Market Analysis with Mark Gold

Market Analysis: Mark Gold

Apr 15, 2016  | Ep4134 | Podcast

Podcast

Substantial moisture in the southern plains prevented wheat from joining the big rally in the rest of the grains. For the week, the May wheat contract lost a penny, while the nearby corn contract moved 16 cents higher. Brazil's hot dry weather coupled with political unrest drove most of the soybean action pushing the May contract nearly 40 cents higher. May meal followed the bullish trend rising $22.20 per ton. In the softs, the May cotton contract declined 4 cents per hundredweight. Over in the dairy parlor, May Class III milk futures lost 7 cents. In the livestock sector, the June cattle contract fell $1.86. May feeders were off $2.30. And the April lean hog contract weakened $2.33. In the currency markets, the U.S. Dollar Index jumped 418 points. The May crude oil contract advanced 64 cents per barrel. June COMEX Gold shed $9.20 per ounce. And the Goldman Sachs Commodity Index expanded 6 points to settle at 332.60.

Pearson: Here now to lend us his insight on these and other trends is one of our regular market analysts, Mark Gold. Mark, welcome back.

Gold: Nice to be back, Mike.

Pearson: Well, we're glad to have you. As we are looking out to this weekend there has been a lot of conversation of a big rain event in the southern plains. With that in mind, where are your thoughts here in this wheat market?

Gold: Well, certainly if we do get the rains it should be putting some pressure on the wheat market. But the last two days we've had a little bit of a rally in the wheat despite the forecast for these rains. I look at these weather maps and see these skies out there, they look pretty clear today, but there is that cold front coming in and that could bring some rain. So the wheat is going to struggle here. I don't think it's going to be in any kind of a leadership role. But the good news is, the stories I'm hearing from a lot of guys around the country is this cycle we've had of the freeze, the thaw, the freeze, the thaw, it's starting to show up in some fields out here. And we saw the drop from 59% to 56% in the good to excellent range, we take another drop in that and we have the fewer acres to work with, maybe we can get a little something going. But we certainly need some help from the U.S. dollar to move lower to really get us in a competitive frame with everybody else who is exporting wheat out here.

Pearson: Now, much stronger dollar this week. Where do we go from here? Is the dollar back on an uptrend or are we channel trading here?

Gold: We actually closed under the lows early in the week and then came back. The dollar, it seems like it just can't make up its mind one way or the other. In the longer run I believe the dollar is going to move lower. I think that's going to help our grain exports.

Pearson: How long of a run do we need to wait for?

Gold: I wish I knew the answer to that. But I think over time we're going to see this dollar move lower. I think interest rates are going to move higher. And we'll see where we can go with that in the grain markets.

Pearson: Alright. Now as we're talking the grain markets, corn, big week, 16 cents on the nearby contract. Can we keep this up into next week?

Gold: Well, I think we can keep it up not only next week but the week after. As we have said many times on this show and other places, we tend to make our highs the last Friday, Thursday or Friday of the month. So we could have two more weeks, not only in the corn but in the beans as well, of some higher prices here. But we have to be very careful here. This rally, yeah there's a little dryness in Brazil, their second crop is having a little bit of a problem. There's some export problems in Argentina. But the fact of the matter is we're not running out of corn any time soon. What we have done is we've moved from 200,000 short contracts by the funds to 150,000 short. So this week we've added 50,000, or taken away 50,000 out of their shorts, and that is what has driven this market. And I think with the moving acreages where they are, we're over the 10-day moving average, another higher or two close we're going to cross not only the 10-day but the 50-day and the 100-day moving average. That should be a pretty good trigger for these funds to come in. So I believe that we can see some higher prices out here. Can we get December corn up to $4? I believe we'll get pretty close, $3.98. Guys always want to see $4 on that ticket, but I don't know if we're going to see $4. Anywhere between $3.90 and $3.99 I think you’ve got to look at doing some selling up here.

Pearson: And that being said, how much would you be comfortable marketing? This is a very early season rally. We still have the entire growing season ahead of us. How much should we be marketing old crop and new crop on this technical rally?

