Market Analysis: Mark Gold

Market Analysis: Mark Gold

Aug 20, 2021  | Ep4701 | Podcast

Podcast

Widespread rain chances and a private estimate of a larger crop pressured the commodity markets. For the week, September wheat fell 48 cents while the nearby corn contract dropped 30 cents. An increased crop size prediction was not enough to off-set sales to China in the soy complex. The September soybean contract declined 79 cents. September meal shed $4.30 per ton. December cotton declined $1.18 per hundredweight. Over in the dairy parlor, September Class III milk lost 49 cents. An up week in the livestock sector. October cattle gained 92 cents. September feeders added $2.42. And the October lean hog contract improved $2.10. In the currency markets, the U.S. Dollar index jumped 100 ticks. September crude oil shed $5.71 per barrel. COMEX Gold added $6.50 per ounce. And the Goldman Sachs Commodity Index dropped nearly 34 points to finish at 493.45.

Yeager: Now here to provide insight is one of our regular market analysts, Mr. Mark Gold. Hello, sir.

Gold: Good afternoon, Paul. How are you today?

Yeager: I'm very well. And I wish I could say the same about some of these commodity markets. The wheat market down. A couple of factors from the outside looking in. A dry Russia you would think would improve U.S. prices, but it's not. There's some sympathy to other crops. What do you see as the big factor in wheat this week?

Gold: Well, I think as much as anything else fears of COVID, the strong dollar. We've moved this dollar back over 93 cents, which certainly doesn't encourage exports. There's still the Egyptians looking at buying Romanian wheat, Ukrainian wheat, there's more Russian wheat in back of that. So the world doesn't seem to be running out of wheat. The demand has been an issue. And some of these rains will certainly help regenerate some of the soil moisture for the planting of the winter wheat.

Yeager: Makes up those decisions which would lead to more what in the pipeline. So if I'm sitting around right now noticing I've done a 180 in 2 weeks, what do I do next week?

Gold: Well, to me there's still a lot of risk in this wheat market, particularly Chicago and Kansas City. The funds have come out of a lot of their positions. After tonight I think they're pretty close to even. But I think Minneapolis wheat still has a story. Knowing wheat is going to be in short supply, we know that, it acted pretty well today considering what the other markets have done. But overall I think we can see a selloff here. But wheat stocks are relatively tight and until we see some of the other countries come in we've got the dryness in Argentina, the dryness in Russia, Southern Russia had a little bit of rain. But there’s still going to be global tightness for this wheat crop. So I think buying the breaks probably wouldn't be a bad idea. But how deep is the break? I think it will depend on the corn and the beans.

Yeager: A lot of people came together this week to talk about crops and agriculture in general as they converged on the Iowa State Fair. I think you thought I was going to say something else. But that's what our Twitter question is, is about something else that came in. Shane in Nebraska, who I did have a chance to see at the Iowa State Fair, I hope you did well. Shane is asking from Bloomfield, Nebraska, how much impact does this Pro Farmer Tour have on the market?

Gold: Well, it has an effect, as we start getting these results in and if it's going contrary to what the market is thinking it certainly has an impact. If it's just confirming what we think is going on then there's less of an impact. But the crop tour today came out with the final of 177 against the government's 174.6. That's about 2.5 bushels more. Tack that onto the carryouts you could add 200 million onto the carryouts pretty quickly out here. And so I think the market has been sensing that the rains we have had have stopped the losses and helped a lot of the areas. The question has been pretty much the entire growing season, is it so bad in the Northern Plains states, South Dakota, North Dakota, Northern Iowa and Minnesota, is it bad enough to offset how good it is in a lot of other places? It looks net net, yes the crops are going to be down, but not as bad because what is happening south of I-80 is certainly bringing up yields.

Yeager: You wrote this week a couple of times discussing the way the market would respond. It would open up one direction and then reverse course heavily. The market was going that today again just like it had done the rest of the week but then came news leaked out about the EPA involving U.S. biofuel blending, possibly mandating their 2020 levels or there would be lower 2020 blending levels. What is that ethanol story doing to the corn market moving forward?

Gold: Well, with crude oil taking this kind of a drop, we haven't been this low in months in the crude oil, and that certainly questions ethanol demand that just puts more and more pressure on corn and if there's going to be a reduction in mandates it just doesn't bode well for the demand side of the equation out there. So the biggest problem I think with the corn market is the funds are so long even after today about 230,000 contracts. All the technicals point to this thing being lower and that the funds should actually be short, not long. So I'm not sure that the funds are done selling the corn. I think they've done a pretty good job lightening up on beans, wheat, meal and oil to some extent. But corn is still a problem in my opinion.

Yeager: You also wrote if we finished below the 100 day moving average, which I believe we did today, that is going to open the door maybe to some of the computers to kick us lower. Do you still but stock in that statement?

Gold: I do. We closed significantly, we closed just a quarter cent under it last night and significantly under it tonight so that's two days in a row. I would think we'd see more funds selling out here. Technically it's not a good signal. The 200 day moving average is down around $5, trendline support about $5.25, but I think both those targets are in play here. It's not that it might not be a bad move to buy something down there because there's still a lot of heat out here and a lot of dryness, we don't have the crop in the bin, so a harder break than we've seen here. If the funds can lighten up significantly then I think it's the time to take a look at the long side again.

