Market Analysis: Jeff French (January 1, 2021)

Market Analysis: Jeff French

Dec 31, 2020  | Ep4620 | Podcast

Podcast

Yeager: 
We are producing this program on Thursday as the final days of 2020 we're anything but calm as corn closed higher. The last 14 Trading days, March wheat gained 14 cents. While the nearby corn contract skyrocketed 33 cents or 7% beans in the teens occurred on Wednesday. As a motion appeared to eclipse fundamentals nearby soybeans jumped 47 cents. March soybean meal went up 1530 per ton, March cotton expanded a dollar 92 per hundred weight in the dairy parlor. January class three milk futures lost 83 cents or 5% a mixed week in the livestock sector. February cattle moved to nickel higher March feeders dropped two Oh seven and the February lean hog contract added three 33 in the currency markets, U S dollar index weakened 32 ticks February crude oil added 12 cents per barrel. Colmex gold gained 1730 per ounce, and the Goldman Sachs commodity index improved nearly three points to finish at four Oh seven. Even now here to provide an insight is one of our regular market analysts, Jeff French, Jeff. Good to see you happy new year to you.

French: 
Great to be here, Paul. Thank you.

Yeager: 
So about Tuesday, Wednesday, the sentiment with wheat was going to be, what about me? What about me? And then we just takes off on its own. Was that because of a connection with corn and soybeans and the rally that they had had, or is there something else going on in that market?

French: 
Well, I think, You know, it was, there was rains forecasted there Tuesday, uh, big rains, well, it looked like it fell on mostly Eastern Kansas, so we broke hard. Um, but it definitely was the third wheel, uh, this week. Uh, wheat did follow corn and beans. I think it was up 13 or 15 cents, uh, on the week benefited from a, uh, a weaker US dollar. uh, the dollars down here at a 32 month low. Uh, but you look at the wheat fundamentals. Uh, we did have some good exports, uh, but did the domestic pipeline right now is, uh, fully supplied. Uh, you know, we looked at wheat, uh, this week and we made some sales up here at five-year highs.

Yeager: 
Chicago Goes at six year highs, Kansas city at one point this week, two year highs, Minneapolis has had its own story. Is there one of those contracts that you, you said you'd made sales? Was there one that you, uh, of what's mentioned that you would be making a sale?

French:
Yeah, we like the Chicago one. I mean, the stocks are the lowest there and, uh, uh, we liked that six year high, uh, and that's where we made the sales, but you know, the Kansas city, you know, a lot of interests there and selling that too as well, because, uh, there are some places that are dry. I mean, the wheat went into dormancy at, you know, seven year lows, but there's also some good weed out there. So I think you've got to look at it if it's profitable for you, uh, use the rally, um, get some food sold. If you've got a good basis, if not look at some downside protection at these levels.

Yeager:
When does the weather become the big story in wheat?

French:
You know, It's, you know, always going to be a story, but, you know, if we can get some moisture here in the next month, help it out. Um, and then we get into the, we'll see where that goes right now, but, uh, uh, you know, we'll see what it brings up here in the next couple of months.

Yeager: 
You're supposed to have a very calm end of December 14, straight days, going up for corn. You ever seen anything like that?

French:
It's unprecedent, uh, corn, wheat and beans made their highs for the year during the last week of December. It's never happened, uh, in the history, uh, 14 days higher in the corn market. That's the longest winning streak since 1959. So, uh, 2020, it's going out with a bang and it's going to be remembered for many different things. Uh, but it's also going to be remembered in the agricultural market.

Yeager:
Is there one particular storyline that led to that history making event that the trifecta?

French: 
Well, I think it's, um, a combination of just the funds getting along. I mean, we were down in the dumps, you know, for four or five months, uh, with the trade war with the virus, but then we saw, you know, China come back and they've been back here for the last two to three months. Um, you know, bringing these prices higher, uh, us dollar lower, that's helping out. Um, but yeah, this is unseasonable, uh, to rally like we have here during the, during harvest and then during the winter. And, uh, we'll see what 21 brings.

Yeager:
All right, so you have two ridiculously hard questions to answer tonight. The first one is this, how much higher does corn go? And the next, let's say the next month.