Gold: You know, if we can get another 20 cents out of this we're going to have our customers about a third sold of their guaranteed bushels if we can get there. And I think that's a reasonable target to start with here. If we start closing over whatever highs we make between now and the end of the month we're certainly looking at buying call options because we do have a lot of time left. And is La Nina going to show up? I don't know the answer to that. But the fact of the matter is they're still forecast for the hottest, driest weather in Iowa. So we want to keep that upside open on as many bushels as we can. But this is a technical based rally in this corn. We've got 93.6 million acres potentially out there. If we really this corn to $4 are we going to dissuade anybody from planting corn? Absolutely not. And right now we really need to see the beans continue to gain on the corn, to give guys some real thoughts about switching out there. But if this weather stays good, and it's beautiful out here right now, guys are going to plant corn because that's what they like to plant.

Pearson: You bet. Planters rolling in the Corn Belt, was talking to some friends on the Internet and it's starting already.

Gold: Absolutely.

Pearson: Bone dry out there. Now you're talking about beans are going to need to continue to rally. We put a dollar on this market in the past six weeks. Is there more upside yet in these soybeans?

Gold: Again, I think we go another two weeks. The funds are long now. They have gone from long 20,000, 30,000 contracts to long 100,000 contracts. They're starting to come out of their long oil, which they have been long 100,000 or more contracts. And that has been the leader, which is never a good sign, to where now meal, they have covered their shorts, they're about even in the meal now. My guess is they're going to try to get long the meal in here. That should be enough to push beans up maybe one more notch where we can look at November beans somewhere $9.80, $9.90, somewhere in that range, which I think will be another good selling opportunity out here.

Pearson: And would you look at a third of the guaranteed bushels again?

Gold: Yeah, I think that's a reasonable place to be. And then again if we close over those April highs and start looking up buying a few calls and we take out the May highs, I'd buy a few more and try to stay in the game because, like we've said, there is a long road ahead.

Pearson: Okay. Now, we did have a lot of meal users, end users buying hand to mouth, the price just kept falling, big reversal this week. How do you handle that as an end user? Do you get in there and buy now? Or do you wait to sell of here in the future?

Gold: I wouldn't be bashful. Hopefully they've taken some of our advice where we have recommended to clients two, three, four weeks ago, look at buying some meal calls here before the report in case we've got some upside, so they've had plenty of time to catch this rally out here. And I think, again, it's got a chance to continue here for a couple of weeks. I don't know how much we're going to put on this market if we do. But the fact of the matter is it can get kind of interesting here in the next couple of weeks, particularly now if the funds get out of the rest of that corn, the beans have got to keep up in order to try to draw those acres away. So it's going to be a fun couple of weeks.

Pearson: At this point do you think this bean rally has pulled many acres away from corn?

Gold: I don't think we've pulled one acre away from corn, not as long as we can get out in the fields. And some of the guys are saying because of the higher costs with some of the weed management on the beans that it's really going to take, right now we're at about a 2.5 to 1 bean to corn ratio. We've got to get that ratio up to about 2.8 or 3.0 to hit the guys in the head and say you've got to do it. And it may not even be their decision. It may be a discussion with the banker where the banker says, listen guys, we've got beans over corn 3 to 1 here, let's think about getting some beans in the ground and protecting it out here.

Pearson: And protecting it, making those sales when it's 3 to 1.

Gold: Absolutely. So those are the things we're looking at.

Pearson: Perfect. Well let's talk about livestock. Corn rally, understandably you saw feeders sell off a little bit. But let's talk live cattle. Is there still demand building here as we head into grilling season?

Gold: One would think so. But what bothers me about this cattle market is I've been saying for the last year basically, if you want to know where the cattle market is going to go, watch the stock market. The stock market is within 350 points of its all-time highs and we haven't been able to rally this beef market, which is a bit concerning to me out here. And the struggle has been higher demand versus higher output not only in the numbers of animals but in the weights as well and the tonnage that is out there. So right now we're losing that battle and price has been moving a little bit lower. It's not critical yet but considering when a market can't do what it's supposed to do it is certainly a red flag to me. And would I be owning put options? I would be because we can't see what has happened in so many other markets happen to this cattle market now. And guys say, well it can't go much lower. Well, when crude was at $70 people said it can't go much lower and it went to $25. So you never want to get caught in that trap of what a market can't do. So we would be spending some money to buy puts to protect the downside.

