Market Analysis with Jeff French

Kohlsdorf: One programing note we are recording this week's show on Thursday. Due to a busy production schedule in the markets, prices were mixed for the week after adjusting for last week's report and responding to the most recent Chinese purchases for the week, the nearby wheat contract continued to be flat, and the March corn contract fell $0.06. There was another flash sale of soybeans to China on Thursday morning. The January soybean contract dropped $0.02, while January meal cut $7 per ton. March cotton contracted by $0.39 per hundredweight. Over in the dairy parlor. December class three milk futures weakened $0.40. The livestock market was mixed. February cattle dropped by $4.13. January feeders cut $4.17, and the February lean hog. Contract put on $0.27. In the currency markets, the U.S. Dollar Index was higher by 90 ticks. January. Crude oil lost $1.13 per barrel. Comex gold dropped $33.40 per ounce, and the Goldman Sachs Commodity Index was down more than two points to settle at five 5655. Here now, to lend us his insight on these and other trends is our regular market analyst, Jeff French. Hi, Jeff.

Jeff French: Hi, Brooke. Great to be here.

Kohlsdorf: Nice to have you. So we've had a week now. The markets have had a week to digest what was in last Friday's WASDE report, which was long anticipated. China is back to buying again. Are those two things weighing on the market? Are those the two things responsible for what we've seen or haven't seen this week?

French: Yeah. First part about the report. Yeah, it weighed on the market. But the report, in my opinion, it almost opened up more questions than answers. You know, we got that report after the government was shut down for 40 days. I mean, they came back to work for two days and were supposed to, you know, organize all this information and get it in. So it felt a little rushed to me. And, you know, in my opinion, from just talking with my clients and traveling the Midwest, you know, that corn yield seems awfully high. I mean, most of the guys that I talk with are are worse than last year. Very few are better than last year. On their corn yields. Now, we do have to deal with the 98 million acres of planted corn. I mean, that's a lot of corn acres in the ground. But yeah, I think the report it weighed on the market, but also seasonally going into late November into Thanksgiving. You know, the saying goes that bears get Thanksgiving. You know, regarding the Chinese sales, you know. Yes. Good to see we had this big run up for the last month, since middle of October, put $1.30 a contract on the beans. But then we started to get the Chinese announcements and they were kind of trickled out. You know, it's classic by the rumor. Sell the fact. Now, we've backed off here about $0.40 off the highs. You know today's close here on Thursday right at around 1122 in January 1120 is that 20 day moving average. We have not closed below the 20 day moving average since the rally began in October. Mid October. So technically we're kind of setting up in a range that we should find some support. You know, I'd think it'd be interesting if the Chinese, if they want to fulfill their 12 million metric tons here in the next couple of days, they should be buying this dip.

Kohlsdorf: Yeah. What about so when we talk about wheat and you were talking about the WASDE report, is that the thing that kind of took the excitement out of the wheat market this week?

French:  Well, actually, you know, it was rumored that China was buying wheat. And today we actually got confirmation that they bought a couple cargoes of white U.S. wheat. But also, you know, news out of Argentina, I mean, Argentina right now has very cheap wheat on the world market. It's actually cheaper than U.S. corn currently. Right now. China, also the Soviet Union, Russia out this week with up in their total wheat acres. They're up or excuse me their production up 88 million metric tons. So the Black Sea region will continue to, you know, control the world wheat prices. And also, you know, U.S. wheat prices got up in that 3 to 4 month high and kind of just ran out of ammo to continue higher.

Kohlsdorf: Okay. So going back to corn, you were talking about the WASDE and how it had an impact on all of the grains. Is it going to be stuck for a while until we get the next report, which is mid December? Right.

French:  Yeah. So it will be the next report will be December 9th. Tuesday. Historically December report. They don't change anything from the November report because then they're ramping up for the final production report in January. But I think this year the December report will have some changes. I mean, I think now you're going to have more surveys. The USDA is going to be back to work. So I think that will be that report will be highly anticipated. If you look historically from November to the final report, you know, what are some of the biggest cuts in corn? You know, you go from 186 down to 182. That would be historically very large, a four bushel break. But, you know, this is not a normal year with a shutdown. So I would anticipate that the yields coming lower. But we'll just have to see what happens okay.

Kohlsdorf: You don't know how low though.

French:  Well I mean last year was 179. And you know, from who I talked to I mean most producers did not have as good a corn as last year. Again, though, we do have more acres that were planted.

Kohlsdorf: Okay. So yes, the big news this week, China buying some of our beans. Is it enough or how much more are they going to have to buy for it to start moving the market in the next few weeks?

