Market Analysis with Arlan Suderman

Weather seems to be only constant moving the market. 

For the week… The nearby wheat contract fell 2 cents and the July corn contract sold off 17 cents. 

Bean oil’s influence ran out of favor in the soy complex as the U.S. still appears to be China’s source of last resort. 

The July soybean contract shed a penny while July meal dropped $1.60 per ton.

July cotton shrank 44 cents per hundredweight. 

Over in the dairy parlor, June Class Three milk futures lost 77 cents.

The livestock market was mixed. June cattle added $2.85. August feeders put on $2.60 and the June lean hog contract decreased $1.80. 

In the currency markets, the U.S. dollar index expanded by 44 ticks. 

June crude oil weakened $4.74 per barrel. 

COMEX gold dropped $68.90 per ounce, and the Goldman Sachs Commodity Index declined by almost 15 points to settle at 521 - 40.

Joining us now is regular market analyst Arlan Suderman.  Welcome.

Arlan Suderman:Good to be back with you.

Paul Yeager: So let's start with wheat like we do. There's been a frequent saying lately in the wheat market. New contract low, new contract low. It keeps going. When is that record going to stop playing?

Arlan Suderman: Yeah. End users are letting the market come to them and it's working for them at this point. It stops when they have a reason to change their strategy. The funds have been making money shorting the wheat market. That stops when we have a reason to. There's plenty of reasons that could emerge. We're still on the dry side in Russia. The, we got past a close call with a freeze this past week. That could have been a significant story. They still have the dryness risks. There, but really the Black Sea sets the price. So what's the size of the Russian crop going to be? Is it going to be another small one? I see world stocks continuing to shrink this next year, particularly among the major exporters. But that doesn't matter until it matters. And when it matters is when the cash market in the Black Sea starts rising.

Paul Yeager: Domestically, though, let's look at Oklahoma. You can't take much more rain than they've had in the last two weeks. It's not seeming to do anything to the market either. Why?

Arlan Suderman: Yeah. One of our customers got 15in of rain in the last ten days, and they got more rain coming. They went from drought to floods in a hurry. And, that's not good either. Does the market care? I think that may be actually part of the supporting factors to close out the week a little bit in the market, but overall rain makes grain until it doesn't. And that's what the market's going to assume in corn.

Paul Yeager: The old crop still seems to be in demand. It's had a pretty good run. How much more of a run does old crop have here?

Arlan Suderman: Well, I think as we get into June, an old crop starts becoming a focus on new crop because it's obvious we're going to have enough to get to the end of the year. my ending stocks estimate is now below 1.4 billion bushels, a little bit below that. But that's still enough to get us in the year. So as we get into June, the focus becomes new crop and that becomes the weather story. And we've got a lot of climatologists out there saying we're going to have problems with hot, dry conditions in central and western Midwest. Some disagree. Which way will it go? I'm watching the sea surface temperatures in the Gulf of Alaska. That's the strongest correlation that we have. If they're cool, then we tend to be hot and dry in the Midwest. If they're warm, we tend to be mild and wet. Right now they're warm, but that's not a good indicator. Now what they'll be in June. So what happens in June/July is what makes a difference. And with the dry sub soils, even though we've had some rains lately, we are vulnerable and now that May is starting to dry out in the forecast wise. If that dryness holds, it won't take long to flip the switch back over to hot dry.

Paul Yeager: So is that a little bit of an indication there's a potential for some weather? Is that what you're trying to tell me? Yeah, I think I need it there.

Arlan Suderman: I think very much so. I thought coming into this year we had probably two chances of a weather rally for farmers to sell. The first would be the potential for planning delays. We thought we were going to get that. And then the forecast flipped in late April. became more favorable for planting. but now, does that favorable planting weather become a dry story? That'll be the potential next story.

Paul Yeager: Okay, so we talked a little bit about old crop and the new crop in the ground. But let's talk about demand if we could for a moment on corn. Who wants U.S. corn?

Arlan Suderman: Mexico, Mexico and all this livestock industry doing well. We're feeding cattle and hogs to heavier carcass weights all the time. We're leaving them on feed longer. Ethanol demand is good. So domestic demand is solid. Exports. We need to raise the export target. I think we'll see that here in the May crop report on the 12th. probably another 50 to 100 million bushels. I know one reason I think we'll do it now is I think USDA want to solve for a new crop ending stocks estimate below 2 billion. and, raising exports to lower the old crop. Ending stocks will help them get there.

Paul Yeager: What's the story you feel is the biggest one in the soybean complex right now?

