Market Analysis: Chris Robinson

Market Analysis: Chris Robinson

Jun 18, 2021  | Ep4644 | Podcast

Podcast

Algorithms and speculators made headlines while weather and policy debates factored into the trade. For the week, July wheat lost 18 cents while the nearby corn contract shed 29 cents. A record day for soybeans, lower, as the biggest one-day fall on the contract happened Thursday. For the week, the July contract plummeted $1.13. July meal fell $9.90 per ton. December cotton decreased by $2.74 per hundredweight. In the dairy parlor, July Class III milk weakened by 82 cents. A mixed week in the livestock sector. August cattle improved $1.52. August feeders added $3.85. And the July lean hog contract declined $11.30 or nine percent. In the currency markets, the U.S. Dollar index increased 164 ticks. July crude oil expanded 86 cents per barrel. COMEX Gold fell $108.10 per ounce. And the Goldman Sachs Commodity Index dropped by more than 11 points to finish at 519.30.

Yeager:  Now here to provide insight is market analyst Chris Robinson. Hello, sir.

Robinson: Hi, Paul.

Yeager: So, this dry story is a story across many grains. It might not be the story in corn or soybeans. But is it the story in wheat?

Robinson: For spring wheat, absolutely. The areas where you grow spring wheat they have been in a horrendous drought. Take a look at social media, you'll see some of these fields look like the surface of the Moon. It's the worst conditions for spring wheat I think since going back to '88 I believe. That is the last information I saw. So we'll see. And that's interesting, with all the volatility that we've had actually spring wheat held up pretty well yesterday if you were looking for yesterday being Thursday when we had the meltdown. Spring wheat held in there. So that was a sign of independent strength. And of course we had the correction higher today. So everything looked good. But I still think that has kind of been the real drought story and it's building. As far as corn it's building because the next couple of weeks we've got pollination, different parts of the country have got different levels of drought. Here in Iowa they've got some areas that are D1 or D2. So it's going to be very, very interesting. And that is why you see every 12 hours we have a whipsaw.

Yeager: Okay, you mentioned Twitter. Let's just bring the elephant in. It's full yesterday on Thursday of oh my gosh, it's 101, 102, 99. But yet we drop a limit down. So to me that says it's not a weather market. Was I reading something wrong? What is the mover in corn?

Robinson: For corn I think, well what happened on Thursday we probably won't know for a week or two, but something out of the ordinary happened to have a move like that and then also you see today the recover we had. That was something, I've been out here since 1990, I think we had one other time between that timeframe when we had a limit down and a limit up day. So I think there was something else going on there. I don't know if it was forced long liquidation by somebody or somewhere or just everybody that had been bent the one way got out all at once. That is the double edged sword with computer trading, when it starts running it runs, and it's different than when the pits were open because people would calm down where the machine just goes.

Yeager: The algorithms they don't know, they don't care.

Robinson: They don't understand emotion.

Yeager: Yeah, they see value and they're trying to capitalize on that. Okay, the weather picture is something and you talk about maybe something was amiss. Let's play conspiracy theory for a while. Russia, China, Biden policies, one of those three things? China changing their plan on what they want for the state companies?

Robinson: Yeah, that was the interesting thing. About a month ago they said they wanted to curb speculation, right, and nothing really happened. That was actually when we had our first dip in corn, we had that little whipsaw down to $5 and came back up to $6.28. But certainly on Thursday it was just a little article and the state leaders said that they were interested in seeing the long positions of anybody in their state owned companies that had long commodities outside of China. Well, 12 hours later is it a coincidence that you have this huge meltdown? I don't know. But it sure was, it just seemed like unending selling. And to finish the day down limit and then as soon as we open up to come off it seemed like it was certainly something was amiss. So we'll see what is down the road.

Yeager: So what do we do? New crop, what are we doing?

Robinson: For corn?

Yeager: For corn. How are we protecting ourselves?

Robinson: First of all, nothing beats a good cash sale. I was on a few months ago and we were talking about boy, it's going to be really nice if we get to see $4.30 corn, because for the past three or four years that was the magic number. And I think that certainly a lot of people when we got to that level a lot of people got some cash sales done thinking that that was going to be, if you look back at the past six or seven years that was a really good level to not let it get away, same thing for $10 beans. And this year was different. And we talked about it back then. We started seeing extreme volatility, it really took off after the March acreage report when that number came out and that set up for what is coming at the end of the month. What happened to those acres? Well, we're going to find out on the 30th. So, $4.30 became a good price. Then I think people started looking, well how high can it go? And this has been one year I Think after seven years of not really having volatile markets where it's really, your only defense against making what you think is a good cash sale turned into one that you regret is you had to reown it after the sale, and the only way to do that is either you buy calls to reown it on paper after you make a sale or you look for an opportunity to buy the futures back if you want to do it that way. But you have to reown it to stay in the game. And I would say in the next two or three weeks with the volatility we have and we're having 30, 40 cent moves overnight, if you make a sale because it makes good sense to your bottom line think about reowning it. And the nice thing now is with these shorter dated options you don't have to spend 25 cents or 30 cents or 40 cents. You can get a nice position on for 10, 12, 15 cents and stay in the game. So I think that is the number one thing, if you make a cash sale stay in the game.

Yeager: Okay, let's move to soybeans and I'll come back to a weather question in a moment. The soybean story, it is similar in some instances but there seems to be something else going on. What is it?

Robinson: Demand, and also we've got the tight carryout. Everybody knows that.

Yeager: But if this biofuels policy changes and the exemptions return or stay in place that we had in the previous administration that might eat into some of that carryout.

