Market Analysis: Arlan Suderman

Market Analysis: Arlan Suderman

Oct 8, 2021  | Ep4708 | Podcast

Podcast

Traders took a tepid response at news of export sales to Mexico while harvest pressure carried more weight and a return of the “oats knows” comments. For the week, December wheat lost 21 cents while the nearby corn contract decline 11 cents. China appears to be back buying U.S. soybeans while the Brazilians intend to plant more of the crop. The November soybean contract dropped 4 cents. December meal shed $8.20 per ton. December cotton added $5.88 per hundredweight. In the dairy parlor, November Class III milk futures moved 50 cents higher. A mixed week in the livestock sector. December cattle added $5.05. November feeders gained $8.25. And the December lean hog contract weakened $3.68. In the currency markets, the U.S. Dollar index improved 3 ticks. November crude oil added $3.78 per barrel. COMEX Gold fell 60 cents per ounce. And the Goldman Sachs Commodity Index improved almost 19 points to finish at 581.10.

Yeager: Now here to provide insight is market analyst, Arlan Suderman. Hey, Arlan.

Suderman: Good to be back with you, Paul.

Yeager: So, we could just talk wheat and just talk about Minneapolis and how good of a week it was for there but there's much more to that wheat story. What is in play here?

Suderman: Well, we've really tightened up the supplies of major exporting countries and that is where the bulk of the milling wheat supplies come. And I think the Minneapolis market has kind of become the poster child for that because obviously we had a short spring wheat crop on both sides of the border, both in Canada and in the United States. And so that is leading the way higher. And overall we're still trying to stay competitive. It depends on which class of wheat you're in. We saw the winter wheat market struggling a little bit through the week while Minneapolis was making new contract highs. But it still comes down to a smaller crop in Russia, smaller crop in the United States and the Northern Plains, smaller crop in Canada, some issues in other producing areas of the world as well.

Yeager: So is this one of those pauses before we move higher?

Suderman: Very possibly. It really depends on where we go from here. I think we've got priced in now the current known fundamentals. So now as we look at how many acres are we going to plant in Russia there's a sense that we're going to be down on acres there. By how much? And then look at the Southern Hemisphere crop, Australia and Argentina we've got some areas there where we're dry and Argentina's crop ratings have started to decline again as they started to dry out again.

Yeager: Let's do the weather report here, Arlan. I think in your back yard it is low 80s. It's low 80s here. But there is a change in the weather pattern in say the Upper Plains, which will impact any wheat planting or in the Southern Plains I should say. How quickly does weather become a story when you transition from wheat to say corn?

Suderman: Well, we are moving back into a La Nina pattern. That is more of a factor now for South America, especially dry for Argentina and Southern Brazil. Short-term what we're watching is these rains in the Northern Plains here in the days ahead. That could be a problem for unharvested soybeans in particular. If you go wet, dry, wet, dry, you cause the soybean pod to swell and to shrink, swell and shrink and it pops open, you have beans on the ground. So that would be a concern that we'll be watching there. Some heavy rains anticipated over the next few days. So it's certainly something to watch there. Brazil it's really hard to say now whether we're going to have a short crop or not because the correlations are weaker. Southern Brazil is at the highest risk and Argentina, the new European models that came out, the monthly models that came out this week look quite dry for the growing season for Argentina. So that could be a real concern going forward.

Yeager: Let's stay in the soybean discussion here for a moment. Harvesters are rolling, probably going to see a big percentage come Monday. But you have this concern, I don't know if it's concern, this return of China to the market. Earlier in the week, no no, we don't want any. Now we're back. When it comes to soybeans, you mentioned South America, I mentioned China, what do you mention as the big story in soybeans?

Suderman: It really comes down to the lack of demand right now in China. Hog feeding margins are very low right now and so while we're seeing power outages that are shut down over 20 crushing plants, as I talk to my sources in China they said, yeah that's a problem but the bigger problem is the lack of demand for meal because of these poor feeding margins. And we have a very narrow window in order to get our business done with China because once Brazil starts harvesting its new crop after the first of the year because the currency exchange rates they're going to be the cheaper source. So we have to do our business now between now and January. And so we need to see the shipment pace pick up and one of the reasons it's not is because of the weak meal demand near-term because those poor feeding margins.

Yeager: Soy oil has been a story. But let's flip over to crude oil and its impact on the corn market. Crude has had one of those weeks where it fell out of bed mid-week, came back a little bit. I think we reported here on the week over week a 5% gain. What is crude oil doing to the corn market? Is that the biggest influencer right now in corn, Arlan?