Pearson: Okay, even in here at the mid-$120s, low-$120s?

Gold: Absolutely because the risk is still $100 to $90 in my opinion. And nobody wants to hear that but I don't know that's where we’re going, but that's the risk and that is what we want to protect.

Pearson: Okay. Now as we take a look at these feeder cattle we're still seeing projected break-evens a little bit under where these feeders are priced today. Weakness ahead in the feeder market?

Gold: Yeah, I believe so, certainly in the next couple of weeks the corn, if the funds cover this corn, it's going to move the corn higher out here. Now guys will say, well why do I want to spend money on a put and lower my costs in here and be under cost of production, why would I do that? Well, I'd rather see guys protect a small loss and still have the upside open. If we do get some good grilling news then I would just to say, okay, let's hold on for the ride. So we're going to spend some money, protect that downside, hope the upside is there. And, again, we'd much rather see a guy take a -- guys in the cattle market can handle a small loss. What they can't handle are these huge losses. And if they go sell futures today and we have another rally then they get themselves in a jam like they did almost a year ago. So I believe the put is the best use here.

Pearson: For the feeder cattle producer. If you're a feedlot operator, do you just leave it open and let this cycle continue? Or do you get in here knowing we could have a big corn crop, we could see grilling season jump in and do you buy some calls?

Gold: Yeah, I think you buy some calls because if we do have a La Nina situation and you guys are burning up here in Iowa, certainly you want to protect that. Meal prices, corn prices are still historically very cheap here. We're 30 cents away from the lows in the corn. So yeah, this is still a good opportunity to buy some calls.

Pearson: Okay. Moving over to the lean hog market, the strength of this market continues to astound me, we're still trading in the mid-70s on the nearby. How much longer can this continue? Or are we just getting started? Is there a lot of upside left?

Gold: I really don't see that unless we have some kind of issue with the animals themselves. We've come off from that $82, $83 level down to $77, $78, we're still at very high levels here. If the meat has a problem, if the beef has a problem then we're going to see the hogs sell off too. And just like in the cattle market, high prices stimulated more production. We've got to have demand keep up with that. And I'm just not so sure it's there. And with these relatively high hog prices do I want to be protecting the downside? Absolutely.

Pearson: Alright. And we're still seeing a lot of growth it looks like in the hog numbers and weights are still pretty big?

Gold: Pretty big. And we don't want to watch this thing erode back down to $55. The April went off in the $60s. Can we see that? Yeah, if we don't have a problem we can see some lower prices in this hog market.

Pearson: How far out would you look to protect?

Gold: I'd be going out to October hogs, I think that's far enough out, maybe some July depending on when your cycles are going to hit, July and October I think is far enough right now.

Pearson: Okay. Now, there has been a lot of chatter about the crude oil market. We saw Russia and Saudi Arabia get together, they're going to freeze production. We saw crude take a big jump. Where is this crude market headed?

Gold: Well, there's got to be some real fundamental changes in the crude for any rally to last out here. The world is drowning in oil, obviously Putin is feeling the pressure at home, the Saudis are feeling the pressure. They’ve done some things that we've never seen them do and in terms of some financial moves that they're making. So there's some stress out there. So is it in their best interest to try to get together? Sure it is. Generally when people try to squeeze something where there's too much of it, it generally doesn't last too long. But hopefully we can see a little bit, I think it would be good for the economy if we had a little bit higher oil prices out here.

Pearson: Alright. Well, Mark Gold, thank you so much for taking the time to join us.

Gold: Thanks, Mike.

Pearson: That wraps up the broadcast portion of Market to Market. But Mark and I will keep the market discussion going and answer more of your questions during Market Plus which is available on our website. And do you have thoughts and suggestions about the program? Then send an old-fashioned email to markettomarket@iptv.org. And join us again next week when we'll explore how automation may be headed to the field in new ways to enhance productivity. So until then, thanks for watching. I'm Mike Pearson. Have a great week

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