Market to Market - January 12, 2024
On this edition of Market to Market ...
The government report that analysts have been pointing to for weeks, drops. We decipher the data and look at where we go from here. And, commodity market analysis with Naomi Blohm and Matthew Bennett.
Transcript
Paul Yeager: Coming up on Market to Market -
The government report that analysts have been pointing to for weeks, drops.
We decipher the data and look at where we go from here.
Commodity market analysis with Naomi Blohm and Matthew Bennett, next.
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Announcer: This is the Friday, January 12 edition of Market to Market - the Weekly Journal of Rural America.
Hello. I’m Paul Yeager. This week has dramatically changed the weather pattern in the grain states. At one point Thursday and Friday, every state in the lower 48 had some form of a weather watch or warning. The Midwest was socked in with not one, but two snow systems while thunderstorms and more severe weather moved across the South. No matter the forecast, the USDA issued one of their most anticipated reports of the year. We will get to our panel in a moment, first the numbers. For the week… The nearby wheat contract lost 19 cents, while March corn dropped 14 cents. CONAB lowered production levels, but not enough to turn the soy complex higher. The March contract declined 32 cents and March meal shed $7.30 per ton. March cotton expanded by 99 cents per hundredweight. Over in the dairy parlor, February Class Three milk futures added 33 cents. The livestock market was higher. February cattle gained 80 cents. March feeders improved $3.55 and the February lean hog contract went higher by $1.90. In the currency markets, the US dollar index increased 6 ticks. February crude oil lost $1.26 per barrel. COMEX gold cut $1.90 per ounce, and the Goldman Sachs Commodity Index added almost a point to settle at 538-75. Joining us now is are two of our regular market analysts Naomi Blohm and Matt Bennett.
Naomi Blohm: Hi there. Thanks for having.
Paul Yeager: Hi, Matthew. Hello. The weather has been a big story. That's one story. But really, it's this report. Naomi, the headline for you today was what?
Naomi Blohm: Well, just the fact that the USDA increased yield for both corn and soybeans even more than what the industry was expecting, was really bearish on markets. And then and then stocks, of course, in response also increased larger. The beans were the one that was really substantial, now up to about 280 million metric tons. That was a big jump.
Naomi Blohm: And so that weighed on market prices. So bigger production overall, a very bearish report for the corn and bean market.
Paul Yeager: Matt, do you have a different headline that you can share on TV?
Matthew Bennett: Well, yeah. I mean, we got to keep this keep this appropriate. But, you know, you looked at the report and obviously stocks were high for the quarterly stocks. That first quarter is really hard to gauge. It made sense whenever you saw that they raised yield. But bottom line, for a grower that's sitting on a lot of old crop corn and we know there's a lot of that. It wasn't a good day. We know that we've got a wall of corn to deal with, even a little bit bigger than what we thought before. 15.3 is going to be the biggest crop that we've ever seen. And it's because you planted over 94 million acres and we trim that back just a little bit here on this report. But over 94 million acres and maintain a 177 plus yield, that's just phenomenal. So what that tells me moving forward, we got to understand when they throw out baseline numbers with yields of 180 plus four trend line, that's for real. I mean, if you can raise 177 in the summer, 23, what can you raise in a summer like maybe 2014? You know, you get that kind of weather pattern, you know, and you've got to think that you could have some awfully, awfully good national yields moving forward.
Paul Yeager: Naomi, it's hard to change your planting plan if you've already put some nitrogen down. You're going to corn. However, will this force any acre changes?
Naomi Blohm: I think there's going to be definitely some potential for things to switch out. But to your point, if all work was already done on the fields, they're going to stick with corn. The reality with what we have now, today, this report is the cornerstone for our industry for the next five months. And with this report, even if we plant 3 million less acres of corn next year and assume no real changes to demand, we're still dealing with 2 billion bushel carryout. So that negativity is going to weigh on market and market sentiment. Now, what I did like on the report today, the USDA did raise demand for ethanol and for feed. So that was encouraging. And I think, you know, the other thing we have to be thinking about going forward, we still have a Sarina crop that needs to get planted and that is 75% of Brazil's total production. So the USDA today did lower the Brazil crop for corn. Just a little bit regarding the first crop, but what will they do with the Sarina crop? So the Sarina crop, as you know, is going to get planted late February and the march and the beans were planted late and our weather is getting a little bit soggy here. So now what if those beans get harvested late and even later because of weather than the spring, a crop gets planted late. So there's hope for maybe higher prices down the road for producers still holding grain in the bean. But again, the reality goes back to what Matt was saying and what we've been talking about was to blame Bush or carry out. That's just not going to go away. So if you could see any sort of price recovery here, make sure you're using it to your advantage to be making some cash sales for both old crop and new crop.