Suderman: Well, it's certainly one of the major factors. Crude oil is moving higher, 7-year highs, certainly a factor kind of challenging or instigating the inflation focus once again simultaneously with yields going up about 30 basis points over the last week or 10 days kind of reflecting that inflation expectation. Crude oil, natural gas, coal at record high prices, natural gas as record high prices in some parts of the world, not there yet in the United States but certainly high. We're shutting down some fertilizer plants. That is starting to reduce projections for corn acreage next year. But the high energy prices of the fossil fuels is also increasing the focus on the new renewable fuels and soy oil is certainly a big part of that, palm oil hit record highs this week because of that, canola oil being supported and also corn oil. Corn oil is also very attractive, more attractive than soy oil really for use in these new renewable fuels. We just don't have as much of it. That's all kind of providing support.

Yeager: I did not have corn oil on the bingo sheet for this week, Arlan. But what I Did have was oats. What is oats knowing? It's trading above corn. Is this going to be a long-term, short-term, I don't know what term impact on wheat or corn or soybeans moving forward?

Suderman: Yeah, those of us who have been around a while like to use that phrase, oats knows. I'm not sure that the fundamental connection is what it used to be. But Canada had a poor crop. U.S. imports the majority of the oats that it consumes. And because of the drought in the Southern Plains and Canada, Canada had a short crop and some quality issues, that means fewer exportable supplies to come south of the border into the United States. That means that those feeding oats have to look for other feed. So it's part of that overall feed equation right now helping support the feed grain complex.

Yeager: We'll get to the story of livestock in a moment. I've got a viewer question I really want to slip in here that's important. Ryan in Rapid City, South Dakota was asking us, with corn and soybean yields coming in seemingly higher than expected have the chances of a harvest rally gone out the window? Or might we see a bump in prices towards the end of the season?

Suderman: I don't think a rally has gone out the window. I'm not going to forecast it by any means. But what I'm seeing and what we're seeing as we survey our people across the Midwest is that corn yields nationally are coming down a little bit. They were higher than expected in the western belt where it was so dry, that's the good news for those farmers. But in the east where they were expected to be record high, and in some locations they still are, they're not quite as good as expected. Too wet, a lot of variability in the fields, late season disease pressure, the crop didn't finish well, didn't fill well so we're seeing lower yields in the east. And so nationally we're seeing corn yields ratchet down a little bit, soybean yields have been better than expected almost across the Midwest. Again, a lot of variability. But I think we'll see soybean yields go up on Tuesday, corn yields come down a little bit.

Yeager: All right, feeder market, up $8.25, that's 5%. What is the big pull here in feeders? Is it what you talked about with the feed issue?

Suderman: Yeah, of course the cattleman is always optimistic, things are always going to get better. We're seeing a little bit more strength in the fat cattle opportunities going forward and some optimism there so they feel like they can pay more for the feeders. We're also seeing some rains in the forecast for the Southern Plains. We're going to have to see that actually happen. We've really been drying out in Oklahoma and in Texas. Our cow numbers have been declining for the last six months so the supply of feeders is going to be declining, supply of fat cattle eventually will be declining. That is part of the optimism in the live cattle market as well. But again, it's part of the money flow and the optimism and the inflation and just the positive put money into the commodities type of mindset.

Yeager: This hog market last week a huge story, this week gave a little bit of it back. What is the pull in hogs?

Suderman: Well, we have a problem in hogs and expectations that we're going to see supplies increase faster than demand. Demand has been really good but seasonally goes down this time of year. But supplies haven't been what USDA says either, our pig litters haven't been -- we've had some disease problems in the United States this year that have negatively impacted litter size. When you look at demand and exports, we've had a lot of good exports, but China is the big focus and they've really been declining with their prices. In fact, in the last monthly data that just came out we sent China more beef than we did pork. I don't know that that's ever happened before.

Yeager: That is a story that we will talk about. One thing that we'll unplug real fast, you've got about 10 seconds to say cotton, has it hit its peak?

Suderman: Well, there's a lot of factors that could take cotton higher right now and it is battling with other crops for acres. China is really buying cotton right now and that is really driving it.

Yeager: Good job. We'll expand on cotton when we get to Market Plus. And also, Arlan, you also want to talk about inflation and China national day. So a lot to come up here in Market Plus. Thank you, Arlan.

Yeager: That will do it for this installment of Market to Market and the TV show. We will talk more in Market Plus so join us. Find that on our website of MarketToMarket.org. We are so very close to a milestone on our YouTube page. Will you and your ringing of our bell put us over the top of 5,000 subscribers? Click subscribe at MarketToMarket when you search that on YouTube and be in our inner circle of knowing when the stories, Market Plus and full program are ready for viewing. Next week, a panel of analysts returns to look at some peaks and valleys in the commodities around government reports. Thank you so very much for watching. Have a great week.

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