Market Analysis: Jeff French

Market Analysis: Jeff French

Sep 3, 2021  | Ep4703 | Podcast

Podcast

USDA announced a change in their September Crop Production report that could ultimately update planted and harvest acreage estimates. The market is moving ahead of next week’s report and also digesting ample rain and shipping problems in Louisiana. For the week, December wheat subtracted six cents while the nearby corn contract declined 30 cents. Timely rains has some saying it could help fill pods, but others contend it is too little too late. The November soybean contract shed 31 cents. December meal lost $11.40 per ton. December cotton fell 82 cents per hundredweight. Over in the dairy parlor, October Class III milk futures added 15 cents. A down week in the livestock sector. October cattle cut $4.33. October feeders shed $5.95. And the October lean hog contract dropped $1.15. In the currency markets, the U.S. Dollar index lost 65 ticks. October crude oil improved 44 cents per barrel. COMEX Gold expanded $12.60 per ounce. And the Goldman Sachs Commodity Index increased nearly 6 points to finish at 533.40.   

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

French: Paul, great to be here.

Yeager: Good to have you here. You didn't have to bring your rain coat. We had that last week. Did this rain have a major impact on wheat as it did on maybe corn and soybeans?

French: Somewhat.

Yeager: I need it from a planting perspective moving forward.

French: Well, they're waiting on the rains. If you look at Kansas, they want to get some moisture to plant the crop. But I look at the price action in the wheat, we had Canada come out here earlier in the week, friendly report. Canada's crop is down 35%. It is well telegraphed. They have had a major drought up there. But the market didn't really react too positive. It had some outside reactions to what is going down in the South. But this wheat is high-priced, you've got $7 new crop wheat and I anticipate that you're going to see more acres go in the ground next year.

Yeager: Well, and that's partially my weather question but also partially the other question, when you're over $7 the wheat, the acreage battle? So do you think wheat is the biggest winner in 2022 for acres?

French: Right now I think if Kansas can get the moisture, I anticipate wheat will see probably upwards of 2 to 3 million additional acres. I have clients in Kansas right now that are looking into putting wheat underneath their pivots and that is simply because of the inputs on the corn. They're so expensive, with new crop wheat at $7 you can lock that in right now, have it protected here for all of growing season, $7 wheat is a money maker.

Yeager: Quickly, are you getting rid of any wheat right now?

French: I have no problem -- we're sold out of old crop. New crop we're upwards of 20% sold. But again, $7 wheat, it makes money, get some booked here, but also protect the downside in case there is, there could be some more upside here. That crop up in the hard red spring wheat could continue to get smaller. That could attract some buying. But these are really good prices. You need to be defensive here.

Yeager: Are these good prices in corn?

French: They're moneymaking prices. This crop went in when it was $3 inputs, so we've had a big rally here in the last year. Now here short-term we're kind of on a downslope. We held support at $5.20. We need to continue to hold that because if we take out $5.20 in December, $5.01 is the 200-day moving average, this week we closed below the 20, 50 and 100 day moving average in corn. We have not done that in a year. So you have these funds that control a lot of bushels. And when we start taking out those moving averages like that they don't want to be holding onto those long contracts and right now they're long about 200,000 contracts of corn. If we start taking out that $5.01 they're going to quickly sell the remaining.

Yeager: We have a question about round numbers in corn we'll get to in Market Plus. So I'll ask you though now, do those moving average closures underneath them prompt you if I'm a grower sitting with a decent crop in my fields, am I booking some more sales right now in the say December?

French: Well, again, corn right now is making money at $5.20 or $5.25, a lot of places still have positive basis. If you are selling into this downslide that we've seen here just get it reowned. Buy a March call out there for, you can buy a $5.70 March call for under 20 cents a bushel, you can reown those bushels for the next six months. Right now I'm not making sales. Now, if we start closing below $5.20 I might get a little more aggressive there.

Yeager: September 10 is a new USDA report and it's going to be possibly different, the news of relooking at acres. Is that a big impact on corn?

French: Well, I think it surprised the market a little bit and that also added to the selling pressure this week. When that was announced we immediately moved lower. The trade has kind of digested it and the trade kind of anticipates that the acres are going to go upwards of anywhere from 800,000 upwards of 1.2 million more acres of corn. So we'll just have to see what the government says. But for them to come out in September that raises questions.

Yeager: Does that translate to anything different in the soybean market, that same USDA change?

French: I think the market is pretty comfortable with that 89 million. We've had some good rains here, it's late August, early September here. Will they help? That's the question. I don't think they're going to hurt by all means. But most people anticipate that yield in beans are inches upwards. The market right now is pretty comfortable with supply.

Yeager: Okay, well we have a question about basis, a little bit how it relates to supply and it came from Jared in Illinois via Twitter. And he's asking us, if ending stocks are as tight as they seem for soybeans, why is there a 10 cent under local basis going into harvest?

French: Well, I've traveled a lot here this summer and I've been talking to producers all over the Midwest and I'm shocked at how many producers I talk to that are zero percent sold. And this is within the last month of being out on the road. So I think the market kind of anticipates that the American farmer has not sold a lot of new crop. Last year they still have the sour taste of selling new crop beans at $10 and then watching it go up to $14 by the end of the year. Well, we have $13 beans right now. These are very good high prices. These prices are typically associated with a crop disaster and I just don't see a disaster out there.

