Market Analysis with Jeff French

“Destinations unknown” were being reported in the daily export news that by some estimates totaled about a million metric tons but there is no clue about how much is headed for China. For the week, the nearby wheat contract added six cents, while the December corn contract held on for a 2 cent rally. Fresh news from the private forecasts predicting a record large soybean crop in Brazil helped push the November contract 41 cents lower. December meal dropped $10.80 per ton. December cotton contracted $14.47 or 12 percent per hundredweight. Over in the dairy parlor, October Class III milk futures lost 74 cents. The livestock market was mixed as October cattle improved $1.50. October feeders put on $1.55. And the October lean hog contract shed 62 cents. In the currency markets, the U.S. Dollar index increased 80 ticks. October crude oil shed $6.15 per barrel. COMEX Gold dropped by $25 per ounce. And the Goldman Sachs Commodity Index declined by more than 30 points to finish at 657.70.

Yeager: Joining us now to provide some insight on these markets, Jeff French. Hi, Jeff.

French: Hello, Paul.

Yeager: Do you wish you had a little more upbeat week to speak?

French: Can't have 'em all.

Yeager: You can't have 'em all. We come off Friday that certain crop tour, Monday it looked like we traded. We're also coming into the end of the week, or end of the month. What was the biggest pull on the wheat market?

French: Well, you saw -- the funds had a pretty big short position. They were betting for lower prices in the wheat and mid-week with the end of August they came in and covered those short positions. They were buying it back to close it out for month end. But also you have the U.S. dollar at 20 year highs. So they came back on Thursday and really slammed it down. We were down 40 to 45 cents. So you look at the wheat market though the last two months it has been in a pretty relatively tight range. It's about $1, $1.20 trading range. So until we can bust out of that either way I don't have a really strong conviction on the wheat. We had a lot of competition in the world, strong U.S. dollar, so any type of rally in the wheat probably needs to be defended. And you've had the trade here, they bought corn and then they sold wheat against it. They bought beans and they've sold wheat against it. And I think that pattern will continue here for a little bit.

Yeager: By more of the speculators, outside money? Who are you saying is doing that?

French: Yeah, that's the funds. They like to be long the corn, long the beans, short the wheat.

Yeager: All right, you've brought up the dollar a couple of times so I should just get this question out of the way because it is going to taint the rest of the discussion. Stephen in Virginia asked us via Twitter, he wants to know, why can we have such high prices with 40 year dollar highs?

French: Yeah, it's a great question. The last time we saw the dollar at these levels the commodity prices were definitely not at these prices. I think short answer it's just inflationary. There's been a lot of demand, a lot of outside money wanting to buy commodities to write it up in case this inflation continues. But I think as the dollar continues to move higher and it stays high long-term in my opinion it's going to have definitely a negative effect, especially on the export market.

Yeager: But can the dollar stay high for much longer? I mean, I guess anything is possible. But what are the elements that keep it higher?

French: Well, it's the Fed increasing interest rates, bringing the money supply out of there. So yeah, I think in my opinion the dollar is going to stay high here. And you just see it, you look at the big long-term chart. When it moves, it moves and it stays strong or weak for an extended period of time.

Yeager: All right, in corn, we don't export -- the dollar is more of an influence on wheat. Or is it as big an influence on corn?

French: It is. The exports right now, we're not getting weekly export sales here.

Yeager: Has that messed us up?

French: Well, we've had a big supply side rally here with the private analysts out there bringing down the size of this crop. We've seen two of them here in the last week. They differed in the size of that crop. But yeah, we've had a big rally up on the supply side but now without the exports from the USDA we're not seeing where the demand is. So yeah, I think it brings into a side of uncertainty and markets just don't like uncertainty. So yeah, we've set back here but again, look at $6.49 on December corn. As long as we can hold $6.49 I think we can move higher. But a close below $6.49 -- and we're coming in seasonally. This is September now. Harvest is coming at us very quickly and seasonally September is a weaker time for grain prices. And historically you look at right now the first week of September, corn prices right now in the last five years are $1.50 over the average. So we're coming into harvest at extremely high prices.

Yeager: We do have a question that is very similar to that that we'll bring up in Market Plus. There's our little tease for that show we do on YouTube or in podcast form. But I'll ask you, we're showing the March contract. How does one protect themselves if -- let's just ask it the two directions -- I have a really good crop, it has rained, I don't want to tell anybody -- or I'm really poor and I don't want to say how bad it is? What are those two extremes supposed to be doing right now?

French: Well, seasonally right now you want to be long the December and short the March. I think the farmer right now is pretty flush with cash. So that and with the shortness of the crop in the Western Corn Belt, I think the bushels that they have, they're going to hold onto those pretty hard. So the basis is going to have to do the work to work the bushels out of the farmer's hands. So buy the December, sell the March against it.

Yeager: That basis, I keep hearing there's some ridiculous basis levels out there. I mean, it's like politics, it's all local. Are there certain pockets that you see are stronger than others right now?

French: Oh yeah, it's the Western Corn Belt, it's the western feeding regions. And the basis is going to have to do the work pulling the corn from the east to the west. And it's going to be tough. It's going to be strong hands but at the end of the day prices are good, you've got to move it off farm and you can always replace those sales with a call option on paper.

Yeager: Soybean market didn't quite have near the rally because according to these estimates there's a big crop out there. Is that the only influence on this market right now?

