Market Analysis: Mark Gold

Market Analysis: Mark Gold

Jul 24, 2020  | Ep4549 | Podcast

Podcast

The commodities were under pressure from weather and boosted by sales. For the week, September wheat gained a nickel while the nearby corn contract lost 7 cents. July has proven to be a big month of sales to China in the U.S. soy complex. The August soybean contract added 7 cents. August soybean meal improved $4.30 per ton. December cotton lost $1.70 per hundredweight. In the dairy parlor, August Class III milk futures decreased 70 cents. A mixed week in the livestock sector. August cattle dropped $1.95. August feeders shed 65 cents. And the August lean hog contract added $1.20. In the currency markets, the U.S. Dollar index dropped 153 ticks. September crude increased 33 cents per barrel. Metals were hot this week as COMEX Gold jumped $86 per ounce. And the Goldman Sachs Commodity Index improved nearly 3 points to finish at 341-even. Joining us now to give us some insight is one our regular market analysts, Mark Gold. Hello, Mark.

Gold: Hello, Paul. Good to see you again.

Yeager: Good to see you as well. I was telling you before we got going, this is the third time we've talked to you remotely. And I'd like to say some things have changed but plenty of things have not. One of the things that has changed more recently is the wheat market. The three different ones all kind of have their own mines right now, Kansas City, Minneapolis and Chicago. Why is that?

Gold: Well, the amazing thing is you look at Chicago wheat, 90 cents over Kansas City, we got out to $1.14 I think it was last September, we've never seen spreads like this with soft wheat so far over the protein. But it is, like you said, a different day, a new market and we've seen this strength and it doesn't look like it wants to back off any time soon.

Yeager: Are any of these following seasonal trends, any of these three?

Gold: Not really. We've come through the harvest on the Chicago wheat and the Kansas City wheat pretty well winding it down now and we should start to see some pick up after the harvest pressure. The dollar, as you mentioned earlier, has really taken a hit. It has gone through several of my support level and I've been saying it looks like the dollar is toppy, we can work this thing lower, and we've just continually made this thing really look pretty bad. To me the next real support in the dollar is 92 cents which would be almost a 12%, 13% drop off the highs. That should start attracting some attention and not only are we breaking but the European currencies are moving higher, which they have been the dog and we have been the dog with the least fleas, but now the Europeans are coming in and their currency looks better and ours is starting to take the hit. I think it's reflective of inflation, I think it's reflective of spending $3 to $6 trillion and printing up all that money not expecting that the value of the dollar won't get hit. So ultimately I think that we can see lower dollar prices which should be very helpful for the wheat market.

Yeager: Are you making any sales either near-term or on the deferred contract right now?

Gold: We made some sales at around $5.40, $5.48 I think it was on some September wheat about a week and a half, two weeks ago. We're looking for another level a little bit higher. We get close again today on the rally but I think if we can continue to move higher we've got problems in Russia, we've got problems in Europe and I think this market is certainly poised to move higher. So we're just kind of moving into it slowly. We haven't done much yet, we've been patient and now we're paying off this wait here and hopefully we can see even higher prices yet.

Yeager: There was some guy out of Chicago this week who wrote, if we grow it they will come, it's just a matter of when. You're referring to the corn market, I'm sorry I gave it away, you were referring to the corn market. What did you mean there?

Gold: Yeah, who wrote that? To me there has been a lot of discussion with the U.S./Chinese tensions, the Chinese basically shutting down their Embassy at Houston. There's a lot f talk out there but we haven't seen it affect exports really one iota. You look at the weekly sales figures this week, 2.2, 2.3 million metric tons out the door in corn and beans. They're not stopping buying and I just don't think that with the way the Chinese system is right now they've got corn prices through the roof, they want to expand their hog production, so I think we're the game in town and if we grow it I think they're going to come. I think the big question is do they front load it before the election or do they wait until after the election? I think we’ll see some as we have seen before the election. I still think there's a lot of big buying out there that may come after the election. I think they want to put some heat on Trump not to get too high out here so I think they could wait until after the election.

Yeager: During your comments there we were showing video of some crop that was stressed. We still have west of us where we tape here in Central Iowa it's still pretty dry, there's other areas that are really dry. Why haven't we necessarily seen, are we too far down the road in corn when it comes to a lot of this crop is made now? Is that why the weather hasn't impacted corn as much?

Gold: Well, I think because we've had rains in Chicago, that's the old saying, it doesn't mean much but these prices have gone down. We had some good rains in Eastern Iowa, it looked like they were pretty scattered here and there. When you look at the current drought maps for Iowa there's a lot of drought area there. And I had one of my clients call me and say, hey Mark, you're talking about rains in Iowa, we wish we had them here in Western Iowa because we're not getting them. So is the yield 180? Is the yield 175? 182? Nobody really knows but I don't think it has been quite the growing season people think it is. We've had warm nights, hot and humid days. Yeah, where they've got rains we'll have a pretty good crop. But I'm not sure that yield is going to be the biggest factor. I really think demand is going to be a much more important role as we move forward.

Yeager: Real quickly, are you making any sales or are you holding right now?