Yeager: Right before we started, Executive Producer Dave Miller showed me, he quizzed me on a close sheet. When is this from? And it was right about $13, it was from 2012. That was a catastrophic crop year. Are we in a catastrophic crop year with these prices?

French: No.

Yeager: So does that mean book some sales?

French: Again, when you are a grain producer and you can make money off of the crop that you put in the ground and six months later harvest it and you can make money I'm not going to tell you to never sell that because that's what we're going to do. We're not into being right. It's about making money. And these prices make money, get some sold. But again, defend it with some call options out into March.

Yeager: All right, I asked you about cotton if we could talk about it and you said yes. There's a reason why. What is the big flat line against that cotton market?

French: A brick wall at 95 cents. We've tested it here for about 3 weeks. We traded above it for about an hour during the trading session. So get some cotton sold. If we can close above 95 cents for 2 days consecutively, buy everything back that you sold because we are going to go higher. But again, these are good prices, get some sold up here.

Yeager: Back to round numbers again. All right, let's get into livestock. This is something, two consecutive weeks where everything had been on the rise. Why the fall this week? Let's start with live cattle.

French: Well, I think you saw -- live cattle went up there and made multiyear highs after the cattle on feed didn't give us the bearish surprise. We hit $138 in December. Historically December cattle at $138 are very expensive. You can count on one hand how many times we've hit $138. So you saw, number one, longs take some profits, but also you saw producers saying hey, these are good prices, let's get some protection. So you've seen a lot of hedge pressure come into this market.

Yeager: Somebody was maybe listening to someone saying, these are good prices, multiyear, take advantage. So, feeder wise, there is a theory that maybe we need a leg lower to go back higher. Is this a technical move ahead for feeders or a fundamental story?

French: I think it's technical. There are some gaps on the charts that we put on in July that now we're within a dollar, dollar and a half of filling those gaps. And gaps typically in the livestock market, they get filled. We also had the August 22 feeder cattle contract come on the board last week. It opened at $174. That is a very good price long-term. So again, producers are looking at this price and saying hey, we need to protect it and that is absolutely what they should be doing.

Yeager: That is a 3.5% drop this week, $5.95. So if I'm looking to expand my herd right now am I in a good position?

French: Yeah, I think you wait and see, we've got a long weekend here. We open lower Tuesday, come back and close higher I think that would be a good sign. But right now the cattle market is trending. We've had 9 days in a row where it's lower lows and lower highs, that is not a friendly chart pattern. So let's see if we can stabilize and start moving higher and then we're going to get back on the long side.

Yeager: So maybe sit out for just a little bit longer?

French: I'd be a little patient here right now.

Yeager: Okay. Hog market, what do you think of Asia is having an issue with a lot of virus issue? Is that impacting what they're willing to take in imports?

French: Well, I want to be bullish hogs. You just said it, China is continuing to have problems, Germany is having problems. Exports this week were large. Now, China had a small cancellation or reduction. But I look at the hog market, we're at 90, 85 cents, 90 cents here upfront in the October, historically very good prices and then you have the ASF that is in the Western Hemisphere down in the Dominican Republic, that's 90 miles from Puerto Rico. Puerto Rico is considered a state. So I would be very cautious here. We do not want to see ASF in the States here.

Yeager: I want to spend the last minute discussing this hurricane this week. What is going to be the long-term effect Ida caused in say New Orleans, maybe long-term, this harvest season as we finish up '21?

French: From what my sources are saying we've got 10 days that we're going to be down here, maybe 2 weeks. But we actually dodged a bullet from an industry standpoint because September is our slowest month for exports. So from that side of it for it to hit any time it's probably a good time. If this would have hit late September or October when harvest was going at full speed here in the Midwest I think you would see a much more dramatic move lower because it is a very important port, 60% of our ag products flow through New Orleans. But we've been through this before, they're going to get it up and running as quickly as possible. It's negative near-term but I think we overdid it a little bit.

Yeager: The market overdid it because there was a discussion of was it all shipping and then the rise yesterday, tiny bit of a rise Friday, if that was a dead cat bounce? But maybe that's what you're indicating that maybe it's not as bad as we thought and that is why the market moved higher.

French: Yeah, markets tend to overdo it real quick. And again, I think the market kind of took a couple day breather, we've been through this before, there's not too much structural damage, a couple are, mainly it's just getting the power up and from right now I'm hearing 10 to 14 days.

Yeager: And there wasn't much old crop to ship anyway.

French: There shouldn't be. You've got a great positive basis right now. By the end of the month the basis is going to evaporate. So sell the old crop here, absolutely.

Yeager: And maybe the new crop too. All right, Jeff French, thank you so much, appreciate the time.

French: 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. Find that on our website of MarketToMarket.org. Learning happens, even on a holiday weekend. The Classroom section of our website provides constant updates to our entrepreneurship, innovation and commodity market sections. Visit markettomarket.org/classroom for more. Next week we look at the logistics post-Ida of shipping grain along the Mississippi River. Thank you so very much for watching and have a great week.

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