Market Analysis with Sean O'Leary

Paul Yeager

A cut in production plus changing forecasts in Argentina offered some opportunity for a rally. For the week, the nearby wheat contract added $0.07, while the March corn contract lost $0.06. Pressure from outside markets, along with the surge in meal, weighed on the soy complex. The March soybean contract improved $0.23, while the March meal contract jumped by $23 per ton.

Paul Yeager

March cotton shrank by a $1.59 per hundredweight. Over in the dairy parlor, March Class III milk futures fell $0.29. The livestock market was higher again, with April cattle up $3.30. March feeders added $2.62 and the April lean hog contract gained $0.03. In the currency markets, the US dollar index added 101 ticks. March crude oil cut $6.24 per barrel.

Paul Yeager

COMEX gold fell $66.60 per ounce, and the Goldman Sachs Commodity Index finished almost 24 points lower at 586.50. Joining us now is market analyst Sean O'Leary. Welcome, Sean.

Sean O'Leary

Thank you. Glad to be here.

Paul Yeager

Well, let's start with the really easy one. Seven days in a row, Kansas City wheat had a rally, kind of like the Chiefs rallying late in the fourth quarter.

Paul Yeager

The rally stopped, though, on Thursday. Where's the next rally coming from? Are we done?

Sean O'Leary

If we see things play out like the last 4 to 5 weeks where we're kind of back in the middle of the range, I think we might be in an area where we find support, but I'm not sure we have the fundamentals to really break out to the upside.

Sean O'Leary

And I think you've seen all three of those contracts trade similarly there today, for example, the Chicago contract looked like it might put a, had of 13 and a half net change higher at one point, maybe a little bit greater than that. Half an hour later, you look and it's up $0.03. So short lived and rangebound. I think that will probably continue.

Paul Yeager

And that's been we've seen a lot of volatility in just a short amount of time. But we also have other issues at bay and including a question that we received. This one came from Facebook. Brandon in Montana wants to know about wheat, Sean, and this specific if the war in Ukraine has been priced into the market, how will a ramped up war this spring affect the wheat market?

Sean O'Leary

The war being priced in -- if you look at the prices now, I'm not sure if that's the case because look what the market did in the spring of last year when we had to price the conflict in, we essentially gave back all of the gain. So it's almost as if there's very little, if any war premium there. I've seen some news reports where the next six weeks are pretty, pretty pivotal.

Sean O'Leary

I think there's a little bit of fear about what Russia might do and, you know, essentially throwing the kitchen sink at them, unfortunately. And that that corridor has been not talked about quite as much when they first set it up. And there's been a pretty, pretty good flow of product. But it's coming from a lesser amount of production from them as well.

Paul Yeager

Plus, we have the weather issue domestically here, drought continues. I had a conversation with a producer in Kansas this week, told me about a friend, Southwest Kansas hadn't had any water on any of his wheat the last two years. We're still dealing with drought issues.

Sean O'Leary

Right, right, right. And that, you know, parts of Kansas, Nebraska, up into northwest Iowa.

Sean O'Leary

But those areas are -- they're stressed. But I think worldwide, I don't know that there's a fundamental supply side issue right now. And I think you look at the price and that bears out.

Paul Yeager

Let's go to corn for a minute. This was a market, crude was weaker, which has become more tighter that then we have poor exports and we had a good export report.

Paul Yeager

What do you see as big factors right now in corn?

Sean O'Leary

I've got a lot of customers that want to know, you know, what should they be doing right now? Corn, in a lot of respects is kind of like the wheat markets. Just a little bit, a little bit rangebound. The option premiums are pretty, pretty small due to lack of volatility.

Sean O'Leary

I think we've got a stocks report next week. And then obviously the bigger one further down the road is planting intentions in March. So if you've got to take some price protection, I think there's a number of different ways you can do that. If you're kind of undersold, there's some things you can do with covered short option premium.

Sean O'Leary

I've always been an advocate of that, both for hedgers and speculators. It's not a very big hedge. I'd call it kind of passive, but it's a hedge nonetheless and sometimes can be better than sitting on your hands doing nothing.

Paul Yeager

We have a good question about old crop that we'll get to in Market Plus. But let's look at that December contract as we look out, we're in that you mentioned planting intentions we don't know, there's so many unknowns in that one.

Paul Yeager

However, when you still are, we're still not quite above six. Do we have enough legs to get back above six?

Sean O'Leary

I think so. I don't know that I'd be real aggressive right now between now and the intentions report. I think there's a good chance at some point in our growing season, we're going to have to factor in some weather premiums, almost a given any given year.

