Market Analysis with Chris Robinson

Next, the Market to Market report.

Elevated tensions between Ukraine and Russia put a jolt in the grains. For the week, the nearby wheat contract gained 27 cents, while the July corn contract added 12 cents. The soy complex seemed immune to the Black Sea situation while trying to add on to a soy oil rally. The July soybean contract moved 17 cents higher, while the July meal contract shed $6.30 per ton. July cotton advanced $3.10 per hundredweight. Over in the dairy parlor June Class III milk futures dropped 32 cents. The livestock market finished on a downward trend. June cattle fell $3.55. May feeders cut $9.30. And the June lean hog contract lost $7.92 or 8.6 percent. In the currency markets, the US dollar index finished 41 ticks lower. June crude oil lost $5.26 per barrel. COMEX gold added $26 per ounce. And the Goldman Sachs Commodity Index fell a little more than 17 points to settle at 545.35.

Yeager: Joining us now is regular market analyst, Chris Robinson. Hey, Chris.

Robinson: Hey, Paul.

Yeager: Is it a positive week to be here?

Robinson: It feels like we've put a bottom in.

Yeager: And that's the big question everybody has. And that's what I have. Have we put the bottom in, in wheat?

Robinson: Wheat has broke in four months $2 and multiple times people have tried to buy it, buy it. Every time there's I call it a Putin scare, we got another one going into this week, what's going to happen with the Black Sea, are they going to put mines in there to keep the Russians out? Who knows. But every time we've had those pops they have been rallies to sell. Hopefully we can get some legs on this one and the last four months has been very disappointing. So yeah, we've tried to buy the lows before, we tried again, we hit a 22-month low across the board. The funds I think are in the driver's seat. What does that mean? They're short a record amount of Chicago wheat. I put it in the letter today, it's something like 185,000 contracts. If they have to buy that back they're going to be the elevator ride up. So, we'll see. So, I'd say we'll have to wait and see but it sure feels like we're closer to the bottom than we were a week ago.

Yeager: So, what do I do if I want to get involved in this market?

Robinson: Well, if you're a farmer you're already involved, you're always long. So, I would say this, if you are making emotional sales or some guys made really good sales $2, $3 ago because they're like okay, I want to protect this level, but if you think that the lows might be in, it's a good time to maybe look at reowning some of what you sold in the past. And you don't want to reown it for a week or two, you can go reown it all summer because if we get a summer market, a summer market rally, that may be something that helps everybody recover. So, that's what I would be saying. Now, if you're still worried about the downside, you don't want to have real expensive downside protection on. This is a time where I think you'd want to make sure that you don't have too much tied up in a downside put.

Yeager: Moving to corn, is it the same set of questions here, Black Sea, is the low in, are we headed higher?

Robinson: You know, corn broke 80 cents in 11 days, soybeans broke I think it was close to 90 cents, something like that. We had this horrendous selloff in the last 10 days. A lot of it was because of what was going on in outside markets. It feels like that's behind us. The crude oil seems like it might have found a bottom. It felt to me like a lot of people were trading corn that couldn't get enough action in the crude oil because everybody is concerned if that goes away. I also think that that last takeaway when the Chinese took away the cancellations, we already knew about it once and then they put it in the exports yesterday and it was like people forgot about it for a week. That certainly felt like we might have been the low for a while, that $5.16, $5.17 area. And I think most farmers now that's what you're looking at is next year's corn crop. And I think the big level to watch now is can we get back above $5.50?

Yeager: This year's corn crop is going in right now. I'm sure we'll have a huge bump up come Monday from USDA on progress. What does that do to new crop positions and where we should be?

Robinson: Well, we just bottomed out and we had some really good opportunities back in December, January, February. January, February, the last time I was here we talked about it, we were at $5.90, $6.00 for about six weeks, so a lot of people had a lot of opportunity to do something back then. And then of course we had the big flush in March, then we had a little recovery at a 50-cent rally and people were like, okay, the lows were in, that was the last time we had a big flush. I would say this, now is not the time to get aggressive. You don't want to be selling corn at a 17-month low, which is really where we were. Bigger picture I always tell guys to step back and look for a rally, hopefully the worst is behind us right now.

Yeager: So, you're done buying corn if you're an end user?

Robinson: No, if you're an end user this is probably a screaming buy opportunity --

Yeager: Still on for you?

Robinson: Oh yeah, if like a bakery or anybody that needs to buy corn, a mill, something like that, absolutely. This is when you want to step it in. The only people that haven't stepped in and bought yet, again, the Chinese. So, we'll see.

Yeager: Let's move to beans. They were, as I mentioned, immune from the Black Sea. But oil, you mentioned crude, this is more so oil, there was other issues in other oils. Is that the only factor you think moving this market?

Robinson: Well, I think that crush issue and what's going on with the South America with the small Argentine crop, Argentina is trying to get beans from Brazil so they can do their crush, I think that's something that we're going to continue to watch and see if it impacts ours. But if you look at what happened with bean oil, bean oil we were at almost a two-year low, this 51, 52 level in July. Hopefully that, again, is behind us. And that has been very, very sensitive to crude oil as well. We had that big break the other day, we broke down and made new 15-month lows in crude oil. So again, is the bottom in? It's kind of if you look across the board you're probably going to see people try and step in here and buy they call it a tradeable bottom. What does that mean? It just means we've come to an area on the charts where there was a lot of activity and if that holds that will be the base for the next move.

Yeager: Well, the chart on the screen right now talks to what you're referring to. We've also hit some retracement here in beans, right? Is that where the biggest retracement is happening right now? And what does that mean if I'm a producer at home that I need to do?