French: That's a big one. Another big one this week was one of the bigger cities, not the biggest, it was only 20 million people in China, locked down. So that was a big market influence. But technically you had the, until Friday morning you had the bean market below the 20, 50, 100 and 200 day moving averages. So that's really negative. And these funds look at that technical trade as very important. So I liked Friday, we came back, it was an inside day, we did come back and close above $14. But you start closing below $14, it's a pretty quick trip down to a $13.50 area.

Yeager: Why would we do that? Why would we close lower so quickly?

French: Seasonally September, harvest coming at us and we've got a record bean crop, in my opinion, coming. Farmers are undersold. Brazil we just learned they're expected to plant 104 million acres of beans, just Brazil, this winter. So if one thing I'm negative on it's definitely the beans here. But again, good prices. If you don't want to sell, get some protection down low here. You've got it here for the next 25, 30 days October contract can keep the prices locked in here through harvest.

Yeager: So do something before harvest.

French: Oh yeah, absolutely. These are good prices. If you don't want to sell it, get your risk on paper.

Yeager: Because let's just point to the cotton market and how quickly things can change. Week after week after week we saw this price trend up. Then this week I believe the term is elevator shaft?

French: Yeah, it hit the elevator shaft. It was down every day this week. It was down $15 on the week. It closed below the 200 day moving average. Fundamentally cotton has a very bullish story but this is a perfect example of money flow. And money flow will trump fundamentals every single time. And right now the the cotton market is searching for buyers and they're simply not there. 20 year high in the U.S. dollar also contributed to that. But to me it looks like cotton wants to go back in that 95 cent area. That's kind of where we broke out and started rallying from. So yeah, not a good look at all.

Yeager: Well, it used to be if it was over a dollar it was always a big deal and we stayed above that for a long time.

French: Yeah. And historically over $1.20 even more rare. So when it's there you've got to take advantage of it.

Yeager: So it's a lesson for what could happen quickly if things change just enough in the wrong area.

French: Oh absolutely, absolutely.

Yeager: Okay, livestock, live cattle. You talked about the Western Corn Belt. What are you hearing about feedlots out there? Direct sales? Cash sales? Which one is winning out and influencing the cattle market the most?

French: Well, we had kind of a rough week until Friday. We've been trending lower since the cattle on feed report was kind of a little negative. But the trade is going into here -- I know we're not into the fourth quarter here yet -- but if you look historically at the kind of market when you're in a bull market, the fourth quarter is usually always higher than the previous third quarter in a bull market. So I'm really friendly cattle fundamentally. But you've got to look at the general economy. And look at the S&P 500 and put a chart up of the stock market with the cattle. It is almost tick for tick. So watch that stock market. If the stock market closes and the S&P below 3600 definitely get some downside protection in the cattle.

Yeager: Rabobank this week said their beef report relied, the global beef market remains strong with most beef retail prices trending upward from the previous quarter. At what point does the consumer come into this to influence the market not as much maybe something else?

French: Well, I think it's happening right now. People are making choices. But at the end of the day, if you want to go out and have a steak you're going to go out and have a steak no matter the prices. Now, you might not be doing that as often as you would like but people are going to continue to want beef. And globally meat demand is continuing to expand.

Yeager: So what about feeders? We're looking at that chart right now, again another one of those trends, but this one has been a downtrend in the short-term. How does that extend to the long-term?

French: They're expensive still and they've had a little bit of a downturn because of the rally in the corn. I'm kind of in the position that the corn might have some pretty good resistance in this $6.70, $6.80 area on the December board. So yeah, I like the feeders here. Again, you're going to have tremendous demand here on the feeder cattle and with lower prices I think we could advance up.

Yeager: Is the hog market moving mostly on that China news, export issue?

French: Maybe a little bit but the hogs have been trending lower for two weeks. And today we actually hit a two month low on the October contract. We closed the gap that had been open since July 5th on the daily charts. We have more hogs coming. We're going to have 8% to 10% more hogs in the fourth quarter compared to the third quarter here. So we do have more of a supply. What's going on with China, that is a major issue on the demand side. So I still like it in this 95 cent, 96 cent area. We have pretty good support there. But I want to see it trending higher. I'm not going to buy this thing as we're going to continue to make new lows. I want to see a trend, two, three, four days of moving higher.

Yeager: All right, real quick as we close, crude oil. $86.99, below $87, still below $90. Direction of crude right now?

French: Well, it doesn't look good. It looks like lower. But as a country right now we are pumping about 15 million barrels per week. We have the capacity to go up to 20 barrels per week. If we did expand our capacity we would be back down to $70 very, very quickly. But yeah, it looks like we're going to head lower.

Yeager: All right, Jeff French, try to put a smile on as much as you can but it was tough this week. Good job though.

French: Thanks, Paul.

Yeager: Thank you. That's going to do it as we put a pause on this analysis. We'll continue with Jeff and answer more of your submitted questions in our Market Plus segment. You can find that on our website of MarketToMarket.org. That's both in podcast and also in YouTube form. All of these resources, they are free. Pods are filling and corn is starting to mature. So how close are you or any of us to harvest? We'd like to see how things are going for you. Post a few pics on Instagram and tag them MarketToMarketShow and also give us a follow. Next week, we look at new approaches at handling mental health emergencies in rural America. I'm Paul Yeager. Thank you so very much for watching. Have a great week.

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