French:  Well, the nature of the futures market, they build that information in very quickly. And we you know, we rallied this market in about five weeks, a $1.30 off the lows. So they put in that bullish information. But if you if you break down the numbers confirm purchases they have purchased 1.6 million metric tons each million metric ton is 37 million bushels. So they got on the books right now confirmed 60 million bushels of beans, purchased the agreement, 12 million metric tons is right around 440 million bushels. So if they are going to fulfill their agreement, the trade deal with the United States, they got a lot more buy in to do. And, you know, they throw away around that December that has to be completed. Well, that's historically I mean typically we sell all our beans through December and then they transfer down to Brazilian crop coming on board. But you know with the trade deal, I mean they could keep buying right after December with the U.S. beans as well.

Kohlsdorf: Want to go to social media for our next question, which has to do with beans. So this is from Phil in Ontario. And he says the USDA report took the steam out of the price rally since October 1st. Or is this just a Thanksgiving retrenchment? Can the price rally pick up steam again on South America weather or an inadvertent black swan event?

French:  Well, the question to those is both. Yes. I mean, South American weather will drive the bean prices. Not quite yet, but you get into that January February time period where the beans are filling pods down there. Absolutely. That can drive the market. I mean, Brazil alone is expected to plant 120 million acres of beans. So they are they are ramping up to plant a lot of beans. The black swan event, obviously, that's something that we always have to take into effect. But, you know, it looks like at least from the charts right now, that the bears will have Thanksgiving. Let's see if the Bulls can get Christmas.

Kohlsdorf: Okay. Last week on this show, it was suggested that the cattle rally was over. Have we seen the highs?

French:  Well, I mean, I'm not going out on a limb there. I mean, we made new lows for the move here today. You know, a lot of these markets is about momentum. And right now unfortunately the momentum in cattle is to the downside. And you know, in my opinion, you look at the charts and you look at where we're at. I mean you got all the fat cattle trading right around that $200 mark. You know, I think we'll probably test that here in the next couple of weeks. We can see if we have, you know, psychological support. Feeders look like they want to test that $300 mark. I mean, it, you know, it just feels like the momentum is down right now. And you know we are oversold. But you got to remember I mean we went up for ten months straight in a row. I mean we just went up almost every other day. So right now yeah the prices are looking like we are going to continue to slide.

Kohlsdorf: I know this is an old story a couple of weeks, but the Trump administration saying they wanted to bring beef prices down. Is that still impacting the feeder market.

Kohlsdorf: Oh I think, you know, it's just the, you know, the psyche of the market. I mean, when you have when you have the administration saying they want to bring the product down, the price is down. You know, the investments, the investors and the funds, they're going to say, okay, I'll go play somewhere else. I mean, if I'm managing money and I'm long and I have a good position on, I'm going to sell that position and collect my money. So that's what we've seen here. Now with the CFTC just opened, but they were closed for seven weeks. You know, they had a huge long position. But I anticipate by the time when we catch up to the reports, the funds have switched from being long and actually are now short and pressing. The prices lower.

Kohlsdorf: Okay. What about seasonal demand coming up with the holidays? Will that be doing anything? Enough to the market?

French:  You know, it helps. I mean, there's no question beef demand has been great. You know, nothing. That's the thing. Nothing really changed fundamentally. But everything changed. I mean, I know that doesn't make sense, but, you know, demand in the numbers have have been tight. Now we got some carcass data that, you know, the carcasses are heavy. We're we're averaging 983 pounds per carcass per steer, which is 26 pounds heavier than last year. I mean, we are producing some very, very heavy cattle. But, you know, the market can handle it. I mean, the beef demand has been robust.

Kohlsdorf: We have just a little bit of time left about 20s. What about hogs? Is there any fresh news there?

French:  Well, the hogs, you know, from September 30th, I mean, we've been pretty much straight down. You know, the funds were long, 146,000 contracts seasonally. The hogs in November tend to work lower, but yeah, it just they're getting caught up with the sell off in the cattle as well. You know typically the protein complex they roll together. Unfortunately, they've been rolling downhill here.

Kohlsdorf:  Now the sympathy. 

French:  Yeah. 

Kohlsdorf: Is that what they call it? All right Jeff we've covered a lot. Thank you so much for being here. And we will have more to discuss in Market Plus no doubt. Thank you. All right. Well, you have been watching the analysis segment. And in a moment we will continue our discussion in an online only segment. You can search Market Plus with Jeff French:  wherever you get your podcasts. To hear that conversation or go to our website of Markettomarket.org. We want to make sure you never miss any of our content. So when you subscribe to our YouTube channel at Market to Market, there are benefits of being there. When you turn on notifications, you'll be at the front of the line for our stories Market Plus and M to M podcast. Next week. Commodity and Economic Analysis with Chris Robinson and Ernie Goss. Thanks so much for watching. Have a great week.

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