Market Analysis with Arlen Suderman

Paul Yeager: The funds were major influences on the trade as dryness expanded in many key growing regions. 

For the week …

The nearby wheat contract surged 53 cents or 10 percent higher and the May corn contract added 7 cents. 

Some China buying and early planting progress were factors in the soy complex. 

The May soybean contract improved 9 cents while May meal fell $3.70 per ton.

May cotton expanded by $1.38 per hundredweight. 

Over in the dairy parlor, May Class Three milk futures gained 21 cents.

The livestock market was mixed. June cattle improved $2.90. May feeders put on $6.70 and the May  lean hog contract lost $1.95. 

In the currency markets, the US dollar index decreased 7 ticks. 

June crude oil expanded $1.59 per barrel. 

COMEX gold dropped by $56.10 per ounce, and the Goldman Sachs Commodity Index was up nearly 8 points, to settle at 596.40.

Joining us now is regular market analyst Arlan Suderman. How are you doing, Arlan?

Arlan Suderman: Doing well. Good to be back on again once again.

Paul Yeager: You can smile with our first part of our conversation, the wheat country in the United States. I won't call it a victory lap, but it's certainly better than the alternative right now. I list a couple of factors. Is this all technical? Is this all the short scrambling? Is this a market that was just poised? Is this dryness or “D” all of the above?

Arlan Suderman: It's kind of all the above. We've been telling our customers for several months, be careful with the wheat market because we've got lots of wheat in the world, but we don't have a lot of quality milling wheat in the world. And if you take outside the Black Sea and outside the United States, the rest of the exporters supplies are among the tightest of the last 50 years as a percent of usage. But the market hasn't cared about that because the Black Sea is dumping a lot of cheap wheat on the market. They set the world price for cash wheat and they keep pushing prices lower, trying to generate revenue. Record exports coming out of Russia. So if you ever have a risk with that crop, then suddenly the narrative would change. And so the fund's built large, massive short positions, very unusual for them to carry those in the spring. We said, what if a headline causes them to want to uncover and unwind those positions? Who's going to take the other side of the trade? Because the North northern hemisphere farmers sold already, and that's not the new crop to sell yet. And so that's when we could get quite a move. And so that's what happened. We had back to back weeks of big drops in the central and southern plains condition of the hard run winter wheat crop. Europe's crop has been ratcheted down because of excessive wetness. And then you have several weeks in a row of hot, dry weather in southern Russia, eastern Ukraine, that continues to this day. And so suddenly the markets saying, saying we're at risk holding these big short positions, the southern Russian crop, it's still early. It could be saved with the rain next week, but that's not in the forecast. It's the forecast changes over the weekend. Then maybe done.

Paul Yeager: You'll see a change in that market. But let's see if we have a change in your answer to this question. Phil in Ontario asked us on Twitter or X this week. Wheat futures prices have been buoyant lately. Why is this, especially when you consider its persistent bearish global fundamentals?

Arlan Suderman: Yeah, and it's been because of those factors, in fact, that the funds had big short positions. If they weren't short, we wouldn't have seen much of a rally on the news. It would have been, Oh, let's wait and see what the weather does. We've got some farmers who got some real problems in the plains, but the market of 40 years I've watched these markets. They trade Russian weather more than they do plains weather.

Paul Yeager: If you are someone who holds wheat in a field, in a bean and a contract somewhere, are you taking advantage with some sales right now?

Arlan Suderman: I think you have to respect this rally with sales depending on how much you have left, simply because if the forecast changes in Russia, they're going to continue to sell a lot of cheap wheat. And no matter how short we are, they're going to set the world price.

Paul Yeager: Last week, Chris Robinson sat there and said we'd had the potential to pull the other markets along. It pulled corn early in the week. Then what happened?

Arlan Suderman: Well, the macro markets are helping here, too, with corn and soybeans going higher. The whole commodity complex starting to go higher. So that helped corn and soybeans go higher as well. But the big difference there, the farmer has a lot to sell, not only in the United States, but in Brazil, even more in Brazil. And their currency recently took a big hit, which means when they sell on Chicago board and their currency is weaker, that amplifies the conversion rate and gives them an even better price as a stimulus to sell.

Paul Yeager: But the farmer holding in this country hasn't changed. Why would the market respond to all this holding? 

Arlan Suderman: Well. it's because when you've got the corn and soybean prices with short covering, trying to lift, but the farmer in Brazil selling, they're offsetting that. So that limits the upside. And the other factor on corn is we've got a 2.1 billion bushel carryout and in soybeans north of 300 million bushel carry out. And so the market's not going to get as excited over. Maybe we need to continue to sustain this rally. They're more comfortable with their short positions.

Paul Yeager: Let's look at the deferred contract for a moment, because as planters rolled a whole bunch of days this week, they're going to be out for a couple of days. Big rain system. Does the market have any incentive to change the pattern there in that December contract?

Arlan Suderman: Here's how well the Chicago traders are going to interpret the rains this weekend. I've had farmers say this is excessive rain, but they're going to say it's early enough. We're filling the soil profiles. And as long as Mae isn't excessively wet, this is going to help our yields this summer. And we already have a 2.1 billion bushel carryout. Now, it may turn successively wet, we all remember 2019, then it's a different story. But so far that's not in the models.

Paul Yeager: In soybeans, there's this sentiment that, oh, we've planted too fast. Do you buy that?