Paul Yeager: Matt, I guess I'll force you to find something positive. You got to find something nice to say here. Is there anything?
Matthew Bennett: One thing that I'll add, because now we did a fantastic job capping the suffering of crop. But the thing is, they're planting less acres. You know, corn acres are going to be lower this year. So that going to that's going to make it even more important that a crop that's going to go on the ground a little later than what they would prefer is going to have to have really good help from Mother Nature. Any time that crop goes in the ground late, they run into dry season on the heels of pollination and God forbid that dry season be in the midst of pollination. So, yes, you could see some some some support there. The thing is, again, is that if you've got the corn in the farmer's hand and you've got this much corn in the farmer's hand, if you get a 20, 30, 40 cent rally and let's face it, even in the toughest of years, we see rallies occur. But if you see a rally occur, you've got to understand that flat cash price is unlikely to follow along. And it's not because elevators are trying to be jerks, so to speak. It's because they can only handle so much corn. They have to widen bases to restrict the flow of grain. And that's just the way that it's going to work. Producers have to understand, get your offers in, know what you're willing to to accept, and you know what? Your standards may have to be lowered a little bit from what we thought before because right now you can't paint NIRS bullish a picture. It doesn't feel as good as what it did a year ago is because we've got different situation than a year ago.
Paul Yeager: Matt, you were on the last time and someone took a note. In fact, they gave us a question here off social media. This one came from Facebook. Ronald in Iowa wants to know, Matt, you mentioned a few months ago that it would be that we could be in for a three year bear market with corn. Do you still feel that way? And if you do what's a range?
Matthew Bennett: You know, and this feels a whole lot more like the 2015 through 2019 frame timeframe than what it does, for instance, the 21 and 22 and the 23 time frame. The thing about corn is that you run prices up high enough and obviously it does a couple of things that it hurts demand to a point and it also encourages production from others around the world because the U.S. producer was not the only one that made money in 21 and 22. And so when you're making money, you want to do more of what you're doing. I mean, that's just common sense. So is it going to be a three year bear market? I don't know. Here's the thing. If you get corn cheap enough, then demand will come in. I would much rather have a demand led rally than a supply led rally. But we've got a lot of corn to chew through. When you look at the world stock situation going from 300 million tons to 325 million tons, what that's telling you again, is that you're producing more corn than what you're using. That is not a rally type environment. The other thing that's not a rally type environment is pushing a 2.2 carry out that doesn't typically equate to $5 corn, let alone for 50. And so I know we've had some inflation. I know that things have adjusted somewhat. But as a producer, we have to understand that this is certainly changing. We have to be prepared for that sort of a bear trend. And in the last thing I'll say, Paul, is that, you know, if this yield would come to pass in the next year or two, you have to be very well prepared of what would a market do. You know, with 90 million acres planned or 91 million acres playing out, the 182 yield, because that would not be a good situation from a stocks perspective or perspective.
Naomi Blohm: Add to please, to what Matt was saying, totally agree with what he's saying for the pricing standpoint right now, December corn has really fantastic support at the 450 level. When you go back and look at weekly charts and monthly charts. 450 is really good support now going forward. Building on what Matt said, if we still have these bigger acres, if we have good yield this summer, should 450 support break, then that's when you're looking at the downside of the $4 level come harvest of this coming year in 2024. So you have to be prepared for that mentality. And when you look back at history over the past 20, 30 years, any time we had a year or two years of a bull market, there is usually 2 to 5 years of a price pitfall that follows. So it is time to start to be prepared for that. So the only thing that can turn this market around right now, quite frankly, it's up to Brazil and the weather in Brazil and Sabrina crop. Our demand for corn is actually not too shabby. It's just that now we have abundant production.