Robinson: Absolutely. But I think the big what if is China. China started buying beans from us back during the Trump administration and then low and behold we had an $8 rally, $6 to $8 rally depending on which contract you look at. That is a tremendous move, right? So that demand is really what has been underpinning everything and we saw it today. We were talking about it before we sat down. We had a dollar break in beans and low and behold 8 cargos left the Pacific Northwest going to China. So if you've got 1.4 billion people to feed that is going to be something that we're going to have to reckon with and with a tight supply no matter what happens with the Ren I think that is what is going to be the overall driver. And again, are we going to grow a 4 billion bushel crop this year? If we have any hiccups in the weather. If we don't then we really have a problem and that is why you see this price rationing.

Yeager: Well, we have a question about the weather. We have several questions about the weather. This is Matt in Clara City, Minnesota asked us on Facebook, you can only trade a forecast so long. Drought worries in June. Is a correction coming in soybeans? Is this the correction?

Robinson: Well it depends. We seem to have every 48 hours a correction, which again, we didn't see this for six or seven years. It's like, I was talking to one of my clients and I said, it's like being Rip Van Winkle, you didn't really have this type of volatility for six or seven years and you get lulled to sleep and now it's something that we haven't seen and certainly with electronic trading. So I would say this, I would say number one, if you do make a cash sale if it's a good price for you think about reowning it because who am I to sit here and say, no there's no way beans can go to $20, whatever, pick the price that is the most upsetting to you if you're a bear, just pick a number out of the thin air. The only way to stay in the game after the sale is to reown it. I wish there was some other way to do it. Unless you have psychic abilities and can tell me where the high is going to be that is the only way you can stay in the game. So I would say that. Then how do you play these markets? Well, if you've got unpriced grain when the market rallies $8 from the bottom, we had an $8 rally in new crop corn, somewhere along the way you should be protecting that grain. You could protect at $10, you could have moved it up to $12, you could have moved it up to $14. But at the end of the day you're in charge of what level you want to protect and I think that holds true. We've seen it time and time again where we've had very, very inexpensive protection that has blown up in 48 hours and then 48 hours after that it's back to being very, very inexpensive again. So there is a way to protect yourself. You've got to get your risk on paper. That is the reason the CME and the Board of Trade were all built. There is somebody there willing to take your risk, let them have your risk.

Yeager: Well, the risk in the livestock market, the cattle market, we're coming up on July Fourth, you didn't get processed this week, it's not going to be in the store in time. The price doesn't seem to reflect that we're having issues or anything slowed at the packer.

Robinson: No. That's the thing, there is a disconnect there, especially when you go to the store. But if you look at fat cattle, live cattle, we've got really, really excellent prices right now if you look at where we've come from and it has held in despite concerns about is the reopening going to continue. At the end of the day you've also seen something else we're talking about where this whole inflation trade. There's just a large part of the financial community wants to own physical commodities and they don't care if they own corn, wheat, beans. And that is something when you're starting to see a kind of sustained demand from not really the speculative funds, but the index funds, the index funds whose job it is to protect against inflation. You're somebody that says, I'm worried about inflation, you buy the index fund, they buy the basket. And there was some thought too that that's one of the reasons that we rebounded so hard after that sell off was that the index funds stepped in and bought that because their job is to protect against inflation and if inflation is at 2%, are we going to go back to 1976 and 8% inflation? If it is, the only way to get in front of that are these index funds. So that may be something that we haven't dealt with for years because we haven't had inflation so that might be a support.

Yeager: Are you expanding your feeder cattle to buy into maybe this inflation is going to be good for me?

Robinson: Feeder cattle, take a look at the long-term charts. We're at five year highs and that is something you've got to take advantage of. And we've seen multiyear highs on all these commodities, seven to eight year highs in corn and beans, if we get back up to where we were with crude oil at the height during the Trump administration it was $76.90, we're $4 away from that today, that's 5%. That is going to be a seven and a half year high. So you're starting to see that commodities across the board are at six to seven and a half year highs or back to where we were in 2014, 2012, that is the area. Is that going to last? I hope so.

Yeager: Also multiyear highs, the hog market.

Robinson: Seven year highs.

Yeager: Falling off that a little bit. Have we seen the high in hogs? I haven't pinned you down on that question yet.

Robinson: Have we seen the high in hogs? I hope not. A year ago at the bottom of the pandemic we were at 18 year lows and that was a horrendous time to be a hog producer. So I'm on the side of the producer, I think that the market is giving you a great opportunity to protect these prices and you can reach pretty far out to actually June or July of 2022. We haven't been able to say that for a long, long time. When these prices get high like they are the typically super expensive protection gets cheaper and cheaper. So it’s something to keep an eye on. And guys always say, well what can I do? What can I do? The only way to protect yourself is to get your risk on paper because otherwise you're just exposed to all the risk. So you don't want to let a $53 rally, we just lost $10, you don't want a $53 you lost $10, you don't want to see it lost another $10 or $15 so set a hedge. Setting a hedge does not mean you're getting bearish.

Yeager: You're being smart.

Robinson: You're being smart and if you do it right you can keep the upside open.

Yeager: All right, Chris Robinson, I appreciate the insight. We'll keep it going in Market Plus. How about that?

Robinson: Thank you.

Yeager: Good to see you. That will do it for this installment of Market to Market. We will talk more in Market Plus, so join us. You can find it on our website of MarketToMarket.org. There is also this thing called YouTube and it has something for everyone including full episodes, stories and our Market Plus. Subscribe by going to our page of youtube.com/markettomarket. Next week, we look at the possibility of eradicating famine.  Thanks you so very much for watching and have a great week.

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