Robinson: Well, are you talking about old crop or new crop?

Yeager: Let's go new crop then.

Robinson: Yeah, new crop. November soybeans they've actually been the strongest across the board. We did come down to that $12.50 level. That's a big support level. The next low you've got to worry about is the July low at $12.17. So, the beans held in the best. The corn and wheat just had really terrible two or three weeks, we dropped a tremendous amount. Soybeans have held in the best. We'll see if that continues. We've had steady soybean demand. We have had terrible demand for wheat and corn really. It's been underperforming and I believe last week it was the lowest exports that we've had in 20 years for corn. So again, hopefully we're bottoming out. But technically in soybeans everybody is going to look at the round numbers. Are we going to get another pop up to $13? It feels like we want to go there after today. But again, just like when corn was back at $5.90 all of January, February, March, just kind of sat there and put everybody to sleep. You could have done a lot at $14. So, I would say if you get back towards $13 start looking at doing something. If you didn't do any marketing back on the highs, what you don't want to do is make a bad decision and sell at these lows. Now would be a time where you'd probably be better off buying a very, very cheap put if it will stop you from making a bad cash sale.

Yeager: Cotton, had a little rally this week. Is that going to continue?

Robinson: I think that depends on the Chinese demand and also as the soybeans go, cotton will go. Cotton has been stuck in kind of a miserable 6 cent trading range for five months. It has just been waiting for something to happen. We had a tremendous volatility last year all over the place. I think people are going to continue to watch for new crop cotton 80 cents, that's a big psychological level, just like $5.50 corn or $13 beans, that's I think are the next battlegrounds. And we'll see, the setup is there, the funds are short cotton, they just got short corn. That's another thing. If those guys have to cover those shorts that could help us propel to a new high. The biggest short you've got to worry about is wheat. That's a big position and I don't know if they're going to go with that if they really have to buy back their wheat.

Yeager: In livestock, live cattle have put in a top?

Robinson: Two or three weeks ago it was all-time highs for live cattle going back as far as you want to look. People were looking at feeder cattle wondering if they were going to go test their 2015 highs, the last time we were up here. Feeder cattle still has a way to go. Anybody in the last fourteen months that has said the lows, the top is in for cattle has been proven wrong. This has been a textbook rally for the last 14 months, why a marketer would want to use puts rather than selling futures, because if you sold futures you just left a tremendous amount on the table no matter where you covered them, if you used that as a hedge. People that used puts over the last year, yeah you probably lost money on your puts, but you participated in that rally. So, two or three years from now I'm sure somebody is going to write a book saying, this was the perfect time, you should always use puts in a rally market. Demand has held up, we still have really good unemployment numbers coming out today. That has been the one big what if. Are people going to stop going to the grocery store and buying beef? If demand holds up, that may be something where we've had these corrections before, we had a correction about a month ago, but the overall trend has been up for the last fourteen months. And if you're a producer you always want to keep the upside open. I'm still friendly livestock.

Yeager: Well, let's do a question that came in via Facebook. This is Scott in Wisconsin. He has a question in that livestock area. He says, if packers are short cattle, Chris, why is the market lower the last two weeks?

Robinson: For live cattle?

Yeager: Yeah.

Robinson: Well, I also think that you have to look at where we have been. Demand has been really good. We did have a nasty break in cash this week. And it's just like everything else, at some point the market has to pull back. If you look at the bigger picture you can't rally $20, $25 and not have $5, $10 pullbacks, which I think that's what happened. So, when you say it's lower, it's relative to what? Every time that we've had these corrections, we'll see, next week the proof will be in the pudding. We settled lower on the week. We'll see if that happens. The other thing to worry about, again, I've talked about it probably too much, but the managed money. They've got a big long bet in live cattle. If they decide they want to get out of that, that could push us lower and then conversely they have a record short bet for lean hogs. If they have to cover that, that could be the spike higher. So, I would look at that spread moving ahead. And again, when somebody says yeah, something has been lower, you've got to look at what we've done. When we're at record highs to have a $10 break after such a big move I don't think it's that much to panic about yet.

Yeager: In hogs or in live cattle?

Robinson: In the live cattle.

Yeager: Okay, let's go back to hogs then because there's similar factors technically at play there. Looking at this chart that's on the screen now, was that a recovery bounce that we saw at the start of the month of April?

Robinson: Oh yeah, that was interesting. We started to the year, we were at contract highs in December lean hogs. It looked like we were going to have another good year, it was a really good rally. All we've done since December was trend lower. That has been probably the most irritating or difficult market to understand, especially when you've got live cattle going basically higher, steadily higher and steadily higher. It feels like we may have made a new low there. There's concern there and you're starting to see some drop in the marketing weights. You're starting to see a little bit more liquidation as people continue to, if you're in the hog business you're looking at it saying, well, where are we going to bottom out here? It felt like we had bottomed out. We had a little bit of a recovery. But, again, I think the big levels to watch, especially in July hogs, that 80 cent level, that's got to be key to hold.

Yeager: Okay, Chris Robinson, thank you so much, appreciate your time.

Robinson: Thanks.

Yeager: That is going to do it as we put a pause on this analysis and continue our discussion about these markets in our Market Plus segment. You can find both the analysis and the Plus on our website of MarketToMarket.org. These resources are free. We do love hearing from you on story ideas, comments and general conversation. Drop us an email via markettomarket@iowapbs.org. Next week, we look at a new approach to handling mental health emergencies in rural America. Thank you so much for watching. Have a great week.

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