Market Analysis with Mark Gold

[Yeager] The lack of any broad weather issues suppressed some gains in the commodity markets. 

For the week… 

The nearby wheat contract sold off 21 cents and the July corn contract fell 19 cents.  Optimism over weekend trade talks boosted the view of the soy complex. The July soybean contract lost six cents while July meal dropped $2.80 per ton. July cotton shrank $1.64 per hundredweight. Over in the dairy parlor, June Class Three milk futures added 46 cents. The livestock market was mixed. June cattle gained $3.58. August feeders put on $3.40 and the June lean hog contract cut $1.77. In the currency markets, the U.S. dollar index expanded by 36 ticks. June crude oil improved $2.69 per barrel. COMEX gold added $110.10 per ounce, and the Goldman Sachs Commodity Index strengthened more than 10 points to settle at 531 - 95. Joining us now is regular market analyst Mark Gold. Hello sir.

[Mark Gold] Nice to be back.

[Yeager] You've got to help me make sense of this wheat market because we're dealing with extreme weather issues in Russia and Ukraine, in the United States. We're looking at China having problems, but we continue to freefall. Why?

[Gold] I asked myself that every day for the last week and a half. I wish I could tell you we've got mosaic virus in Kansas and a fair amount of spots. It looks like it's doing some damage. We've got dryness. Iowa, South Dakota, Minnesota. Nebraska. You know, we've had some rains in the South where they needed it. So the Texas crop looks a little bit better. The crop ratings aren't all that bad. 51% good to excellent. They've been moving up. I don't know if that's going to last. So, you know, I think we're getting wheat awfully cheap here. And, it just needs some kind of spark. Maybe a China news, maybe something else. But I think they've overdone it down here. And they're short over 100,000 contracts.

[Yeager] So there's always this relationship. My understanding between corn and wheat and corn has been able to be somewhat stable. So if that wasn't the case, would we be even lower? No, I don't think so. I think it's getting down. You know, we get near $5 a wheat and you got near $5 a corn, you know, can they go even money? Yeah, they can, but it is very rare and it doesn't. I think once or twice it's happened. Didn't last very long. But you've got the funds short 100,000 contracts of wheat. All it takes is a little spark. And that spark could come over the weekend with these trade talks with China.

Is wheat the one market that could benefit the most from these talks?

[Gold] My guess it'll be the soybeans. But you know, you look at the soybean imports from China. They're the lowest in ten years. So they've got to make a commitment on these trade talks that forget about any real deal that might come out of this. They have to agree to going back and committing to the phase one deal, and to buy those products that they said they were going to buy years ago. If they do that, then you've got to be. You know, unless there's something great in this deal, which I don't really see happening. They've got to accept that. They've got to go back and honor the commitments from previous.

[Yeager] Let's stick with soybeans then, if we could. Okay. Do you anticipate that's the only mover in this market right now is this China-U.S. conversation?

[Gold] No, I, you've got to be careful here. When I talk about weather. But this reminds me a little bit about 1988, when the first week of May, we had a lot of rain and then the spigot shut off. Didn't get very hot until June. The market continued to move lower despite all this dry weather. And then in June, it finally took off. But the fact of the matter is, we're dry in a lot of spots out here. If you look at Iowa right here, this state is dry. Maybe the worst out of any of the major grain producing states. And like we said, Minnesota, South Dakota, Nebraska, Kansas, Missouri all having some problems out here. And I think people are just looking at the crop progress and how much corn and beans we're going to have planted on Monday's report. And it's going to be a big number that, you know, the crops internet's done well. The crop may be in, but it's just beginning.

[Yeager] And it's more of a corn story. But the Eastern Corn Belt is the opposite anyway. I've seen picture after picture the last two weeks if nobody's able to get in. So I've asked this before, if you are out there or you are out in the West. Yeah. What do you do? You know, you manage the risks as best you can. You know, it's going to dry up in the east. Eventually they're going to get some rains. But when is the question in the West. But on this report day you know, they're going to be plugging in trend line yields. I think it's 181 bushels on the corn. Are we going to see 181 bushel corn this year with all the problems we're seeing already? Yeah, it could happen. You go perfect. You're on in June and July. I have great weather. Sure. I don't see that happening. So we've got an old crop carry out in the corn. It should be shaved a little bit on this. Was the report getting, you know, 1.4 billion is a lot. And I think, you know, all we need is a little spark in that corn market as well.

I've asked this a little bit, but I'm going to ask it now a little more formally with Bradley in Nebraska. And he's asking is too wet in parts of the Corn Belt and very dry in the West yet. Commodities continue to grind lower. Has managed money decided to exit their long positions over tariff fears?

[Gold] Well I think that's been part of it. You know, we were long an awful lot of corn six weeks ago. Eight weeks ago. And they've come out of those huge positions they never got even. They never got short. but there's still a long 100 and some odd. I haven't seen the commitment of traders reports for Friday. But, you know, there's still long a fair amount. There's still long some beans and some pretty good chunk of oil, but they're still heavily short wheat and heavily short. The meal.

[Yeager] In corn, particularly there, you talked about the last report. We're going to get an idea on continued tight stocks, do you think?

[Gold] Well, certainly for old crop. Yes. I mean, look at the amount of exports out the door almost every week, 1,000,006, a bill, close to a billion, 7 million, 7 million, 8 metric tons. That's a lot of corn to go out the door every week. So I think they've got to shave it again. They shaved it last month. I think they're going to shave it again. The demand has been sensational on the corn.

[Yeager] What do you anticipate with the December crop? I mean, given weather challenges, are you, protection's always your thing, Mark. What are we trying to protect here?