Paul Yeager: Let's look at the main picture because, Naomi, you wrote earlier this week about a couple of things that caught my attention in soybeans from this report. Did any of your thinking change?
Naomi Blohm: Well, the USDA didn't really change demand at all on this report. I'm a little bit encouraged by that because exports they keep the export demand at 1.7 billion bushels. And as far as sales go, we're at 75% of USDA projections, which is right on the five year average. So that's at least a little bit encouraging. But what the USDA did today by increasing production, the fact that the carry out has grown all it takes is that perception of growth and carry out to make prices go lower. One other thing, though, with soybeans, when you look at the global picture, the USDA did acknowledge that the production in Brazil is not going to be perfect and there is more room for that to come down. And if they bring that number down for production in Brazil, it's going to happen on the February report. And there's a lot of industry confusion right now as to where it is or isn't that crop in Brazil. So that's going to be something else to be watching going forward.
Paul Yeager: Matt, do you see any surprises out of that South American report this week and coupling that with the traditionally inconsistent reporting that we get from non-government sources about what's going on there? Like, did it really rain here or is it really that dry there to change your thinking on beans?
Matthew Bennett: You know, I mean, Brazil is such a massive country that it's really hard to get a handle on truly what production might look like. You know, you look at some of the different folks that put estimates out, Canal was 155. I felt like USDA was very unlikely to go below 155 with corn. Abby in their USDA typically stair steps in their way lower on production anyway. I would say they typically are a little bit slower to react, if you will, and sometimes that serve them quite well, actually. But whenever I look at, for instance, total South America, let's just focus on Brazil and Argentina. You know, Argentina last year had what you would call like a biblical level drought. I mean, it was half of a crop, so 25 million metric tons versus 5045 to 50 typically. And so this year, you know, USDA has got them up to 50 after being 48 a month ago. If you would go ahead and look at that, I mean, you need Brazil to come off of the 160 by 25 million tons actually, to get to where Brazil and Argentina are the same as a year ago. And so you know, I hate to be the bearer of bad news, so to speak, but it's really hard for me to get super friendly from a world standpoint. Yes, demand's still pretty darn good, don't get me wrong. It's just that we're going to have plenty of beans. Brazil is unlikely, in my opinion, to lose 25 million tonnes off the 160 that they had a year ago. I could see them be getting below 150. You've seen estimates all the way down to 130. I think that's excessive. It's a race to the bottom and I don't necessarily put a lot of stock in those types of numbers, but I could see us getting below 150. I think if we do, it could be mildly supportive. I just think you've got to remember how much higher Argentina is going to be than what they were a year ago.
Paul Yeager: Naomi When it comes to wheat. Part of the reason we're in our situation physically today is this big winter storm and it's going to get cold. Is there enough snow cover on this domestic crop to move a market or move a market moving forward at least the next week with some weather?
Naomi Blohm: Right. Something definitely to be monitoring the crop conditions of our winter wheat here in the country. Some places do have good sakala snow cover, others not as much. And we do, of course, have this Arctic chill coming in. But it's not just our country to watch. We have to keep an eye on the Black Sea region, parts of Russia that are getting some extreme cold as well, and Europe. But I think what the report today, the USDA didn't make any real dramatic changes on the global scene, but they did make our carry out lower because of old crop ending, stocks going down. So that made new crop beginning stocks lower, The net result ending stocks overall lower. So that is supportive, definitely. And we had lower acres than expected for planted acres. So that also is supportive wheat right now, kind of maybe starting to wake up a little bit. It's not a bullish story yet by any means, but we're still seeing that March contract able to hang out around the $6 level. That's really encouraging and we'll see going forward. Definitely. We're talking about world weather. The funds have been exiting some of those short positions that allowed to have a little bit of a lift higher. But another dominating, dominating theme of our industry continues to be that the funds are really being bullies in the market right now and staying short on their positions in corn and soybeans now and wheat. And we're seeing it over in the dairy parlor as well. Short positions. So that's what we have to be dealing with right now. A lot of outside market influences to.
Paul Yeager: Matt on this wheat market seems to be as of late the dollar is still a story. Dollar didn't increase as much, but it still is high. What's the weight that the dollar is throwing on wheat right now?