Arlan Suderman: We've got a lot of parts of the Midwest who are discovering earlier planted soybeans. As long as frost doesn't get them it is giving them a better yield bump than earlier planted corn. And so we've got a lot of fellows who are switching to planting soybeans first and then corn.

Paul Yeager: Putting your agronomy hat back on.

Arlan Suderman: Yeah, I missed some of those days of being out standing in my field.

Paul Yeager: Is the same scenario. That's a good line. I always love that line. Is the soybean market did also come along with wheat for a while. Is it the same factor answer in corn that it wasn't corn with the holding? Is that still a factor?

Arlan Suderman: There is. Farmers in Brazil have a tremendous number of soybeans. The amount of soybeans are behind in their selling. And so they're selling through our currency exchange rates, factoring in that as well. So that's the cap. It was soybeans. We're seeing even more pressure because our exports are really dropping off. Now, the only people where selling soybeans to those who, we have a freight advantage, like Mexico. Everyone else. For China, for example, you know, we're talking about better than a dollar a bushel cheaper to off board Brazilian beans in the Chinese ports than US soybeans.

Paul Yeager: But there were reports this week of maybe there were two cargoes to 20 cargoes sold to China. Is it somewhere in the middle or has the market just taken? A Yeah, I'll believe it when I see it approach to Chinese sales. 

Arlan Suderman: Right now, most of the sales to China now are for new crop, which they do anyway. They're not going to do as much of that in the long run as what they have been because they know Brazil's got a big crop, but they're still going to hedge your bets and they're going to buy some from us. They also know they can always roll those if they don't need them, So they'll have them have it in the past, as Brazil would run out before our harvest time. So they want to have some books or some old crop, but they have very little. In fact, as I looked at their bookings this week, if you look from June through August, in fact - May through August, there are zero soybeans booked right now for shipments from United States to China through that period. They're totally they're buying from Brazil because Brazil beans all the way through August are so much cheaper than US beans.

Paul Yeager: That's a discussion. I think I need to keep going. And plus, there's a great follow up in there. We'll tease it that way. Let's move to livestock. Just when you thought the pause was in, we found some more highs. We found some more run up live cattle. Is this still a cash led market into the futures?

Arlan Suderman: But the big story is the bird flu. And that got the funds liquidating their positions because it's the unknown factor, especially when USDA said dairy cows cross state line have to be tested. That sets a precedent. Now, when and if we find a beef animal or whatever it may be, a cow, a heifer steer or whatever that test positive. Does that mean we're going to restrict movement in the cattle industry is so dependent about moving across state lines so the funds not knowing wanted to liquidate. They've done that. And so this week when cash came in stronger, particularly in the northern feedlot, built up a couple of dollars from the previous week that helped support late in the week.

Paul Yeager: Feeder still becomes an issue of supply. That does talk to a producer this week in Michigan who was like they're still hard to find. That is still the story everywhere right?

Arlan Suderman: It is. And that's going to get tighter. We saw at the last cattle and feed report where we're finally starting to tighten things up now. So as we get toward fall, those supplies are going to be tighter and we're just starting now to hold back some heifers, just starting to rebuild the breeding herd. That's going to take several years.

Paul Yeager: I know you mentioned the influence on cattle, but do you also see any spillover to the feeder market and that just because of its beef in general?

Arlan Suderman: Yeah, because it's beef in general, the feeder market has been trading it as well. That's been a hurt for it.

Paul Yeager: Any impact on the hog market like that?

Arlan Suderman: We've seen some of that beef demand and it's unrelated to that story, but we've started to see some of that beef demand come down. The value chain toward pork and pork demand has been very solid. We've been producing enough to meet it, but the demand has been solid.

Paul Yeager: And I wrote down demand is the story there. So let's go a little bit back to one of your comments about China. Have they been a buyer in this market of US pork?

Arlan Suderman: They've been buying some specialty meats, but no, they're still trying to trim back their hog herd. They still say that they have too many in breeding animals. They're still trying to turn back. Their margins are very narrow. They're only buying some of the specialty meats are pork. Demand has been strong to other markets.

Paul Yeager: In the final few seconds here. The dollar for a moment, I noticed the movement has been much smaller, not necessarily lower, but less. Has that had any influence in the big commodities?

Arlan Suderman: It has is a real significance in those commodities here where we have a lot of competition. Wheat is an example. One of those places, even though we just had this big rally. But the meat markets that affects as well.

Paul Yeager: Do you see the dollar continuing stronger, weaker?

Arlan Suderman: Our problem right now is the euro can't go up because of their economy, so therefore the dollar can't go down. The other thing is people are borrowing to carry trade, borrowing cheap money in Japan, converting it to invest in the United States. That keeps demand for the dollar high.

Paul Yeager: And that keeps demand in our time. Thanks, Arlan.

Arlan Suderman: Thank you.

Paul Yeager:  We are going to pause this analysis, continue our discussion about these markets in our Market to Market Plus segment. You can find both analysis and plus on our website of markettomarket.org, When you head to the field, take us along for the ride. Our three podcasts are perfect companion is between seed or spray refills. Market Analysis, Market Plus and the MTOM Show are available each week wherever you get your podcasts. Next week discussing the challenges and stressors of agriculture. Thank you so much for watching. Have a great week. 

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