Market Analysis: Mark Gold

Market Analysis: Mark Gold

Dec 3, 2021  | Ep4716 | Podcast

Podcast

Fund liquidation and higher world production impacted the wheat market. And for the week, the nearby wheat contract fell 37 cents while March corn lost 8 cents. The bearish outside economic news coupled with China’s “are-they- done-buying-or-not” story impacted the soy complex. The January soybean contract added 15 cents. January meal improved $9.20. March cotton shrank by $7.58 or nearly 7 percent per hundredweight. In the dairy parlor, January Class III milk futures added 12 cents. A mixed week in the livestock sector as February cattle shed $2.25. January feeders declined $3.02. And the February lean hog contract expanded by 47 cents. In the currency markets, the U.S. Dollar index improved 1 tick. January crude oil decreased $2.32 per barrel. COMEX Gold dropped $3.60 per ounce. And the Goldman Sachs Commodity Index lost almost six points to finish at 536.25.

Yeager: Joining us now to provide some insight is Mark Gold. Mark, it is so good to see you.

Gold: It's nice to be here in person for a change.

Yeager: You guys, your generation, all you want to do is be on your screens all the time.

Gold: No, I would much rather be out here than sitting at the screen in Chicago, believe me.

Yeager: Well, the trip out, harvest is pretty much done. But start looking at the conditions of the ground, maybe not so much here in corn country, let's go to wheat country. It is starting to remain dry in a lot of areas. Terrible export news. It's dry. What is the third strike on wheat?

Gold: Well, one would think that if Russia moves into Ukraine that is going to be an issue. Now, what can the issue be? Are they going to stop exports so that could actually boost prices? That may be a ramification. What is going to be bearish out there is if we do get rains in the Plains. That will put an end to this in a hurry. Wheat has gone into dormancy. We have very little snow cover. I think somebody said 8% of the country has got snow cover. It's interesting, Denver hasn't had one snow yet this year, yet Hawaii just got a blizzard warning for a foot of snow and 100 mile an hour winds. Now, that is on the slopes of one of the two volcanoes on the big island of Hawaii. But still, it's pretty weird weather we're having out here.

Yeager: Well, Denver didn't know they were participating in no snow November, but here they are. It's dry in central Montana, wildfires ripping through areas, Canada is still dry. So I guess I ask, i s it more going to be a weather story or an export demand story that pulls moving in the next two to three months?

Gold: That's a good question. I view the exports as being very, very dicey. We've got the dollar at 96 cents. I think the last time that we were here we were saying if the dollar got over 92 cents that would be pretty bearish for all the grains. Now we're up to 96 cents and it's just making it that much more difficult to capture any of this outside export market. Despite what is happening in Russia with all the taxes they're still on wheat that we're not. So I think that is an issue. But on the other hand, if we see this whole winter go through with very little snow cover and we get some cold temps and we do some damage out here it's going to be a problem. I think we have to keep in mind American farmers when they look at a wheat crop and it has been dry and it has been cold, that plant is dead. And three months later they get a little rain and oh geez, we're going to have a pretty good crop. So it's hard to get too bullish based on the conditions today knowing that wheat is a weed and just give it some water at some point and we'll get a crop.

Yeager: We've had a pretty good crop of corn.

Gold: You know, look at how bad the weather was this year. We used to joke that we'll be able to grown corn on concrete someday.

Yeager: We're getting close.

Gold: We're getting pretty close. And I think that it's pointing out is both in beans and corn, you just give the crop enough rain at the right time and you're going to make a crop and in this year's case, record crops. What are we going to do if in 2022 we have good weather? What are these yields going to do? Are we going to go to 60 bushel beans? Are we going to go to 180 bushel corn? Looking at what they did in a poor year and knowing what yields came in where they had some rains tells you that there could be huge crops out there.

Yeager: Well, let's ask Phil in Ontario's question. He's got a question about corn and about pricing some things forward. Looking at December '22 corn is approximately $5.52. Historically he says, this is a good time to price new crop corn. Does that still hold for 2022 given what you're just saying?

Gold: It's going to take one heck of a bullish weather scenario in South America in my opinion to push March corn much over $6. Is this a good time? You've got $5.50 new crop corn. How many times in the history of the last 40 years have you been able to do that once you've come out of the field? So to me it's a great marketing opportunity. As a marketer, if we're telling clients to sell corn out here, which we have, we're also telling them to replace it with some call options to keep the upside open and then to have some puts on for what they're not selling. But at $5.50 corn we know we can go right back to $4 in a hurry if things pan out and to leave that price on the table to me is foolhardy in my opinion.

Yeager: Well, let's look at last week. We recorded on Tuesday. Wednesday was kind of unstable. We came back from Thanksgiving, it's like the market got indigestion, it ate something poorly. Friday dropped off the table, continued onto Monday, Tuesday looked terrible and then all of a sudden we come back.

Gold: Come back again. IT has been that kind of a market. But we've had a lot of bullishness based on all this inflation talk. And now when you look at crude oil going from $73 to $60 a barrel, when you look at silver going from $25 to $22 an ounce, when you look at some of these other markets out here, Bitcoin from 69,000 to 55,000, I'm not sure that inflation bug is still here. And yeah, we know land is expensive, we know fertilizer is expensive, but I believe a lot of these things are going to come down. And I'm not bullish based on inflation.