Matthew Bennett: You know, obviously it's going to make us to where we're not super competitive on the world market, unfortunately. You know, if the dollar, when the dollar made a run towards 100 and we thought, hey, maybe it's going to go below 100, it certainly was exciting for a lot of us because it would have made our products much more competitive than what we've seen in quite some time, actually. But we stabilized, move back up into that 102 level. But as far as wheat's concerned, we're not the cheapest wheat in the world by any stretch of the imagination, you know, but you look at the world situation and you're going to have less wheat year on year, which is a good thing. I mean, that's the only one of the big three that we're actually seeing that. So we're going to see 11 million metric tons less wheat, according to the USDA. From a world standpoint, that's a really good thing. And you continue to see not only wheat stocks, but the stocks to usage ratio, which used to run in excess of 50%, pretty much all the time, not only domestically but worldwide. You continue to get lower wheat stocks. And I know they're much bigger than corn stocks and buying stocks. But the thing is, is that as you continue to whittle those down, it makes you more subsequent to one of your major growers having an issue could actually give you a really bullish reaction in the market, which is kind of exciting. So, you know, maybe wheat is no, we said it's not necessarily up and going just yet, but if the wheat market would stabilize and maybe be able to rally somewhat, it could pull corn and beans along with it. We've seen that happen before. Let's let's hope that's one of the things that might happen for us. Again.
Paul Yeager: I knew you had another positive moment in there, Matt. Come on. That's good. What about on Cotton, though? Does that the wheat, cotton discussion acreage? Is there anything to that little rally we had this week in cotton?
Matthew Bennett: I mean, my personal opinion on cotton, you know, you look for instance, in South America, you talk about whittling down corn acres a little bit. What were some of those acres go on cotton. And I think that from a world standpoint, you're going to have enough cotton planted. Most likely, yes. Cotton seems to have stabilized somewhat, obviously, in the last year. We've seen times when the market was pretty pretty tough to watch. But, you know, you look in the U.S., I think cotton acres are going to be enough. I'm not looking for any major rally with cotton. I feel like it's not going to be near as big of players. What I was just talking earlier, I was talking about the wheat market.
Paul Yeager: Naomi, you mentioned dairy a couple of moments ago and we had a question last week and I told him I would ask it this week. I said, Naomi's coming, we'll get that. What is the headwinds there or is there some tailwinds for this market, especially long term?
Naomi Blohm: It's dairy complex right now is really mixed. So we have in one essence, production has been creeping a little bit lower, but production is good enough. And so our export market is down 8% from a year ago, but recently we've had some cheese exports on the increase. So there's mixed news going on there right now. I'm a little bit hopeful that maybe this cold weather that's coming through and it is it is a dandy here in Wisconsin today, Maybe that's going to affect milk production in the coming weeks because it looks like this cold is here to stay for a bit. But again, mixed news right now in the dairy complex. And I feel like that's part of the reason why milk prices are struggling at the moment. There's nothing that's really friendly or over the top friendly, but at the same time, because production levels overall are a little bit lower than years past, it's keeping the market supported but at lower values. So I would say probably look for some sideways trade going forward. Some of the spring contracts are trading still in the $17 area. If 17 can hold, that would be great. If it can't, then probably look for a correction lower closer to 1650 on those spring contracts.
Paul Yeager: Matt on live cattle she mentioned. Naomi mentions the weather a little bit. It's kind of this is what is expected finally in winter. But is there is there again a weather story to be had in life, cattle or feeders for that matter? Or is this just strictly we're still kind of doing some discovery from these highs that we've had?