French:
Oh, we'll see. I mean, it's, it's, it's overbought. Um, there is a gap on the March contract up there at five Oh five. You look at the continuous chart. Uh, we might go and try to fill that also there's, um, some resistance up at the five 22 area. Uh, can we go see there? Uh, we'll have to see the funds are long 350,000 contracts. Uh, that is, you know, if you look at historically that's very high, they've been long 400, 7,000 contracts before back in 2011, so maybe they continue to add to that. Um, but I think, you know, we go in here to a three-day weekend. Uh, you know, we kind of calmed down, we see what Monday brings if we can close higher on Monday new contract highs. I think that would be a very good sign.

Yeager:
We'll talk about Argentina in the corn market and market plus, but let's start with Argentina in the soybean market right now, the strike, uh, in the soybean area, uh, resolution reached on Wednesday, but the market didn't really seem to use that as a factor to slow any rally. Was there something else?

French:
Well, I mean, it's still going to be a week before they get the product out there. Um, but you look at what is going on in the world. I mean, China right now has all time high meal prices, $516 a ton. So they're scrambling. Um, you know, what we got to look at now is the product that we have got purchased from the U S here in the last two weeks because of the, uh, strike down in Argentina, do we see cancellations? Uh, you know, that's going to be on everybody's mind, uh, but products are short. You know, maybe these countries need them. We'll have to see, but, uh, uh, what a good way to fill up, you know, end up on the year there.

Yeager:
in the look back piece that we just said, we talked a lot about the look back. One thing that could have been, could have been in there was this about corn and soybeans, uh, corn in April, it was $3 corn beans in April eight Oh eight. Corn has gone up 55% beans have gone up 61% that's before today. So those numbers are higher. The question on beans, where I got to put your feet to the fire, okay. We ran through 11, we ran through 12th, we got to 13. Do I get to keep saying teens beans in the teens for awhile and which team

French:
I think it's going to be tough. I mean, seasonally, uh, is going to be tough. Now, 1407 is a pure Fibonacci 62% retracement level. So, uh, from the 2012 highs at 1794 to the 2019 lows at seven 90, a bushel, um, 1407 is a 62% retracement. We got the 50% retracement here yesterday at 1290 blew through that. Um, but I think it's going to be uphill. I mean, uh, Brazil going to have beans ready here by the 1st of February. Uh, does China need to secure product for some quick ship beans here in the next two to three weeks? I think that we'll be telling them, or do they wait it out and, you know, wait for the Brazilian beans to be ready because Brazil is still, I mean, it's been dry, but they're still getting some rains. I mean, it's not as dry as it says down in Southern Brazil or Argentina, but most of the private forecasts that are still have the Brazilian crop at a record level, 130, 131 million metric tons. So they will have beans for export, uh, is just if China can wait the next five to six weeks to get those beans that are ready.

Yeager:
All right, we get a lot of Twitter and Facebook questions, also some on Instagram. And this one comes from Mitch and a whole aisle in the Northwest part of the state. He says the soybean corn price ratio has hovered in the two seven to two eight range historically to five is more typical. What's your expectation on this, on both current and new crop, will corn move up to buy acres or can we expect to pull back on beans soon?

French:
So you look at new crop right now, uh, corn $4.30 beans, $11.10, that the ratio was 2.56 to one. Uh, I I'm in the opinion that beans, uh, for 21 need to gain at least six to seven and a half million acres. So I think personally, uh, that ratio goes out to 2.75 to 2.8 to one. So I think beans gain on corn here to secure those acres. Uh, you know, it's my opinion that we're going to plant 90 to 91 million acres of beans. So that would put the new crop bean in that 1120 to maybe 1135 area. Um, you know, that's where I'd probably want to start making some, uh, sales there.

Yeager:
You mentioned acres, and that's the hot topic that we're going to have something to talk about. I guess it's the hot stove league of commodities instead of baseball, uh, in the cotton market specifically, uh, they've been on a run-up pretty much all of 2020, again, continued and extended this week, but are we really, are we going to have as many co uh, cotton acres next year? Does cotton lose out in this, uh, acre discussion of trying to get to 90 and 91 million acres in corn and soybeans?