[Gold] Well, that becomes a question of risk/reward. You know, do you want to spend $0.20 on a corn put in May? You know, if we go down to $4 corn, maybe it's going to pay off. Maybe not. So you don't want to spend a whole lot of money on these lows, particularly growing going into the growing season. That doesn't mean this thing can't go lower. So we have some kind of cheap put to get through the reports, particularly a June 30th acreage report, and then see what the weather is by then. 

[Yeager] Do you get the sense, though, that this weather pattern changed anybody's planting intentions? In corn or beans? 

[Gold] No farmers are out there planting an awful lot of corn. They look at the prices. They look at the soybean/corn ratio, and they're going to go gangbusters on the corn. Now they're going gangbusters on the beans, too. But they're just planning what they expect to plant. And I don't think they'll really nobody's going to hold that corn. If anything, they're going to put a few more corn acres in and less beans when it's all said and done.

[Yeager] I don't want to assume too much, but I'm going to November beans, we’re showing you the chart right now. We also talk about December corn. If USDA plugs in trendline, which there's really no reason to not, yet at this point. How does one position themselves ahead of Monday for, again, continued trend line, given the tight stock issues that you're talking about?

[Gold] You know, you've got to buy some kind of cheap put short dated December put can work for you short dated November being put can work for you. But again, I don't want to spend a whole lot of money at these prices. But we've got about 30% of our corn and beans sold for this year. On the other 70%, you know, we've got our clients. Hopefully most of them or all of them are into some kind of put option to protect the downside. And then we'll take it from there. If we do go down we'll roll those down. Take some money out. If we move higher, we'll make more cash sales.

[Yeager] Speaking of higher livestock, live cattle every time. It's an easy question. Seriously, can this go any higher?

[Gold] I didn't think so a week and a half ago  we started to break the boxed beef a little bit. The charts got a little toppy, but then we came back and scored new highs on Friday. We didn't. We have a new high close and new high in the lead options and cattle and feeder cattle. The back months didn't. They made a new contract high, but closed lower. That may be an indication that we may be running out of some steam here. We're seeing some cattle move from the south into the north. Mexican cattle should be coming across the border. So something's got to give. I mean, $300 feeder cattle. Are you kidding me? But it's there. And it is what it is.

[Yeager] We'll get to feeders in a minute. Because I have another question about these cattle. We talked about weights. They are just, they are heavy. Yeah. And you have the packer slowing things down a little bit. What does that mean?

[Gold] Well, I think it means that they just, they can't get the numbers. And there have been plenty of rumors about a couple of plants closing here. Are there independents? Not the big guys, because it'll hurt them the most. maybe that's what it takes. but, you know, we always see these supply demand issues out here. They always get corrected in the long run. Something always happens in the cattle market. You know, in the 50 years I've been around. It always seems that something comes up. So how can you not tell a guy in historic high prices through the roof not to buy a $4 cattle put or a $5 feeder cattle put, or to sell some cattle and buy some calls to back it up. Or look at LRP, but do something up here. You just can't hope it's expected to make, maintain these kind of prices.

[Yeager] Because that price in the feeder market. You talked about the 300. The three handle scares people, you know. Does it technically scare the market or fundamentally scare the market?

[Gold] It's the second day we've closed over it. So I would say it doesn't. You know we closed lower today, but still over 300 in the August. It doesn't seem to be scaring anybody. a lot of those, you know, we've seen in history a lot of those benchmark prices, $13 being scare people. They go through it eventually. But the fact of the matter is, you are at historic highs when you start going into the grocery store, is the American housewife going to continue to buy with everything else that's going on in the world? Are they going to switch to poultry or pork or some other product? My guess is we'll start. I've been expecting that switch. Hasn't happened so far.

[Yeager] The pork market continues to rally as well.

[Gold] Yeah. You know, pork is cheap at a hundred bucks in the futures. It's not cheap. So. But it's a downside. Better than what they're seeing in the cattle market today. And, you know, I'm going to, you know, for my wife and myself. Not a big deal. We're going to pay whatever it takes, too. We just had steaks the other night, and we're going to pay that price. But if you got a family of five or 8 or 10 people out there, are you going to be able to afford mine continuing to buy steaks and hamburger when God knows where hamburger prices are going to go? I think they're going to look for something else, maybe meat loaf, but a beef pork mixture in there or something.

[Yeager] I'm hungry. Let's close, if we could, with the oil market and the dollar, because both are very interesting points right now. The dollar always casts a shadow over commodities, but so does crude. Which one is the bigger impact right now? Do you think?

[Gold] I would have to say the crude oil. I think that's one of the things when we put crude oil, you know, down to 57 the other day, we put a lot of pressure on the corn and, and, and the beans as well. Being oil broke off of its highs. That was happened after OPEC announced more production. Every time they announce more production, we move lower and then get the money right back within 3 or 4 days, which is exactly what happened here. You know, you have to look at those commodities in the longer term perspective. If we can get the dollar to close under $0.98 two days in a row, that's going to be an indication that that dollar can move down to 94 and then maybe down to 90, which would be great news for the American farmer, the crude oil. I think we're just kind of stuck in this range from 57 to 65. And, you know, if it's up a dollar or 2 in 1 day, you know, or down the corn of beans, you'll notice that.

[Yeager] We are down to the final seconds. Thanks, Mark. Good to see you.

[Gold] Great to be here. Thanks for having me.

[Yeager] Appreciate the time. We are going to pause this analysis and continue our discussion about these markets in our Market Plus segment. You can find both Analysis and Plus on our website of markettomarket.org. This is also the place to register for our next live event in June. Information about the gathering is on our website.