Market Analysis: Matt Bennett

Market Analysis: Matt Bennett

Jul 30, 2021  | Ep4650 | Podcast

Podcast

Rumors of renewed buying by China and weather made for mixed markets. For the week, September wheat gained 11 cents while the nearby corn contract fell 9 cents. A large purchase of soybeans scheduled for an unknown destination and a dry 10-day forecast left the September contract flat by the final session. September meal dropped $1.80 per ton. December cotton lost 54 cents per hundredweight. Over in the dairy parlor, September Class III milk fell 58 cents. A mixed week in the livestock sector. October cattle gained a nickel. September feeders shed 73 cents. And the October lean hog contract fell $4.60. In the currency markets, the U.S. Dollar index lost 50 ticks. September crude oil gained $2.35 per barrel. COMEX Gold lost $3.80 per ounce. And the Goldman Sachs Commodity Index moved more than 12 points higher to finish at 541.55.

Kohlsdorf: Now here to provide insight is one of our regular market analysts, Matt Bennett. Hi, Matt.

Bennett: Hi.

Kohlsdorf: Thanks for joining us.

Bennett: Absolutely.

Kohlsdorf: All right, so the first question we're going to head to social media. We got one from Vance Kraeger. He said, yield estimates are too low. Is it really only Iowa and Illinois production that matters?

Bennett: That's an excellent question and I would say this year is going to be really tough to quantify what your final yield is going to be because, by all means, Illinois and Indiana I think as advertised have pretty good crops. Indiana, in my opinion, could be a record. Illinois probably could push on a record, maybe not quite a record, there's going to be several wet holes and not ideal conditions from one side of the state to the other, but it's pretty good. Iowa definitely kind of a mixed bag but I still think the Iowa corn crop overall is in pretty good shape, especially if they get rain this weekend. It's ultra important. The thing is, how do you quantify that with the dry conditions in North and South Dakota and Minnesota? Obviously Minnesota is typically in top 5 states for corn production. You can't ignore the fact that they've had a real deficit of soil moisture. So I don't think Iowa and Illinois are the only ones to consider or to think about. But I would say, maybe to try to answer the question, it's going to be tough and it's going to take some time to try to get a handle on this yield. I'm not to the USDA's 179.5 by any stretch right now. I do think we'll probably have a record crop of 177 or better.

Kohlsdorf: Okay. So our next question sort of comes from you, the last time you were on the show back in April you said that we could expect some fireworks in the market. With spring wheat now leading the way are these the fireworks you were expecting or hoping for?

Bennett: The thing about spring wheat is they just have had terrible weather for that spring wheat crop and then you come in here this week and you see the spring wheat tour come out and they say 29 bushel yield. The 5 year average for this tour is about 43 bushel. So you're looking at about a 14 bushel smaller crop and especially when you're talking about 43 to begin with substantially smaller than what we're typically used to. The total U.S. wheat crop is going to be smaller, we know that. Canadian wheat crop is likely to be smaller from what estimates are coming in at. World wheat is going to be kind of steady but whenever you see that much in the way of weather issues with spring wheat issue there's no question that the fireworks were going to happen, especially whenever you look over to corn and soybeans. We've had a lot of crazy weather this year, wild disparities from really good to really bad and whenever you see parts of the country not getting any rain whatsoever and carryouts as tight as what they are the fireworks are not anything that surprised me.

Kohlsdorf: Yeah. And you kind of mentioned corn. Are we going to see fireworks with corn too?

Bennett: Well, we've already seen fireworks in my opinion. And so this time of year heading into harvest we're probably six weeks away from harvest really getting a good start. Yeah, there's going to be corn picked early on this year, especially chasing an early premium. I think everyone knew that we were going to be running very tight as far as corn stocks were concerned. And so with that being the case a lot of folks tried to get after it early this year, planted some early maturing hybrids. But for me it's a tough time to get bullish, especially whenever December corn is $5.50. My opinion is you watch this market, it's just kind of chopping around. I don't really see any reason that that's going to change unless we get into a situation where China steps in with big purchases again or we see a broad rainfall pattern change, shift where everyone gets a lot of rain over the next two weeks. By all means, that could be detrimental towards prices. But otherwise I look for a chop in the corn market, kind of a sideways pattern with no clear direction right now.

Kohlsdorf: Okay. So moving onto soybeans, this week the crop rating for soybeans dropped 2 points. It is dry obviously. Is this the only thing that is going on with soybeans, the only factor right now? Or is there something else?

Bennett: Not necessarily. I think whenever it comes to soybeans relatively speaking you're talking two different things. Soybeans are an August crop. We know that it's going to take a while until we find out what this crop looks like from a yield standpoint. Corn, we've quantified more of that crop already. We know some areas are going to have a big crop. Soybeans we don't really know that anyone is going to have a big crop, especially in the heart of the Corn Belt. So we need to get another 2 weeks under our belt, maybe a couple of good soaking rains before we can start to say we think that this is a 50 bushel national yield or better. Right now the forecast doesn't look all that great. But I think part of the reason why beans got beat up so bad on Friday is that it was raining in the Northern Plains, it was raining in parts of Minnesota and there is a cooler pattern advertised. So it kind of takes the heat off these beans, gives them a little bit of a breath of fresh air and maybe they can wait on rain just a little bit longer.

