Market Analysis: John Roach

Market Analysis: John Roach

Mar 19, 2021  | Ep4631 | Podcast

Podcast

China booked nearly 121 million bushels in U.S. corn this week while meeting with U.S. officials in Alaska. Diplomats offered sharply different and pointed views of one another in the first meeting since Joe Biden took office. For the week, May wheat lost 12 cents while the nearby corn contract jumped 19 cents. Better weather in South America and China’s pledge to cut back on meal in their feed rations weighed on the soy complex. Nearby soybeans needed a 24 cent gain in the last session to improve 3 cents on the week. May soybean meal added $7.20 per ton. May cotton shrank by $2.88 per hundredweight. In the dairy parlor, April Class III milk futures declined 67 cents. A mixed week in the livestock sector, April cattle lost 60 cents. April feeders dropped $3.80. And the April lean hog contract expanded $2.85. In the currency markets, the U.S. Dollar index gained 25 ticks. April crude oil decreased $4.01 per barrel. COMEX Gold added $19.90 per ounce. And the Goldman Sachs Commodity Index fell more than 21 points to finish at 471.40.

Yeager: Now here to provide insight is our senior market analyst, John Roach. Hello, sir.

Roach: Hi, Paul. How are you?

Yeager: Good to see you as always and I look forward to our discussion here where imagine that, we're going to start with weather and its impact on the wheat market. We got rain in the Plains, we got snow in the High Plains. Is this a weather market only in the U.S. wheat market right now?

Roach: No, it's really several different components. Certainly weather is a big part of it. What does our winter wheat crop look like and we had some very lifesaving rains this week and so that helped the crop and hurt the price. The other thing that is happening is we're seeing our major competitor, one of our major competitors, Russia, offering wheat at cheaper price levels out forward than the current market. I talked to some international traders today and there were some offers out between $40 and $45 a ton cheaper out of Russia for new crop delivery in August than what prices were trading at currently. And so the worry about what's ahead from not only the U.S. production but around the world is coming to the trough here right now. We think that there's plenty of demand out there. We think the market will stage a nice recovery in here. But we are concerned about the Russians' willingness to discount their new crop wheat.

Yeager: Because it wasn't that terribly long ago that Russia said, we're not going to export anything, and that changed the market. So if you're expecting a rally, am I sitting for how long before I look to make a sale in nearby or deferred months of wheat?

Roach: Well, the market has taken the fall and so we're already down into an area, on our system we actually have buy signals on wheat. And so we're accumulating wheat for those people who are buyers of wheat understanding that there's some risk in here because we're heading right into the new crop growing season and developing and harvest actually. So we have those concerns. But we think the market can rally.

Yeager: So a buy. Is there an area or window I'm looking at before I maybe make a sale?

Roach: We don't look at the numbers so much as we look at the market momentum and movement and we end up generating in the neighborhood of six to eight, ten sometimes sell signals per year and a similar number of buy signals. And we're just patiently waiting for that to happen rather than looking at a price level. But if you push me into it, notice that we've been in this huge range really across all of our grains for some time and now we're clear at the bottom side of it, particularly on wheat, but we're at the lower side on several other markets too. And so we think from this bottoming phase that we ought to be able to get 25, 30 cents back pretty easy.

Yeager: All right, speaking of sell signals, you had one of them on corn this week. How long -- that's a very specific question, I know sometimes they're shorter or longer. But what kind of steam do we have in this corn market?

Roach: Well, it's a little bit of a mixed bag. Yesterday the steam was gone in a hurry so we had a sell signal in the morning and by the afternoon it was gone because the market declined away from the price levels. And now today it's right back again and so we'll be putting out another sell signal or we'll just be extending the one we issued yesterday, we'll be extending that on Monday and we think that people should be looking at their corn situation very carefully and recognizing they have old crop corn perhaps and they certainly have new crop coming on and we think there will be 3 decent sell signals here during the growing season and we think that this one that we're in right now is the first one. We're already worried, we already listened to the comments from the weather people here earlier in the show, we're worried about the new crop, we don't have the subsoil moisture in a lot of areas although we did get some relief this week there. We have to raise a big crop this year and we found out again this week that the demand is very solid and not only is it solid from China but we're also doing good sized business with more routine kind of customers.

Yeager: What do you make of the Chinese purchase this week, John? That's a big purchase, record purchase. Is that -- obviously still fulfilling Phase 1. But actions speak louder than words. When they're buying that indicates to me that they're in need, right?

Roach: Well, I think what they told us some time ago is, well we won't need it. In fact, some of the people that we get reports from argued all along that the Chinese would not take the kind of big bushels that people were talking about and these were mainly China-centered people. So their publicity was we're not going to take all that. At the same time they're telling their people, we need to conserve food, we're going to run out of food if we don't conserve it. And then they've been on a completely different path if you listen to what is published domestically in China. So we've all been waiting to see which way is it going to be? Is it going to be the well we're not going to do much more or we're going to more? And this week we did a lot more business. And we're now starting to eat into our surpluses and surpluses are good. But from a farmer standpoint if you start to eat into these surpluses much further you start to talk about concerns about supplies and so forth. And again, talking with international traders, people want to see the U.S. crop growing and in a really good condition before they say okay, everything is all right because if we have a good crop it's a completely different picture than if we have any kind of problems at all. And even with just sort of normal kind of crop yields supplies will stay tight. We think the Chinese want a lot more and we're on that side of the fence.

