Market Analysis with Matt Bennett

A new round of threats from Russia cast a big shadow on the global trade. For the week, the nearby wheat contract added 21 cents, while the December corn contract lost a penny. Some profit taking and reduction in demand due to COVID shutdowns slowed the soybean complex. The November contract shed 23 cents. December meal gained $1.60 per ton. December cotton shrank $6.75 per hundredweight. Over in the dairy parlor, October Class III milk futures declined 40 cents. The livestock market was lower. October cattle dropped $1.25. October feeders cut $2.90. October lean hogs decreased by $4.27. In the currency markets, the U.S. Dollar index put on 284 ticks. November crude oil dropped by $6.31 or 7 percent per barrel. COMEX Gold lost $33.90 per ounce. And the Goldman Sachs Commodity Index fell by almost 26 points to finish at 605 – even.

Yeager: Joining us now to provide some insight is Matthew Bennett. Welcome back, sir.

Bennett: Absolutely, thanks for having me.

Yeager: So, Matthew, I read a whole lot of down part of that market. The wheat market, given the story out of Russia both more threats, more crop, we're dry in this country, what was the biggest pull higher this week?

Bennett: I think the main thing is more tough talk I guess out of the Black Sea region. You wonder are these stocks of wheat, first of all, are we going to be able to get them out on a regular basis? Second of all, what's going to be the prospects of a big Ukraine crop moving forward or let alone Russia? So there's just a lot of unrest there, there's a lot of talk that you could have major issues there for a multiyear type situation instead of it maybe coming to a head very quickly and this thing getting over with fast. You hear a lot of stuff going on in Russia with people getting called into the Reserves, it's just, it doesn't sound good and all that certainly is going to play a role in the wheat market, probably one of the bigger issues in my opinion.

Yeager: Do we have a range, $9, $9.50? What do you see?

Bennett: I think if you get substantially over $9 for producers that have seen that with July, I know some have stepped in to hedge some, I have no issue with that. I don't see us getting wildly out of control to the upside. To me this is a chance to hedge off some risk. But at the same time I want to stay flexible. I can see the potential for some sort of a blow off type rally at some point if you continue to have the issues that we're seeing and we, for instance, don't get a lot of wheat planted in that part of the world coming up but at the same time you've got to be careful as a producer to not take what is a very profitable situation, latch a hold of it at least to an extent and then keep yourself flexible for an upside rally.

Yeager: Let's move over to corn for a minute. That is going on basically in your back yard, the harvest. What are you seeing so far?

Bennett: Pretty good yields. In my part of the world we've had really good weather. You don't have to get 20, 30 miles away and people maybe weren't quite so fortunate. But we've had all the rainfall you'd ever want and so some of the yields that we've seen have been some of the best that we've seen before. At the same time there again is going to be a fair amount of folks that have some challenging yields. A lot of the yield reports that we're getting throughout the countryside are it's pretty good but maybe a little bit disappointing. I think we're hearing a little bit different story whenever it comes to beans. But for the most part the early yield reports on corn I'd say are average maybe to a bit disappointing depending on exactly where you're at.

Yeager: You're not a scientist or a data scientist but you do watch the commodities. The data that you see anecdotally, looking at technical resistance, we're talking $7 technical topside, where does this corn market, what kind of range do we have on it?

Bennett: The thing is, is it sure seems going up and above that $7 level, maybe the $7.25, $7.26 area where you've got a gap is maybe going to be unlikely at this point. I think a week ago after the report and you saw some of the strength in beans kind of pulling corn with it, I had to think maybe there was a chance to get up there and I'm not saying that there's not at this stage of the game, but some of the macro fears, the global fears, recession if you will, makes me think that it's going to be a little bit tougher road to get up to those sorts of levels. And so one way to put it, I think people have asked me, what are you doing with corn either that you've already got contracted or maybe that you're selling at some of these quick ship levels? It's hard for me to reown $7 corn, it just doesn't seem right. And I'm not saying we can't go on up from there but I certainly feel like that's got to be a pretty stiff level of resistance.

Yeager: We have a game we're going to play in Market Plus in just a little bit, Matthew, where I'm going to ask you basically a follow up to that question. But before we move on to beans, with corn even until today we were lower pretty much on a lot of the commodities. Was there any specific reason for that close lower today?

Bennett: I think corn you look over in the wheat market obviously struggling as well, I think whenever it comes to corn it's just along with everything else, you look at energies, you look at the dollar rallying sharply, we're looking at really as high as we've seen the dollar since the Euro came on board. And so it's extremely stiff resistance for commodities whenever you see that kind of strength. We're already the most expensive corn on the world market. And so I think that it gives just a reason for the bears to step in and sell this. But at the same time we're still tight domestically and even the world numbers are tightening up. You look at this last USDA report that it makes me think we're going to have some good support under this market at the same time.

Yeager: Again, another question but this time we're going to go to it. Let's discuss the dollar, you kind of alluded to it a little bit. This question came in from Randy in Cresco, Iowa and this one via Twitter. He wants to know, is the U.S. dollar the sleeping gorilla for 2022-2023? He says, inflation is feeding the bulls. Is the dollar going to feed the bears?