Kohlsdorf: Okay. So over in the meats we saw live cattle finish higher for the week. What is helping with that move?

Bennett: Well, numbers. So last week placements were like 92.9 and the market was expecting something in excess of that by about 3%. And so basically you've got supply just a little bit lower than what people have thought, boxed beef kind of bottomed out this week. And so I do think a lot of the supply issue or the supply bullish information is already into the market though. And so I don't look for cattle really to move substantially until they get more news. At this stage of the game fats, in my opinion, over 120 are probably rich enough for the time being. But at the same time I don't necessarily see them going down substantially.

Kohlsdorf: Okay, so feeders were lower. What is going on there? Is part of it just this new COVID variant that we keep hearing about and concerns about production?

Bennett: I'm not sure as far as feeders being off that that would be the issue. It's part of it no doubt because people are going to be afraid. Hey, are we going to shut down restaurant demand? And that would play more into fats. But anybody who is buying feeders has got to be thinking about what are fats going to do, by all means. Feeders, as far as the cash market is concerned, they have been on fire. People are trying to get a good deal on feeders. They're just not getting them. And so $160 feeders, in my opinion, with feed costs where they're at, the producer has to hope that you stay in the high 130's out past the first of the year because if you don'[t I just don't see a whole lot of black ink there. So I think in the short run though, yes, that has probably got a little bit to do with it. The other thing that has got to do with the feeders backing off is that we got into the 160s and that is plenty rich right now.

Kohlsdorf: Where do you see consumer demand going? Is it going to continue to stay pretty high?

Bennett: That is a tough question. Bottom line people wanted to get out and do things, we know that, this summer, wanted to get out and spend a little bit of money, get out and take a vacation, go out to eat. Anybody who has tried to go out to eat over the last two or three months has found out that if you didn't have a reservation you're in big trouble if you're anywhere near a city. So yes, people want to get out and do things. If there are shut downs I think people will be a little more hesitant this time around and so I think consumer demand will remain intact more so than what it did the last time around but you can't think that if you have shut downs it's not going to affect demand. So that is something we have to keep a close eye on. I don't know what this COVID situation is going to turn out like any more than anyone else does. But my thought process is that we're not going to have near the fear factor that we had before and it will keep consumer demand fairly strong.

Kohlsdorf: Okay. This week there was some unsettling news that was coming out of the Dominican Republic, the African swine fever was discovered there. So week over week the price has dropped. What do producers need to know to be protecting their investment at this point?

Bennett: Front month hogs still in the $106 area to me is a pretty healthy price. Historically speaking we don't spend a lot of time over $100 hogs. And so yes, ASF in the Dominican Republic is fairly concerning. I think the last couple three times we've heard ASF it was out of China and then within another week or two we talk about expanding, rapidly expanding pork production. And so I think as long as we can keep it contained I think most people in the industry feel like the ability to contain ASF this time around would be better than last time around due to the measures and protocols we put into place. I've got to think that maybe we're going to stay a little more grounded. I don't think that the hog market is going to completely fall apart. At the same time I don't want to be buying $106 hogs.

Kohlsdorf: Do producers need to lock in their feed needs right now?

Bennett: The thing is, is that you've got to be careful here because if this crop doesn't finish well, and I'm talking soybean crop, soybeans are probably not going to go down substantially because if you don't finish well in the month of August you're probably going to be looking at some price appreciation. If that's the case it could spill over to corn as well. And so my personal opinion is they at least need to be locking in a healthy portion of it, maybe not 100%, but I would definitely be pretty aggressive.

Kohlsdorf: What about fuel needs, same?

Bennett: Fuel needs, they're tough. For fuel obviously we've come up substantially over the last couple three months. I know a lot of people locked fuel in last spring. But would I lock them in going into harvest right now? I think I'd probably give it a little bit of time as far as fuel is concerned. I think the time to really be aggressive has passed. And so I want to let this play out just a little bit.

Kohlsdorf: Okay. What about your pick on commodities? We'll finish with that.

Bennett: What is my pick on the best commodity to rally -- I think a lot of it is going to be weather dependent. But this past week if it was any indication this wheat market is fairly strong. But I do look for soybeans if the weather does not get any better, if we stay dry and any heat comes back into the forecast at all I expect big fireworks in the bean market once again.

Kohlsdorf: Okay. Thanks, Matt, for your insight. As always we appreciate you being here. That will do it for this installment of Market to Market. We will talk more in Market Plus so join us there. And you can find it on our website MarketToMarket.org. We have shared many of your posts in our stories section of our own feed of MarkettoMarketShow. Follow today to see the pictures. And next week we look at how U.S. farming operations are struggling to find labor. Thanks for watching and have a great week.

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