Yeager: Do you see the same story developing in the soybean market, demand and weather squaring off?

Gold: Well, the weather is certainly, you make the beans in August and we've had some good general rains around the country in August, which I think is pushing up the yield. Pro Farmer came out with a 51.2 a bushel point two above the USDA. I think that's a reasonable number and the charts, again, look weak, the funds are still long. I think it's still a bit of an issue, they're still long a fair amount of oil. So I don't see where the strength is going to come from. How do you address a market that you have a really bullish report on the 12th of August, you have Chinese buying and Mexico buying over 2.2 million metric tons of beans this month and we're closing on our lowest levels of the month? So something is fundamentally wrong with this market that I think farmers need to pay attention to.

Yeager: All right, what do you pay attention to then to see what changes because is there a technical signal coming because you're kind of indicating maybe the fundamental signal isn't jiving? So is there a technical thing coming?

Gold: Well, I think when we closed under the day before the reports came out, which we've done now in the beans and the corn, I believe that is pretty significant. It's telling you that whatever news you built into it has been rejected and despite all the huge exports in the beans we're not reacting positive, we're acting negatively. We're down 75 cents for the week. So that certainly doesn't bode well in my opinion.

Yeager: The livestock producer begs to differ. They had a little better week. Let's start with live cattle. What is the reason for that movement higher?

Gold: Well, we've seen the trade in the north $127, $128, south they hardly get over $122, $123 in that range. Boxed beef through the roof again, we were up another 3.14 to 3.44 in change. We've got to increase the slaughter out there. Now, some people think that some of the local locker plants may be ramping up for more production, which would be good. We need to see the October cattle close over $130. We've come up against it a number of times. We've seen August cattle, excuse me, October cattle in the last couple of days up 90, down 90, up 90, down 90, up 90 again today but we can't close over $130. If we close over $130 I think it will be an indication that the prices in the south are too cheap. Packers are making good money out here. But we need to do something about that boxed beef and the cure for that is picking up the slaughter rates. So hopefully we can see plants going back to full production, get the boxed beef prices down, increase demand at the counter and hopefully the packers have money, there's still margins in these cattle to pay up for more cattle.

Yeager: Well, and we quote the near contract in live cattle, but if you look at December that moved to a contract high. Does that tell you something about what is to come?

Gold: Well, I certainly think it's an indicator. The market doesn't want to break. I think it's just trying to bide its time. I don't see anything in the cattle on feed report tonight that is going to make a big difference. Placements were one tick over what they were looking for, marketing is on, feed came in right on the averages. So I don't know that there's anything there that is going to help the October cattle gap open over the $130. If we do close it over there that's positive.

Yeager: Real quickly here when it comes specifically to feeders, you kind of talked a little bit about it already, but is this heat influencing anything of this feeder market?

Gold: Well, certainly pasture is rough, guys have seemed to want to feed more corn. I think demand for corn will be up. But with the corn prices lower it's certainly helping these feeder cattle prices. So that to me long-term is a plus for the cattle market.

Yeager: The hog market we continue to discuss exports to China. They're buying beans. Are they still buying pork?

Gold: They have been. But once the August hogs went off the board they were right at $109, $110 in that area, the question is will the October try to get up to that level? The best they've done this week I think was 91 cents. We're still a long way away. But if demand continues to be strong I think we can move these hogs a little bit higher, particularly if the cattle do well as well.

Yeager: Is that really the only help to the hog market is the cattle market? Or is there a feed issue?

Gold: No, China is the big issue there. Certainly cattle help but China is going to be the big issue. We need to see them continuing to buy pork. While we've said 100 times that there's nothing more beneficial to the American farmer than a hungry Communist with a dollar in his pocket. So hopefully we'll see them buying more.

Yeager: I've got to say I think that's a new one. I don't think I've heard you use that one before. That's good.

Gold: You haven't been around enough.

Yeager: Maybe they're talking to me at the same time when you say that every time.

Gold: Yeah, maybe.

Yeager: Real quickly, this is a yes or no. Is the dollar going higher or lower next week?

 

Gold: I would have to say higher. It's a tough call but I would say higher. It has acted real good all week.

Yeager: Okay. Thank you, Mark. We'll continue that discussion in a moment. Thank you, sir.

Gold: 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. You can find it on our website of MarketToMarket.org. We are part of the millions of minutes of podcasts created each week, so subscribing is key to not missing an episode of the Market Analysis, Market Plus and the MtoM. If you’re planning to binge a few, and you haven’t been back for a while, re-subscribe where you get your podcasts. Next week, we’ll look at the economic impact of this season's drought and wildfires. Thank you so very much for watching. Have a great week.

(music)

(music)

Trading in futures and options involves substantial risk. No warranty is given or implied by Iowa PBS or the analysts who appear on Market to Market. Past performance is not necessarily indicative of future results.

Market to Market is a production of Iowa PBS which is solely responsible for its content.

More from this show

Grinnell Mutual Insurance
Sukup
Accu-Steel
Pioneer