Market analysis: Ted Seifried

Market Analysis: Ted Seifried

Mar 26, 2021  | Ep4632 | Podcast

Podcast

The trade moved sideways as positions are starting to solidify ahead of next week’s planting intentions report. For the week, May wheat lost 14 cents while the nearby corn contract dropped a nickel. A break in crude oil spilled over into the soybean complex. May soybeans shed 16 cents. May meal dropped $3.90. May cotton shrank by $4.30 per hundredweight. Over in the dairy parlor, April Class III milk futures added 4 cents. An up week in the livestock sector, June cattle gained $3.10. May feeders rose $5.20. And the June lean hog contract jumped $5. In the currency markets, the U.S. Dollar index improved 88 ticks. May crude oil decreased 64 cents per barrel. COMEX Gold lost $11.10 per ounce. And the Goldman Sachs Commodity Index gained nearly 3 points to finish at 474.05.

Yeager: Now here to provide insight is regular market analyst Ted Seifried. Hello, sir.

Seifried: Hey, Paul.

Yeager: Good to have you here.

Seifried: Great to be here.

Yeager: Great to be here as we talk about really nothing. It's been a week of dancing side-to-side as we get ready for this acreage report. But let's start with wheat and why the weather seems to matter whether it's the United States and the Plains getting rain, Australia getting rain, I always seem to ask the same question but it seems to be the time of year. Is weather the big story or is it a supply issue right now?

Seifried: It's weather for sure. But it's somewhat impressive that we had rain events happening and we're only down 14 cents for the week. So that's pretty good. Now, you found some strength at the end of the day on Friday because we were really approaching some very key support levels. The 200 day moving average in the May Chicago wheat and when you're going home in front of a weekend and you've been short and you see that big support level you tend to want to take some profit so a little bit of shortcovering there. Now, whether that holds or not is a very good question. I think weather fundamentals are getting a little bit more bearish for wheat. But ultimately I think there's some bullish reasons to think that wheat can try to hold here and maybe bounce back up towards those highs again, possibly coming from row crops, or a little bit of spillover strength coming from row crops. But that's all going to kind of depend on what happens with our big report next week.

Yeager: Well, another factor in the wheat market is a question that we got via Instagram from Chris in Wisconsin. He's asking, with the stronger U.S. dollar does that slow down the pace of U.S grain exports?

Seifried: Right. So, that is the concern that we have and that has been part of the thorn in the side of the wheat for a couple of weeks now is that the dollar looks like it has found a bottom and trying to stabilize. So we will have to see. Whenever we talk about the strength in the dollar understand the dollar index is a basket against other currencies. It’s not something that we look at very closely for row crops because we look at our main competitor down in South America, that's not a big part of the basket. That basket is mainly based on the Yen and the Euro. But when we talk about wheat it is a big competitor because of who else is selling wheat. It's not South America. It's Europe and Russia and Australia. So that stronger dollar does seem to have a bigger impact on U.S. exports. But whether there is a whole lot of upside potential in that dollar or not remains to be seen. I kind of don't think there is.

Yeager: The spreads aren't widening so much in wheat but they are in corn but then this week all of a sudden they turned around and got a little closer together. What's that starting to tell you?

Seifried: Not really on Friday, Paul. The very interesting thing that we have in corn is when you look at the fundamentals for corn, or at least the known fundamentals, what the USDA balance sheet says, we have a fairly ample carryover according to the USDA. They have been very reluctant to increase exports, they have been very reluctant to lower that ending stock number at a 1.5 billion bushel carryover. We don't have to price ration corn. That is a soybean story. But the market acts like we do, the spreads act like we do, the cash market acts like we do. That May-July spread that's very much saying that we have a shortage of corn up front. Now, whether that is farmers not wanting to sell cash corn here because they sold too low on the soybeans so now they're looking to make it up on corn or they sold some corn too cheaply and now they're really holding on for the big summer rally that has kind of been touted for the last few months. I don't know what it is. But we're going to see a lot more about that on the quarterly grain stocks report. Are we going to see another revision from the USDA on production from the last couple of years and saying, hey there isn't as much corn out there, which could translate into a big revision on the USDA balance sheet. So the market is trying to tell us something here and it doesn't really reflect the fundamentals that the USDA is giving us. So whether that is the market trying to outsmart the USDA and ultimately the market might be wrong or whether that's the market knowing something that the USDA hasn't put on paper yet, we're going to see and a big part or a big step forward in answering that question is going to happen on Wednesday.

Yeager: Well, and the story about what the market is trying to tell you better than what a government agency is going to tell you is hard to, if you do have grain left in the bin because if you do right now with corn, say you've got some old crop, are you telling anybody to sell before Wednesday?

Seifried: Hmm, it's a great question. I don't have a lot of guys that have a ton of old crop left.

Yeager: I don't think you're alone in that either.

Seifried: Yeah, I don't think so either. But I have been saying hey, we definitely want to hold onto some bushels going into the growing season because if we see some fireworks everybody wants to be able to say hey, I sold $6 corn or whatever. Personally I don't think we're going to see $6 corn. But we will see. I think for the most part what I'm telling guys to do is hey, if you want to manage risk go ahead and make cash sales. If we want to have the opportunity to see prices go higher let's come in and own calls or a call spread, that way we're risking 12 to 16 cents or something like that rather than risking 50, 60, 70 cents on the cash side of things. So, selling cash, if you want to reown using the board that's a different story. But yeah, I think you should be 80% sold cash going into this report on Wednesday.

