Market Analysis: Jeff French

Market Analysis: Jeff French

Jun 25, 2021  | Ep4645 | Podcast

Podcast

Announcer: Next, the Market to Market report

Paul Yeager: The effect of next week's acreage report from USDA on the commodity markets was reduced. When on Friday, the Supreme court ruled in favor of petroleum refiners in a battle over exemptions for blending renewable fuels for the week, July wheat lost 26 cents. While the nearby corn contract shed 19 cents, the soy complex also received pressure from the court's ruling for the week. The July contract dropped 66 cents. July meal fell 26, 20 per ton, December cotton added $2 per hundred weight over in the dairy parlor, July class three, milk weakened by a nickel, a mixed week in the livestock sector. August cattle added a dollar 25 August feeders increased 4 52 and the July lean hog contract plummeted 6 73 in the currency markets. The us dollar index lost 33 ticks August crude oil expanded to 67 per barrel. Colmex gold gained $8 per ounce and the Goldman Sachs commodity index drops by more than 10 points to finish at 5 2995.

Paul Yeager: Now here to provide insight is market analysts, Jeff French. Hello, Jeff.

Jeff French: Paul. Great to be here.

Paul Yeager: All right. I'm going to throw you a curve ball right off the bat. Okay. All right. I got two maps. I'm going to show you. And it's ones that I talk about all the time on our social media channels. One is the drought monitor. This is the drought monitor data. Cutoff is Tuesday morning. You can still see the west North Dakota, South Dakota, Montana, Iowa, Minnesota, back towards the east. This is a look at what the rain was then for the week. This is a weekly estimate, not the areas that needed it the most, but some areas that are big producing states. So which map had a bigger impact on commodities this week? The drought monitor or the rain precip?

Jeff French: Oh, I think the rain precip, uh, you know, we're going into pollination here pretty soon. And when you have this amount of rain forecasted for Iowa, Illinois, and parts of Indiana, they're saying, you know, 60% of the belt here over the weekend could receive up to upwards of one to four inches. And sometimes even locally, even more than that. So, you know, it's been hot out there, but we're getting some relief with some cooler temperatures. And I think that drought monitor, when you look at Iowa next week is going to show some improvement, especially central and west Northern, Northern needs rain. Yeah.

Paul Yeager: Up towards Minnesota and the Dakotas you've heard from everybody, but let's go into wheat country a little bit. Rain has been an issue, uh, in Kansas, Oklahoma for parts of this year, Texas. Is that the pressure on the market this week and wheat or, or is it just harvest pressure?

Jeff French: A little bit of both. I mean, it's also the pressure from their harvesting. Some of the best yielding wheat they've ever had now it's production wise. It's not going to be the biggest crop because acres were low. You know, a lot of this wheat planted last winter was our last fall was planned with a four in front of it. So we've had a big run up here, but, uh, uh, guys were hurrying to try to get this harvested before the rain, but, uh, their yield reports that I'm hearing from are better than expected. And, uh, that could continue to pressure prices in the winter wheat. But it's a major different story when you're looking at the spring wheat up north,

Paul Yeager: Are we going to be done seeing corn, uh, with a six in front of it? I mean, we've already seen December is flirting with going back below five. Are we done with sixes and fives for awhile?

Jeff French: Um, I think we're going to have to see what next week brings, uh, you know, the demand has been good, but this markets are about momentum and we've seen momentum up to the upside. The last two weeks. We've seen it come down here to the downside, you know, DC corn has lost more than a dollar here in the last two weeks. It held the a hundred day moving average at five 18. Uh, we have not closed December corn below the a hundred day moving average since August 13th, 2020. That is the exact day that this rally began on. So watch that number. I think that is a big issue and, and technically a big sign. If we close below that you get below $5, there's a gap down to the daily charts at 4 77.

Paul Yeager: All right. That 4 77 is a scary number. So if I haven't the whole, if I have any bushels left discussion is done. And in the past, if I've got anything left to contract for the fall that I feel comfortable doing with corn, do I do it now?

Jeff French: You know, I, I don't, we we've made sales at higher prices. Uh, we have our downside put protection in place in case it continues to go lower. Uh, we want to see what comes out next week. Uh, you know, the, the trade is anticipating, you know, th th this big growth in, in, in, in corn acres, which, you know, I can't disagree with, but that's already been built into this market. That's well expected. Um, you know, what about if the USDA doesn't increase the acreage as much as the trade anticipates? You know, that would be the bullish surprise. Uh, the trade is anticipating a pretty good growth in, uh, planted corn acres.

Paul Yeager: All right. Let's take a question right now that came in via Twitter, and this is pumpkin man in Michigan, and he says, do you think we may have taken the top off yield potential? that's a weather factor and the markets are only trading large acres.

Jeff French: Uh, it could be most, I mean, depending on where you're looking at geography geographically, uh, you know, if you're looking into the Dakotas parts of Minnesota, you know, yeah. Probably at the top of the yield has been taken off, uh, some places in Iowa, you know, we've got some good rains here that Slack's weak, and we got some more, uh, coming, hopefully here this weekend. So, you know, I'm not ruling out yet that we can't see trendline yields. I mean, we'll just have to see what the weather in July brings. And we all know that corn is made in July, not in June.