Arlan Suderman: Biofuels. When are we going to get the biomass diesel production mandate from EPA? It's at 3.35 billion gallons right now. The industry has asked for 5.25 billion gallons if they follow their old formula, they would come out with 4.25 billion, which would be a big increase. but we're hearing things out of the Trump administration indicate that he really wants to help the industry. And with the trade war, this is one way he can do it is support biofuels. We even heard it at the cabinet meeting this past week. Secretary Rollins of USDA brought up biofuels. so we're anticipating maybe 4.75, maybe closer to 5 billion gallons if it's above 5 billion gallons, that's really big. so I think that's the biggest thing. And then permanent E15 and I think that's eventually coming.

Paul Yeager: But let's go back to crude oil, though for a minute. We finished below $60. That's a major mark in this. What does that do to this discussion?

Arlan Suderman: What we're doing is we're shifting crude oil market share from United States to back to OPEC. We had been stealing market share from them. Our cost of production is higher than theirs. The shale oil fields are $60 to $62 break even. So we are shutting down production. And then that shifts to OPEC, which is increasing output this month.

Paul Yeager: All right. Let's, take a question here. If we could, I want Jim in North Iowa to ask you this question Arlan. “World demand of or for grain and oils seeds seeds hasn't changed. Why can't we find markets other than China for our goods?”

Arlan Suderman: Yeah. I've been saying we need to look elsewhere from China for years because currency exchange rates, it's cheaper for China to go elsewhere. And when Brazil's currency collapsed, it broke, whatever you want to say, 15 years ago or so, 14 years ago, that's when they really started expanding production and started expanding sales. So if they have corn and soybeans to produce, they're going to be cheaper. But anyway, Mexico is our number one customer, if not number one. They're number two, depending on the product, probably our top ten commodities. Most of those commodities are going to be 1 or 2. Mexico's a huge customer and I think they're going to continue to be. But we need to be looking elsewhere while also developing the domestic demand.

Paul Yeager: All right. We did get a question. Also, I'm not going to have you put it up on the graphic, but just about your carry out. You mentioned the carry out for corn. What's your ‘24, ‘25 carryout for beans then?

Arlan Suderman: It's about, it's just below 340 million bushels, around 335, 340 million bushels. I forget the exact number, but it's right in there 338 or something like that.

Paul Yeager:All right, so soybean trader didn't think I'd ask you that question, but I did. Let's go to livestock because of the cash in the futures have been a major story for sure this week. Cash continues to be king, causing problems for futures. There's stories out there starting to form Arlan about cattle and the packer being possibly short? Do you buy into that?

Arlan Suderman: Well, when you look at the fact that they're slowing down the slaughter schedule, the week before last we had 555,000 head harvested. That was the slowest non-holiday week in many years. and then a similar week this past week of slaughter. And, and yet they're having to pay up for the cattle and yes, the feeder is putting more weight on because it's economical to do so. And that's giving us the beef. But the Packers are having to pay up even though they're slowing the chain speed down. And that's an indication of the slows, now our last reports are starting to show the beginning signs of rebuilding the breeding herd.

Paul Yeager: So holding back some.

Arlan Suderman: Holding back some heifers. It's the very early signs of it. But that's, we're seeing the early evidence of what we've been expecting the last half of this year. Of the numbers not being there now, ironically, beef supplies are as high as they've ever been because of the big carcass weights and because of the record imports, but still, paying up for those cattle to keep that thing flowing is really pushing those prices higher. Another $5 to $9 higher this past week.

Paul Yeager: Do you see any change or correlation between cash and futures anytime soon?

Arlan Suderman: The question is and the board is skeptical now how long we can sustain the strong strength in the cash. It's going to come down to consumer. But what they buy from us this week is going to take a little while to get to the consumer, and then we'll get a gauge what the consumer is going to do. Now, consumer sentiment has been very poor over the last couple of months, really for the last quarter it's been very poor. But yet they’ve been paying up for those steaks. When you look at where choice cuts are at right now, it's really impressive that the consumer has been paying up for that. How long will that go? And a lot of that's going to go back to where does this trade war go? Because the consumer says I'm okay now, but I'm worried about the future. If you take away the worries about the future, then the cattle industry may be okay. If you don't, the cattle industry may have problems.

Paul Yeager: What about the hog industry in that same scenario?

Arlan Suderman: You know, the hog industry losing China as a customer was banking on getting the value chain decline from beef customers coming down to pork, and that hasn't happened as much as they expected. So demand has been a little bit softer. And what they anticipated we're still up there around $100. but we need to see a little stronger demand to replace that lost China business.

Paul Yeager: All right Arlan, thank you. As always, appreciate your time.

Arlan Suderman: You bet. All right.

Paul Yeager: Arlan Suderman, we're going to pause our analysis, continue our discussion about these markets. In our Market Plus segment. You can find both analysis and Plus on our website of markettomarket.org. Join our YouTube family to keep up on all of our video offerings from stories, shows and special videos. Subscribe at youtube.com/markettomarket. Next week, a look at an operation growing their own grains and markets. Thank you so much for watching. Have a great week.