Yeager: Okay. Well, that kind of opens up a little bit of a question we got from Phil in Dresden, Ontario and it's a little bit about the carry in the market and it's a little bit about what you had said earlier. He said, the December 2021, March 2022 corn futures spreads are widening a bit meaning that there is some carry in the market. Such a difference from what we became used to in the old crop corn market. How defensive should farmers be in selling new crop corn or is this just a head fake, John?

Roach: Well, I don't think defensive is the right way to approach it. I think that the right thing is to sit back and thing okay, what's likely to happen? And what our experience tells us is we're likely to have some weather scares and so find a system that does a pretty good job of telling you when a weather scare is getting extended, which is what we've tried to do, and then when our system says go ahead and pull the trigger, which it's saying right now in corn, that is not a defensive play, that's a we're selling part of the new crop and we're willing to take this kind of price level for part of it and we're going to sell more on the next sell signal and more on the next sell signal and by the time we get to the third one all the bushels that have to go to town, they need to have a price on them already. All the bushels you're going to be able to store, if you want to gamble longer no problem. We're still going to have to raise a big crop in South America next year. So the big weather concern this year may not be America, it may be South America, and that starts in November.

Yeager: What about the South American weather and its impact on the soybean market? Volatile again was the story of the week.

Roach: The impact is almost finished. They're getting into the latter part of their harvest and the people there continue to argue that the crop is still sizeable, they are not pulling their numbers down even though the reports are scary and still wet and can't get it harvested and so forth. We're getting past that. The pipeline is now full. The ships are lined up. What we're going to talk about his how substantial the demand is going to be. We're going to have week after week of unbelievable quantities moving out of Brazil and we're going to tax the logistics I think all around the world, we are currently, I don't think that changes, in order to try to get the maximum amount of crop moved to where it wants to go.

Yeager: So are you selling right now or are you holding?

Roach: We're selling into corn, we've got sell signals. We're waiting on beans, we're hoping for a bean sell signal next week.

Yeager: Okay. Livestock, today cattle on feed, it's been a really up and down report there as well. What did the report say? And what does that mean for the market moving forward?

Roach: It basically told us that the numbers the traders thought were in front of them are and right now we have quite a few cattle that are finishing, we had cattle that got delayed due to the weather conditions and we had a lot of cattle placement coming into this time, we've just got a lot of cattle we're working out way through and we're a little bit behind in the marketing of them. We think that we'll run out of this frontloaded supply and run into better slaughter numbers, smaller slaughter numbers as we move on into April. We also think that at about the same time the benefits that we're going to get from the vaccines that have become available and the numbers of people who are feeling better and feeling safer to go out, we think those numbers are going to ramp up. They're talking about by April 1 100 million doses have been delivered, that's a third of the American, not quite but almost a third of the American population. So the people who really want to get the vaccination and have been worried and staying home and so forth, we think that really clears in the next 30 to 45 days. This last report on gasoline usage was down 12% from last year. So whatever that equates over to reduction in demand at the restaurants and so forth is going to be replaced with people who are so happy to get out and to be able to do something and we know a little more of that down here in Florida because we've had a little faster progress with the vaccine and it's amazing. People come down to see us from the Midwest and they can't believe it, they say it's normal down there. Well, I'm not sure, but it's certainly busy and it's about to be busy everywhere I think.

Yeager: I've seen a lot of pictures from people in the Midwest down in your neck of the woods this week celebrating spring break that they did not get last year the way they wanted it to. Real quickly on feeders, John. There's a little bit of a story someone told me about the basis on spreads indicating that there could be some swings coming, a major swing coming in the feeder market. Do you buy into that?

Roach: We think that if the corn market does not take off and run then the feeder cattle market will. If the corn market does that will put a lid over on the feeder side. But we think the feeder supplies are right, we saw the market stronger this week. We think we have stronger prices ahead.

Yeager: All right. In the hog we've got significant discrepancies between what China is producing, what they're wanting in the hog market. Again, you talked about having what sources you believe in China. What are you believing about China's impact on our domestic market of pork?

Roach: I think that although they're claiming to have worked their way through the ASF, they're still well behind on numbers and they're still struggling with that. We think that the export demand is good. Export sales this week were excellent, although interestingly enough to Mexico, they were the biggest buyer. And we think we have a good demand out forward and we have some smaller supplies. So we're positive on the hogs. However, we also have sell signals. We're selling into the summer hogs here and we're selling a little into the fall. We do 80% of summer hogs and up to 30% of fall.

Yeager: All right, John Roach, thank you so much. Good to talk to you. We'll see you in Market Plus. That will do it for the installment of the TV show we call Market to Market. As I just said, we will talk more in Market Plus so join John and I there. You can find that on our website at MarketToMarket.org. And our YouTube channel is more than just a place to watch our full program, Market Plus and our stories. It is a chance for you to see our work on any device at any time. Join the thousands who have already clicked subscribe at youtube.com/markettomarket. Next week we check out some cattle producers using electronic animal ID's. Thank you so much for watching. Have a great week.

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