Paul Yeager: What about soybeans? Uh, well, it's a little early for the weather story to take effect there what's exports. What's the weight right now?

Jeff French: Well, it's really the whole bean complex. Uh, we saw a huge run-up in the bean oil, uh, the edible oils throughout the world. Uh, there was just a massive run of demand with low supply, and that kind of led us up well, that's corrected and that's led us down here. Um, you know, beans here in the last two weeks have shed almost $2 and 20 cents a bushel, uh, watch that 1265 area in November. Uh, that's a big technical area that opens the door to lower prices, but, you know, you know, we're talking about all this rain and price declined, you know, the balance sheets, especially in beans remain extremely tight. I mean, you're talking about a stocks to use ratio below 4% still. So, you know, again, it comes back to the momentum and right now it's to the downside, we had some news out there that was negative. And, uh, you know, Friday, you'll see market sell off like this.

Paul Yeager: You see the USDA, what's the crystal ball. I mean, mark, the trend is saying one thing about acreage next week, where do you see it?

Jeff French: You know, it's, it's gonna come down to that corn acre number. I mean, the trade has got kind of that 94 million acres, uh, penciled there. And that's kind of the average, um, you know, what are the, the private analysis last year that was pretty spot on. I mean, they, they actually have bean acres going down. I mean, that would be a shock. Uh, you know, everybody is expecting more acres to be planted. I mean, we had a great run-up in prices. Why wouldn't you plan it? Uh, there was definitely, uh, uh, you know, reward there be to be made if you've got the planted in. So we'll just have to see what they say next week,

Paul Yeager: Livestock wise. Um, this is one that has really confounded a lot of people live cattle. We just had a story about the beef packing industry. Congress has been involved their sniff into a problem that we knew existed, that there's just not many people processing. Is this the consumer driving this live cattle train right now?

Jeff French: No, I mean, this is the Packers. I mean, you know, the week that they have a Senate hearing, you know, cash prices jumped three to $4 a higher, I mean, there's plenty of room for them to be paying up for animals. I mean, they're making anywhere upwards from 800 to $900 a head. Um, you know, next week though that the USDA report will drive the livestock prices. I mean, you have feeder cattle up here and this $161- 64 area. Uh, I, I think personally that needs to be protected and going to this because if there is a Boulder surprise and corn does rebound, uh, you will see the feeder cattle, you know, they, they came into this week rallying and, uh, they'll reverse course real quick.

Paul Yeager: Cattle on feed, uh, on feed a hundred percent placements, 93 marketing's 1 23, any surprises in the cattle on feed report?

Jeff French: No major surprises. It's pretty friendly. I mean, the placements came in 3% lower than expected. Uh, you know, I look at the August board at $122, I think it's too cheap with cash at $126, $125 areas. So I would look for us next week to get a bounce early, and then we'll have all eyes on the U S degree report on Wednesday. So what would be a barest scenario if I'm a feeder from the acreage report next week? Um, 92 and a half million acres planted, and you'll see corn probably, um, you know, 25, 35, maybe even lock limit up higher. And, uh, you have November feeders, we've got a double top on the charts at $164, uh, you know, put on an August $155 put for the next week. See what happens?

Paul Yeager: Are you making recommendations then I absolutely need to be covering a whole bunch of feed needs right now?

Jeff French: Uh, yeah, I mean, it's on sale down here. I mean, if, if, if I'm a feeder, uh, and I'm looking at covering my fourth quarter needs, absolutely. I mean, you have meal right now, bean meal, that's a hundred dollars off its highs per ton. Uh, corn prices, a dollar off their highs in the last two weeks and beans, you know, two 20 off the high. So yeah, I would be covering feed needs here.

Paul Yeager: In the hog market. We're flirting with that a hundred dollar mark, and what's going to keep us from staying above it or going below it.

Jeff French: Well, we've had a big sell off here. I mean, we've broken 20 to $24 per a hundred off the highs here in a real quick fashion. Um, you know, the funds are going to control that the funds had a massive position. They were long 88,000 contracts. Um, you know, it's estimated now they're probably long about 65,000. Uh, so do they want to defend that position or do they want to continue to liquidate? You know, you look at the fourth quarter hogs, they're down here at 86 cents. So are we anticipating a, a falloff of demand? I mean, typically yes, the summer months after, you know, 4th of July, we do see a little bit slower demand kind of the dog days of summer. Um, but they're pricing in priority a pretty steep decline already. Uh, we'll just have to see where that brings us,

Paul Yeager: Uh, real quick, uh, cotton in 10 seconds, cotton acres. Um, are we going to see that there was maybe more taken away to soybeans and cotton?

Jeff French: I think it's going to be less than 12 million acres, uh, and it's been tremendously wet down there in the Delta. A big problem.

Paul Yeager: Well, I asked you a question in 10 seconds, my own fault, Jeff French. Thank you. Thanks Paul. That's my hazing. All right, that'll do it for this installment of Market to Market. We will talk more and Market Plus, so you can join us there. Find that on our website of market to market.org, YouTube has something for everyone, including full episodes stories and our market plus subscribe by going to our page of Market to Market next week, the data markets and surveys of the USDA. Thanks for watching. Have a great week

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