Matthew Bennett: Yeah, I mean, you've stabilized the live cattle market. You look at the chart, obviously you fell 30 some dollars. I mean, it is it's a pretty massive sell off. And then we've kind of etched out a nice little uptrend here. Whenever I look at cattle overall, a couple of things occur to me. Yes, last year is well-documented. A 65 year low and total herd inventory in the U.S. But when you're running cattle on feed numbers and placements where they've been cattle on feed at 106105, what are you doing as far as the total herd inventory is concerned? Well, you're whittling it down just a little bit more actually. So as you get on out past oh, I'm going to say, spring timeframe last year, a year ago, most of folks in the West were the bulk of the cattle are. They really didn't have a choice as to whether or not to sell those gals or to put them, you know, on feed. And so they were selling them for, what, 16, 1800 dollars? Who would blame a person for doing such a thing this year? They have more of a choice because they have more pasture. And with that being the case, some will choose to retain heifers. I think you're cattle on feed numbers will dip precipitously at times and 24 probably on out towards the summer. And when that happens, yeah, I don't know if you make new highs, but I certainly think that no one is going to want to be short going into something like that. And that's part of the reason the cattle market seen some support in here.
Paul Yeager: Naomi, what do you see in feeders? Is that consistent with what Matt was saying about live cattle?
Naomi Blohm: Yeah, our calf crop down 2% over this last year, and it's supposed to be down again into 2024. So we know that there's been increases in numbers coming from Canada and from Mexico. As far as imports go. Here's the deal. Old news. We already know about it. I don't know that we're going to have a reason to go back up and retest the highs that we saw in 2023. But we're still in a long term uptrend. I feel like for the next couple of weeks at least, the markets are going to start to trade sideways. It's going to really look to see where the demand is. It's going to look to see how our exports are doing. We've got a cattle on feed report coming up next Friday and a huge cattle inventory report coming up on January 31st. Those are going to give us the glimpses of information going into next year. But the overall theme continues to be that we have a smaller herd and those things do not get rebuilt that fast. You know, and we haven't really seen signs that the herd is regrowing. So so I feel like the cattle market going to just trade sideways here for the short term. I think our long term uptrend is still supported quite well and then we'll get some fresh data at the end of the month.
Paul Yeager: Naomi Online are on the hogs as we actually had to double check. We actually went higher again for a week. Any positive, more positive news ahead there for hogs?
Naomi Blohm: Well, not really. Positive news Production is still overall higher in general, and we are still trending lower in the bigger picture. But we did have a nice recovery balance. I think part of it is speculative trading. Part of it is just, you know, we're heading into that one year time frame and maybe we start to see demand pick up a little bit in terms of like for me personally, I'm going to be putting some pork in the crockpot later and I think we'll start to see some of that demand pick up the pace, too. But also when I think about winter, it makes me a little bit nervous of her disease, makes me a little bit nervous that we see some of those viruses come back into play. But the overall theme for the hog market continues to be larger. Production production is supposed to still be a little bit larger into 2024, but I feel like the hog producers are really trying to do something about it. And we're going to keep an eye on our exports, too.
Paul Yeager: Okay, Matt, Naomi, you both get 30 seconds to give me something as a producer from today's report, Matt, that I need to do that I obviously have missed the boat on, but something I can recover and have again, something positive in this final 30 seconds.
Matthew Bennett: Yeah, I mean, the main thing for me is we have to have a plan moving forward. It's costing us a lot to hold onto these commodities. Interest costs are high, whether it's in your bin at home or whether it's on storage, you know, it's costing you money just simply to own. So you have to have a game plan moving forward. Are you going to get what you want out of your crops? Probably not. And I think the sooner we come to those realizations, the easier it's going to be for us to put those offers in place and be able to take advantage of them.
Paul Yeager: Naomi, your 30 seconds.
Naomi Blohm: So today we saw corn complete a head and shoulders objective to the downside of 440 in the March contract. So check that off the box. The march being stood, a spring objective lower by a billion, going down to the $12 area so we can check that off the box. Some technical objectives were met, were oversold. I think we'll see a recovery bounce here at some point, something will spook the market. Higher funds will take some profits, but use whatever kind of recovery rally we get to make sure you are focused on your cash sales, old crop and new crop.
Paul Yeager: All right. We'll leave it at that. Thank you so very much, Matt. Thank you, Naomi. Hold it right there, though. We're going to pause this analysis and continue our discussion in our market Plus segment, you can find both the analysis and plus on our website of market to market dot org. Let us help beat those winter doldrums with some podcast offerings.
Each week we have three different offerings. The analysis which you just heard, the market plus and every Tuesday, the MTM show. Next week we look at how a small insect is making a big impression on the landscape. Thank you so very much for watching. Have a great week.
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