Yeager: Okay, I want to get into a deeper discussion on crude with you about inflation, but I want to ask a quick question then about crude oil and if it does continue to fall. I think a couple of weeks ago you wrote that might be why we've had inflation is higher crude. We've let out the steam of that, natural gas off 25%. What is the ethanol producer thinking right now when it sees those two headlines?

Gold: Well, I think he's got to be a little concerned. The cheaper gas gets, the less demand we're going to see for ethanol. Longer term in ethanol I'd be more worried about electric cars than I would be anything else. We've got to find some replacements three, five, ten years down the road because there's going to be an impact. But the fact of the matter is, if crude continues on this downward slope and we get back to $50, $40 a barrel, I believe that crude oil as much as anything has been the driving force behind inflation. Yes, cars are more expensive, rent is more expensive, fertilizer as we talked about and all these other things are more expensive. But I think they're about to start coming down.

Yeager: Are the Chinese done buying U.S. beans for the near-term?

Gold: Probably not. If we get down to $11.80 the Chinese will be back. The Chinese are as good a traders as anybody in the world. They need grain, there's no question about it. But where are they going to get it from? We've seen them already buy Brazilian beans now. This is the time where the U.S. should be making those sales to them. So it tells us that with the dollar at 96 cents and bean prices at $12.50 we're not that competitive. So what is going to happen when this window of exports generally closes sometime after the first of the year? Maybe they're going to buy some more but they better do it in the next four weeks or we're going to lose this window of opportunity from harvest in September through the end of the year.

Yeager: So then, okay, say the window closes and they're done writing checks to the United States. Do we have enough demand in this country to chew through some stockpiles here that we have domestically?

Gold: I don't think so. But you look at the crush number, it was 197 million, a new record. So we're crushing an awful lot of beans out here. Livestock, the meal prices have been really high. But I just don't see that these bean prices can sustain themselves without those Chinese purchases. We already know we're down 8%, 10%, some people are saying it's going to be 20% before it's all over. That's a lot of beans that normally get chewed up by the Chinese that are going to be in our market with the American farmer still holding onto a lot of grain. I think that's an issue.

Yeager: Well, let's look at the hog market. We've seen that has been the only one going up the last couple of weeks has been the hog market. Is it because, why?

Gold: Well, I think it has been a function of they got a little too cheap. And with cattle prices moving as high as they did, pork became attractive again. So I think that has been as much of the input on hog prices as anything else. But overall the cattle has had one heck of a run here over the last several weeks. We pushed December cattle to $140, we backed off a little bit, kind of back stepped a little bit, but we're still looking at a very strong cash market and I continue to believe that is going to stay around for a while here, maybe through the end of the year, and then maybe back off again. But in the meantime, hog prices looks relatively cheap to cattle so I think that market will continue to be on the firm footing out here.

Yeager: So cash is impacting hogs, it's also impacting beef you were saying. So do you see the cash business being better for another month or two?

Gold: In the cattle market for sure and the hogs will probably tag along for that ride.

Yeager: So what else do you see as factors? We hear about labor unrest at a couple of plants that might slow down and we know if one plant goes down or slows down that has had a major chain reaction.

Gold: But we've seen some of the smaller plants pick up some of that slack. Guys want to get back to work, I'm convinced of that. I think that is why these slaughter numbers have come back up. A week ago we were at 667 I think it was. That is telling me that these plants are operating at a pretty full capacity out here.

Yeager: Are you adding to your feeder pen right now?

Gold: Not at these levels.

Yeager: Because?

Gold: They're just too high priced.

Yeager: The meat. What about the inputs?

Gold: Corn, every time the corn rallies the feeders break it seems like. Pretty much corn goes up, feeders go down, corn goes down, feeders go up. And that relationship is going to be around forever I think. But I just, I look at these prices on the feeder cattle and I think awful high prices to be putting more in the pens right now. But the demand has been good. We're still eating a lot of beef. Restaurant trade is picking up. So I think that's all positive.

Yeager: Is the weather, back to the wheat discussion, having any impact on some of these larger feedlots in areas where it's dry?

Gold: Certainly you can't get into the pasture areas if it's that dry and they're going to have to substitute something else. Is it going to be corn? Is it going to be meal? Some of that will pick up. But if it does continue to get dry and stay dry let's say through January and February then we're going to see some shifts in feed and feed usage on corn and wheat could go higher without a doubt.

Yeager: All right. Mark Gold, thank you so very much for the time. Good to see you again.

Gold: Good to see you.

Yeager: All right. That will do it for the TV show that we do call Market to Market. We're going to keep talking, we're going to record it, we'll call it Market Plus so join us there. Find that on our website of MarketToMarket.org. Now, subscribers to our YouTube channel, they already know that they are the first to get our content from full shows, the M-to-M podcast and Market Plus. Subscribe today and ring that bell in the corner to get notifications and be in the insider club. Next week, we take a look at what one couple discovered about the realities moving from the city to the countryside. Thank you for watching. Have a great week.

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