our futures market to stabilize and keep our exports strong in the process. Generally, whenever we've rallied exports to start dry up because we're not competitive, but when we dip, we get a lot of export demand. So, we should be able to identify a trading range now where we can sustain those exports and get rid of some of these surplus stocks.

[Yeager] And the lower dollar for much of the week probably helped too.

[Suderman] That really helps make a difference. We got a long ways to go to really get where we need to be on currency, but that was a big help dollar, falling to three and a half year lows. Certainly a significant help.

[Yeager] So I guess I could ask a dollar question. Are we going to stick around that low area for the dollar and that impact then translating to commodities?

[Suderman] Well, that's a little bit tricky from the standpoint of our monetary policy. The fed seems to have us on now means more rate cuts, which would argue for a lower dollar. But for the dollar to go lower, we need the euro to be able to go higher. So, some of that hinges on the European economy. So, if they can maintain some stability in their economy, then yes, the dollar can continue lower.

[Yeager] And you could argue the conditions of part of the meeting this week with the U.S. and the UK, that maybe that's ahead because you saw some I think the Prime Minister gave some very glowing remarks to what those talks were like. So that scenario is possible.

[Suderman] Yeah, absolutely. And if we could get peace in Ukraine, that could also be a factor as well. But that looks like a distant hope right now.

[Yeager] We've held off on corn long enough. This is the story. It depends on who you believe, on how bad this rust issue is. What's the take on the size of this crop?

[Suderman] It's been interesting to look at the early harvest results. Quite a bit of variability, some very disappointing yields because of the rust and because of the drought, some very impressive yields. And what's typically there with the impressive yields was I put two treatments of fungicide on fungicide made a huge difference this year. And I understand farmers didn't want to spend money in the first place, let alone in the second place at these prices. But it made a big difference from what I'm hearing. Difference in yield anywhere from 2030 to even 70 bushels per acre, depending on the disease impact. How you know, how strong the disease pressure was and the timing of the treatments. But for the most part, fungicide treatment really paid this year, in a year when we really need to bushel ourselves out of a problem.

[Yeager] Do you get the sense that the early returns are different than other years? And what typically are early returns in a harvest?

[Suderman] Well, early returns in a harvest are usually quite variable because the fields that do have problems are the ones that dry down fast and are ready for harvest early. And so, it's not unusual to hear low yields early on. But then as you go into second and third week, you start listening, okay, what's the trend? And I'd say the trend is improving. We still have some bad yields. We have some very impressive yields. But overall, as you would anticipate, the best yields are in the northwestern Midwest, the western Midwest and the problem yields are the most in the South and the East, where drought was the biggest problem.

[Yeager] Which was the story we heard a lot of the summer. Let's quickly get Lenny in, because this kind of applies to both of the next two commodities here. Should you just sell everything off the combine? Local storage is $0.10 on beans, $0.09 on corn. Should I just cut losses and pay bills or gamble on price increase?

[Suderman] You know, I'm not sure where he's at, but basis is going to be your key for determining that. For example, if we're in a northwest, we have a lot more basis problems than we do in the eastern Midwest. But overall, if you've got decent basis and there are some areas where the corn bases I was looking at this year are very near average levels, then you may want to look at selling it. And every ownership plan doesn't mean you own it immediately, but you watch for those charts to turn. At that point you would have a plan in place for the discipline to do so. The other option is to try to capture if your basis is weak, find some storage, be working on getting that storage. Capture the recovery into basis, and have a plan in place to capture the carry that's in the market.

[Yeager] In the bean market specifically. Now, if we could, because that advice holds again, let's talk harvest returns because people do plant beans now before corn. What are you hearing there again?

[Suderman] It's quite variable. More due to weather where you're at. Again, the northwestern Midwest has some tremendous fields, some tremendous yield potential. It looks like as we're across the moor to the south and east, that's where we're having more variability, I will say, both for corn and soybean yields. Areas across northern Missouri into central Illinois that had the driest 30-to-45-day period on record to finish off the crop out of 133 years. Surprisingly good yields mixed in with the poor yields that you would expect.

[Yeager] What is then the take from a phone call today? The market was lower by $0.10 after the news of what was discussed. Does that give you optimism or pause for concern?

[Suderman] I think it's pause for concern for soybeans in the soybean market reflected that. As soon as the announcement came from The White House about the conversation, and there was nothing in I mean, they couldn't even finalize the TikTok agreement. Sounds like it says about our culture. We're a TikTok agreement was above a commodity agreement. As far as being able to get any progress. But that was very disappointing to soybean trade. And if you look at where we stand right now with Chinese purchases, they have their needs for September filled. They have their needs for October filled. They have 40% of their November needs. There's about 12 million metric tons of demand left to fill their needs through January. We sold about 22.8 million metric tons to them last year. So, we've already used up a little more than half of that that we've lost. Put it in bushels 841 million bushels last year. We've lost about 400 million bushels of that business already. And USDA hasn't reflected that yet. We still could get a trade agreement that would force them to buy in order to get access to our consumer market, but so far, there's no evidence that we're getting closer to that.

[Yeager] We need to move to livestock because cattle on feed came out today. I'm going to say 98% on feed place, 94% market at 94. What's the headline number?

[Suderman] No, the on feed number was pretty much as expected. But that was because placements were a little less than expected. But marketings were a little less than expected. So, it all equaled out on feed. Numbers were about as expected. I would expect minimal response overall, maybe a little bit supportive. As we get to Monday's trade.

[Yeager] Last week. At this time, the cattle market looked like maybe the end was near. What changed?

[Suderman] You know, we still have the tight supplies and the choice cutout really collapsed over the last ten days or so. We saw a big break there. So that would suggest, okay, the cash market is going to break as well. We saw the margins of the Packer margins go from plus 100 to -$120. But the cash market is holding up, especially in the South where supplies are tighter as the Packers are still fighting for share with their competitors. They don't want to give up market share, so they're paying up for those cattle to be able to stay in business, so to speak. So, the cash market is helping to provide some support for the board at a time when their margins are rapidly compressing.

[Yeager] Hog market went positive this week. It has been a counter to the beef market. What happened?

[Suderman] The interesting thing, and of course, when you look at beef, at some point we anticipate the consumer moving down the value chain to pork and poultry, poultry industries expanding. But the biggest thing with the pork industry is the numbers simply haven't been there. Like USDA quarterly hogs and pigs. Reports have suggested some disease issues at hand, maybe some other issues, but generally the numbers haven't been there. And so that has helped support the market. And the product market has again held up better than expected. The consumer United States likes their protein and they're still buying it. They're still buying their protein even at these prices.

[Yeager] Maybe those K state fans need to grill a little bit more instead of focus on the football. Would that help?

[Suderman] Oh, that's kind of below the belt. But yeah, maybe we need to feed our offensive line a little bit more of that protein.

[Yeager] That could be something. All right, Arlan, it's so good to see you I appreciate it. We have a whole lot of questions to get to here in Market Plus in a couple of minutes. All right. That's Arlan Suderman. And you have been watching the analysis segment. And in a moment we will continue our discussion in the online only segment search Market Plus with Arlan Suderman. Wherever that you get your podcast to hear that conversation. Or you can always go to our website of Markettomarket.org. There are three podcast offerings to help keep you informed and occupied while harvest hits full stride. The MtoM, along with the Market Analysis and Market Plus, are all available each week from this program. Subscribe today wherever you get your podcasts. Next week, hope for the decimated Florida citrus industry. Thank you so much for watching. Have a great week!

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