Gold: We're holding off right now but we're looking for a good spot hopefully in the month of August. The weather still looks hot and dry to me in August. If we can get one more spurt, hopefully take out the triple top, the double top in the corn at $3.63, get to $3.90, $4, we'll certainly get more aggressive there. We're not running out of corn but the Chinese can make this a whole big different game.

Yeager: Well let's move to soybeans and a question that we got, this one came via Twitter and Brock sent this to us. He's asking, how much will China have to buy to get the market's attention? It seems we have yawned about every purchase thus far? That was the big story last week in corn. Beans we did rally but do you agree with the sentiment in that question?

Gold: Well, it's certainly a little disheartening when you saw the export sales yesterday, we really couldn't rally corn. But I think we've always had this kind of syndrome good exports, lousy closes and I think that's what we've seen here. If we start building up 6, 7, 8, 9 million metric tons of sales to China then I think the market is going to get very interesting. We don't see it on the flash sales during the week on the daily announcements. 200,000, 300,000, 500,000 isn't going to be enough. We're going to need to see flash sales of 2 million, 3 million metric tons and then I don't think the market can sit back and yawn, particularly when the funds are still short 180,000 contracts.

Yeager: You were saying coming into today we needed to finish above $9. We did finish at $9.05. How much higher does this go now in a technical sense because of that closure?

Gold: I believe higher. I've always said a lot of times it's what a market can't do that is as important as what a market can do. And the market couldn't close at $9 today in the August contract to get both the puts and the calls to expire worthless. The calls had 4 or 5 cents of value on them as they went off the board and I think that's indicative that there's some pressure on the shorts here. So when we see this kind of action it makes me a little bit friendly particularly for next week. I'm hopeful barring some unforeseen news for the Chinese that we can open this thing higher, maybe get some of the funds to start chasing in some of their shorts and I thought it was a very positive close particularly in the August gains. I like the close and I think certainly the bean market could go higher.

Yeager: Let's move to live cattle. Are we still heavy in the lots? I know we're going to talk about cattle on feed in a moment. But we still have that big heavy that we're working through?

Gold: 900,000 head of extra cattle and the cattle that they are slaughtering at a good rate, slaughtering them with 20, 30, 40 pounds more per animal. So we keep adding meat into the system. We're through the majority of the growing season out here and we've had a $21 rally in the fats, we're urging clients certainly look at spending some money on puts on this rally. I don't know that we have felt the full effects of COVID, restaurants are shutting down again, numbers of cases are going through the roof, Arizona, California, Florida all curbing their outside and restaurant activities. That's not good. On this kind of a rally I think you absolutely have to invest $3 or $4 puts and protect the downside.

Yeager: What else on that cattle on feed report did you see that you want to mention?

Gold: Well, the on feed was down a little bit, they were looking for 104. Excuse me, the placements were 104, they came out with 102, so maybe not as many placed but the marketings are right on the market 101, on feed right on the market 100. So I didn't really see anything that big one way or the other. We've been trying to close the cattle over the 200 day moving average, haven't been able to do that and to me with this rally and these prices and what's going on with COVID I think that the cattle need to be protected. I hope I'm dead wrong and cattle go to $130, $140 and you lose the $3 or $4 on the puts but we can't watch this cattle market go down back down to $85.

Yeager: Protect yourself as we always like to say. We have been above $50 on lean hogs now the last two weeks. $54 even today. What does that signal to you?

Gold: It tells me that the Chinese have been buying some pork products out here. We know that they've been looking, we know that they've been buying and I think it's just a matter of until they can rebuild their herds we're a viable alternative. The dollar is cheaper so why wouldn't they come to us for some good pork? Hopefully we're going to see more of that and we can move these prices higher. We want, to hold these lows that we've made last month. If we start taking those out the back months could certainly try $40. I hope we don't have to see that because of the Chinese buying and the lower dollar.

Yeager: About 30 seconds, Mark. The floods of China, does that impact the hog market at all or is it more of a grain situation?

Gold: I think it could be both. Are they flooding out hogs? Are pigs drowning out in China? I haven't heard reports on that. It seems mainly to be affecting grain markets. But the fact of the matter is if they keep losing the grain they want to build this herd that's going to be friendly not only for the pork market but for the grain market as well.

Yeager: And there is a concern though that some of the rain is allowing the virus to spread that was the impact last year. Are you hearing that?

Gold: I haven't heard that. I have my doubts on that. I think it's more of a person-to-person. Let's put on our masks and protect each other out there kind of thing.

Yeager: Good to see you, Mark. We'll talk to you in Market Plus in just a moment. Thank you, sir.

Gold: Thank you, Paul.

Yeager: That will do it for this installment of Market to Market. We will talk more in Market Plus, so join us there. You can find it on our website atMarketToMarket.org. We have three take-on-the-go offerings associated with the program in podcast form. Market Plus and Market Analysis are available on Friday’s while the M-to-M comes your way every Tuesday with a behind-the-scenes look at this program and our stories in the works. Next week, pairing existing businesses with new owners in rural areas. Until then, thanks for watching and have a great week.

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