Bennett: That's a great question from Randy, a good guy. I think that it's a tough question to answer. The thing is that you've got some major differences and the question actually answers some of what I'm saying here is that essentially you've got this huge tug-of-war. And so I think as a producer what you've got to understand is these two different dynamics in the markets should make you want to at least quantify some worst case scenarios in the event that the dollar making our corn so expensive on the world market makes exports even smaller than what the USDA suggested they'd be. At this stage of the game we're running well behind the pace that we need to meet their goal, which their goal is a trimmed back goal. They took 100 million off this last report. And so absolutely, I want to at least quantify worst case scenario and in the event that this corn stays so expensive on the world market and we have a hard time moving it out for export.

Yeager: Let's move over to beans because you did -- what you just said applies to this bean market and it is also similar to what we talked about in both wheat and with corn. This price though is $14. Is that both good and bad for bears and bulls? Is that a technical thing or just a mentality?

Bennett: Whenever we came out of the report, I guess the way I want to answer it is this -- we went back up over $15 and we showed that this market simply didn't want to spend any time above $15. We pulled back but it seemed like we don't really want to race below $14 at the same time. So you look at the bean market and you ask yourself, where's the values, where's a safe place to be? And I think what you have to understand on beans, you've got two different dynamics going on, a very tight situation here in the U.S. as we speak currently and I say that because the 50.5 yield certainly could change a decent amount I think in October. What we're hearing on early yields is that some of these beans are awfully good. But the difference is that the world situation is different than domestic. Domestic is very tight. We're going to add around 10 million tons to the world balance sheet according to the USDA numbers and I've got to think that there's a fair amount of merit there. We look towards South America, the Brazilian producer is going to come at us with more acres yet again this year and if La Nina isn't as prevalent as what it has been these last couple of years, we know it's still hanging around, but if it isn't as prevalent we've got to think that you could be looking at 145, 150 million ton crop. So two different dynamics, world versus domestic. And once again, I've got to think a person has to be very cautious as to assume these beans are just going to stay supported for perpetuity.

Yeager: Let's move to the livestock. Cattle on feed came out just before we recorded today. A couple of numbers right on what they were before but there was one number that jumped out. On feed and placed both at 100. But it was this marketed in August at 106. Is that the number that jumped out to you?

Bennett: It sure looks like a big number. A lot of folks were expecting marketed to be fairly high. I think whenever you look at this cattle fundamentally you're going to be losing numbers moving forward. Yes, you've got the cold storage report showed significantly higher stocks, I think 24% versus what we were at a year ago, but at the same time I think a lot of folks are holding on to some of this meat and I think you're looking at people expecting that you're going to see just markets continue to get better as far as the cattle prices go. The problem is going to be profitability for the producer. And so feeding high cost grain is certainly going to be a major headwind and I've got to think that it's going to be really tough over the next six to eight, ten months. But I do feel like for the cattle producer you're going to see some real good profitability come in as long as you get a decent crop out of South America and/or the U.S. in the next twelve months. And if that happens I've got to think that profit margins could be quite robust for those producers.

Yeager: And it is that major tug-of-war, that profitability and if you can hold out. Do you know of anybody that is in a position who might be able to hold out a little longer than somebody else?

Bennett: Yeah, the thing is there's going to be a lot of folks I think that see this coming and you've got to assume that you've got the opportunity moving forward to do well in this environment. But at the same time it is going to be a capital intensive situation. If you don't have your feed costs hedges it's certainly going to be tough. And quite frankly over the last several months there hasn't been very many good opportunities to do so. And so on a day like today in the corn market I think there's some cattle producers that are quite happy to see that kind of trend and they're probably hoping to see more yet. The only way that you're probably going to see that is if maybe this U.S. crop tends to grow just a little bit, which is certainly a possibility, but it's not something I'm banking on currently.

Yeager: Is the hog producer looking at the same market and thinking the same thing or are they different?

Bennett: Whenever you look at the hog producer the bottom line is if you don't have really good export sales it's tough to sustain the hog market to get up to those triple digit type numbers. And so of course you've got front month again well in excess of December so you've got a pretty good inverse there. But at the same time you've also got the cash market fairly strong. And so I've got to think you're going to get some support in here for hogs. But the only way you're going to get a sustained rally in my opinion is you're going to have to see really strong export sales moving forward.

Yeager: Right on cue, Mr. Bennett. You ended right on time. Thank you, sir.

Bennett: Absolutely, thank you.

Yeager: All right, we'll talk to you in a moment because we're going to put a pause on this analysis and continue with Matthew and answer more of your submitted questions in our Market Plus segment. Find that on our website of MarketToMarket.org in podcast form and also on YouTube. All of these resources that I mentioned are free. And thank you for helping us hit a milestone on our YouTube channel as more of you are finding the show, the Market Plus and our stories that are available each and every week. Join our family by subscribing to the feed of MarketToMarket. Next week, we're going to keep going on this crop harvest report, check in with that. Thank you so much for watching. Have a great week.

(music)

(music)

(music)

Trading in futures and options involves substantial risk. No warranty is given or implied by Iowa PBS or the analysts who appear on Market to Market. Past performance is not necessarily indicative of future results.

Market to Market is a production of Iowa PBS which is solely responsible for its content.