French:
I, I think, you know, time will tell because, uh, every cotton producer out there is looking at $11, new crop beans and wondering, you know, how many acres do I switch? And cotton will have to rally. I mean, new crop cotton, isn't in the 73, 70 half 73 and a half cent range, I think, to secure and get enough acres in that cotton. I think you need to see that new crop cotton in that 78, maybe 79 cent level, uh, old crop cotton goes to that 78 to 80 cents. I mean, the USDA has, in my opinion, uh, overstated this cotton crop, uh, the production, and also understated the demand we've seen. We've seen the excellent demand added to China here all year on the cotton. So I think cotton, uh, makes a run in that 76, 78 cent range.

Yeager: 
Let's switch over to livestock. There's a couple of overlapping stories there, but, uh, in the live cattle market specifically, this has been a big change in fundamentals have been happening here recently in the last month, taxing packing capacity to, uh, we've had some production issues, but we've also had non production issues. Like we thought we have. What's the biggest story in live cattle as we flip the calendar to two 21 for you.

French:
Oh, I think it's going to be continue to be slaughter capacity. I mean, uh, the number one way to kill a livestock markets or have prices really to decline is slow to kill chains. Um, but you know, you look beyond that. Um, we're going to have some numbers to deal with here in the first January and February. I mean, it's, it's, we're going to have some big numbers to get through, but you look beyond that. You look into the first quarter of 20, 21 second quarter. Um, the numbers are going to be pretty tight. I mean, we've had three consecutive months of 88, 89, 90% placements compared to last year. Uh, so those numbers are going to be tight. Also the vaccine, hopefully many Americans have it by mid summer restaurants get opened up and there is plenty of pent up demand. So I, I look for that cattle market, uh, this summer and in April to be pretty good. I could see April in that one 25 and in June up in that one 20 area

Yeager: 
On the feeder side, the feeder has a pretty heavy weight on this feed issue. Uh, when you talk corn price, they're going to have to have a pretty sharp pencil to succeed in 21?

French:
Yeah, the feeders are, I mean, it's going to be difficult. Um, you know, th this corn price is definitely going to take a chunk into there. And also, I mean, the feeders are a little bit overpriced here. I mean, you got them up here in this $140, $143 area. We're selling $112 fats here right now. So I think they're a little bit overdone. They they've come a long ways off the lows that we saw three months ago, but you look at August up there at one 50, uh, you know, that probably needs some downside protection there.

Yeager: 
This hog market. I can't let you go without asking about this $3 33 cents, a five percent rally. That doesn't make sense?

French:
Two month high, and it's a premium to cash. So the market is telling us, you know, maybe the cash is going to come up here. I mean, it's at quite a premium, but huge exports in the port complex. Um, but also you look at what's in the freezer. I mean, right now we have tenured low supply of pork in the freezer. Uh, the hog numbers, it's the first time in five years that the hog numbers are lower than the previous year, obviously what we went through and the industry here. But, uh, you know, China is it's going to need hogs here for probably in the next two to three years. Uh, you know, I like the June contract in this 83 cent range. If we close below 79 cents that opens the door to lower prices. But, uh, uh, I like the pork complex right now.

Yeager:
All right. Real quick. In 10 seconds, the dollar, does it have much movement lower?

French:
Yes, I think it does. Uh, watch it below 88, then it's going to fall off a cliff down to 83, maybe 82, but, uh, yeah, the dollar looks extremely weak to me.

Yeager: 
Alright, Jeff French. Good to see you. Thank you so very much for the insight. Appreciate it. Great to be here. All right. That will do it for this installment of market to market. We will talk more in market plus, so you can join us there. Find that on our website of market to market.org, the beauty of winter may be hard for some to see, but we do find some images and share them on our Instagram feed. Make following our feed of market to market show as one of your resolutions in 2021. Next week, we'll look at the fight against food insecurity in the new year. Thank you so very much for watching. We'll see you later.

Announcer: 
[inaudible] market to market is a production of Iowa, PBS, which is solely responsible for its content.

More from this show

Grinnell Mutual Insurance
Sukup
Accu-Steel
Pioneer