Yeager: If the market has taught us anything in the last 9 months is volatility can absolutely happen in one or two days. And you could lose that 50 to 60 cents that you're talking about.

Seifried: Yeah, absolutely. And I'm talking about 80% sold on old crop corn. That's not where I'm at on new crop. But even 40%, 50% sold on new crop I think is a very legitimate thing right now. But yes, volatility, wow we saw a ton of that at the tail end of the last calendar year. But we've been so very sideways here basically since the beginning of the year that at some point we're going to see a big move one way or the other. Now, the question is which way? And we don't have an answer to that yet. The market doesn't know. It's super indecisive. We're down on Thursday, we're up on Friday and that's just how it has been. Well, one of these days we're going to pick and direction and we're going to move. Maybe Wednesday gives us some insight into that. Either way, that move is going to happen, so you've got to be ready for that. And if that moves to the downside and you're still sitting on a whole bunch of old crop corn, that is not going to be a fun situation.

Yeager: Then you have to tell people you sold corn at $3 or whatever it is. All right, to soybeans and I'm going to get your thoughts on new crop corn in Market Plus. But on beans, the trade is expecting large acres next week, although we couldn't hold, we barely held $14 at the end of today on that nearby crop. What are those two stories telling you?

Seifried: So, when you talk about acreage we're talking about a new crop situation. When we're talking about $14 May soybeans we're talking about the old crop situation. There's a fundamental difference in the idea that we're running out of soybeans in the old crop, which is why we are where we're at. But just like we were talking about in corn, how the market is kind of trying to tell us something about the cash market and about maybe there isn't as much corn out there as what the USDA is saying. Well, maybe the market is saying something about soybeans too, maybe there are more soybeans out there compared to what the USDA is saying. And I don't know if the market is right about that or not. Like I said, Wednesday should give us a lot more insight into that. But the weakness that we're seeing in old crop soybeans is really interesting because if the USDA is right we can't really see lower prices tempting more demand. We just don't have the soybeans to create new demand. So if we start to see export sales pick up or something like that again then that's just the higher we're going to have to go in old crop soybeans. June and July could be very, very interesting months for the soybeans. So we'll see. But the weakness was surprising at the end of the week. You can say that maybe the market feels like with export sales tailing off, especially new crop export sales being somewhat non-existent, that maybe we have price rationed demand at this point or maybe the Brazilian crop is going to be bigger than expected so maybe we'll see some cancellations. Although at this point we've been shipping soybeans so there's not a whole lot of beans out there to be cancelled. So I still think that it's going to be very interesting June and July for soybeans unless somehow the USDA finds a big amount of soybeans on its quarterly grain stocks report.

Yeager: All right, we'll get your thoughts on kind of where we should maybe position ourselves in Market Plus for corn and soybeans. I want to move to livestock because they were very green for the week. Why? Let's start with live cattle.

Seifried: Well, live cattle, wow it had been seven, almost eight weeks where we had just sideways trading cash and that was getting very frustrating, especially at one point you had April cattle trading into an $11 premium to cash with the expectation that that cash was going to trade higher but then it didn't and then it didn't again and then it didn't again. And it was just Groundhog Day all over again. And so we had to break off of our highs. But finally the cash cattle started to find some footing, a little bit of strength, not a tremendous amount. $14 traded, $15, we heard a little bit of $16. So that is better and that allowed the cattle market to find some footing and start to come back a little bit. Even feeders were higher on Friday despite the fact that corn was coming back up 6 cents or so. So that cattle complex, that chart for both feeders and live cattle look pretty good to go back and maybe go retest those highs. But we need to see the cash cattle trade higher. Now, we're optimistic about that. We know that we have a lot of weight up front so it might take a little bit of time. But domestic demand has been really very good. Export demand has been solid. I think there is more strength coming in the cattle. I like where we're going from here and I like the look of the charts. Now, hogs are much different story. That chart, I've been saying for about a month that that hog chart really looked a lot like the soybean chart looked like back in November. It had been a very nice, organized uptrend. And then we had to see a little bit of a break, we had to sort of fix the overbought condition of that market and we did. And now we're kind of in a position where I think there's potential to go quite a bit higher. Domestic demand is really good, just as we're getting into the beginning of grilling season. And then you have all the chatter out of China about ASF and the exports have been really solid but could they get better even and oh boy, this is sort of an interesting time for hogs. And now you've got pretty much all the contract months trading over the par level, the 100 mark, the bulk of the strength coming in the mid to late summer because that's really I think when we're expecting the domestic demand and the exports to really be competing and that's when we might have quite a bit of exports to China. So yeah, it looks really good. The charts still look really good. Again, we've had our period of consolidation. I think there's more upside potential in the short run.

Yeager: That's pretty good. You've got that timing thing down right to within five seconds of us being done. Ted, good to see you. Thank you so much.

Seifried: Always a pleasure. Thanks, Paul.

Yeager: That will do it for this installment of Market to Market. We will talk more in Market Plus, so join us there. I heard there's going to be a whiteboard discussion. You can find it on our website of MarkettoMarket.org. Streaming of this program is possible through the PBS and YouTube apps. Our YouTube feed is full of things you don’t see on the broadcast version. Subscribe now at Youtube.com/MarkettoMarket. Next week, we look at changes in the grocery store over the last year. Thank you so very much for watching. Have yourselves a great week.

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