Sean O'Leary

So, you know, that's where 20 to 25, $0.30 away from that area. I've told customers hedge and spec if you're on the long or short side and you see profit of 25 or $0.30, you might as well take it.

Paul Yeager

It's hard to turn that away.

Sean O'Leary

Well, it is because your chances of looking at a dollar of profit a month later, pretty remote.

Paul Yeager

Good point. Very good point. There's a story both in corn, but I want to have it focus more on the bean contract. Argentina. The US Foreign Service cut the outlook for the Argentina crop. Kind of like, oh, where have you been? So we finally catch up to it. How much is Argentina impacting U.S. soybean prices right now?

Sean O'Leary

I think that has probably been priced in pretty well over the past couple of months.

Sean O'Leary

The last USDA report was bullish, had some initial bullish reaction, but essentially gave it, gave most of it back over the next couple of weeks. So that story has been talked about for a long time. I think they can get some weather, beneficial weather into the end of this month that could improve the bean crop. Probably not going to do much for their corn crop.

Sean O'Leary

So there is still a chance for some improvement. There's also a chance that if that precip later this month, if they don't get it, there's going to be further cuts, I think.

Paul Yeager

I mentioned in the open about meal that was a huge gain this week and influenced all of soybean. Does that rally have any more to it?

Sean O'Leary

If I were along and they had some money made in that, I'd probably be pretty cautious about it. Maybe take some protection for it.

Paul Yeager

Yeah. Okay. So I get what you're saying. Yeah. All right. I'm not sticking out too much. I want to move to livestock. We heard the report about this herd, but we also had a weather story that impacted. Seemed to be that live cattle responded one day, the feeders responded to the weather a different day.

Paul Yeager

Why did live cattle move the way they did this week?

Sean O'Leary

Well, I think that report and the weather is a big part of it. But if you look at the way the cattle have traded for months and months now, I think you could probably take away that report.

Sean O'Leary

You could probably lessen the weather impact and probably still see new contract highs. That's just the way that market has traded. The consumer hasn't backed away. But honestly, I think the more the market trades higher, the less friendly I would be. Cattle have been known historically to have some big washouts on some bearish news. You just don't know where it's going to come from.

Paul Yeager

Well, and that was some of the discussion this week was April's making new contract highs, but all of a sudden there looks to be some bullish technical formations happening. Do you read the chart that way, technically?

Sean O'Leary

Yeah. I mean, you can't see new contract highs and wonder where to get short without having to admit I'm trying to pick a top.

Sean O'Leary

You know, you can't have your cake and eat it too. But yeah, I'd say it still looks friendly. There's really no reason, in my opinion technically, or from anything I see on the chart that says we're due for a $20 drop.

Paul Yeager

What about in the feeder market? What do you see there?

Sean O'Leary

I think they're going to trade hand in hand with the live cattle.

Sean O'Leary

As far as price protection on either one of those, I go back to the option market. There's a lot of things you can do with the short option premium, especially if you're a hedger. And at these prices, there is some, you know, pun intended, there's plenty of meat on the bone in the options, and there's volatility that goes with it.

Sean O'Leary

It's not only the notional value of the contract, but it's the amount of volatility in both feeders and fats.

Paul Yeager

Let's finish up with hogs in our final few seconds here. Pretty even on the week. Are we still just kind of watching China and hoping they're going to want something?

Sean O'Leary

Yeah, you know, I read something where production, our own production from fourth quarter to first typically declines and this will be the second if it plays out that way, only the second time in history where we have an increase from fourth quarter in the first quarter.

Sean O'Leary

And that's pretty telling. I think China with their own herd increasing, has probably been a little bit less aggressive on imports.

Paul Yeager

And I have to be aggressive on ending your comments. That's well, what a better welcome than to say we'll keep it up in Plus in a minute. Thanks, Sean.

Sean O'Leary

Sounds good.

Paul Yeager

Sean O'Leary, everybody. We're going to put a pause in this analysis and continue our discussion about these commodities in Market Plus.

Paul Yeager

You can find that segment on our website of markettomarket.org. You know, winter days and nights can be filled with a little reflecting and learning. Head back to school with our Market to Market classroom project in the modules and several topics that we have from today's agriculture. Head to Market to Market Classroom, it’s markettomarket.org/classroom to get enrolled today. Next week we look at a startup gaining momentum in preserving pollen.

Paul Yeager

Thank you so much for watching and have a great week.

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