Market Analysis: Mark Gold
Mark Gold discusses the commodity markets.
A planting window looks to be opening and relieving pressure on a delayed spring. For the week, the nearby wheat contract added 53 cents, while July corn dropped by 29 cents. The outlook for meal improved but the weather forecast appeared to calm the rally in the soy complex. The July soybean contract shed 63 cents. July meal decreased by $18.70 per ton. July cotton fell $2.02 per hundredweight. Over in the dairy parlor, June Class III milk futures strengthened by 11 cents. The livestock sector was mixed. June cattle added a dime. August feeders improved $6.42. And the June lean hog contract declined by $2.28. In the currency markets, the U.S. Dollar index expanded by 70 ticks. June crude oil gained $5.42 per barrel. COMEX Gold fell $26.90 per ounce. And the Goldman Sachs Commodity Index increased more than 15 points to finish at 770.10.
Yeager: Joining us now to provide some insight is our old friend, Mark Gold. Hi, Mark.
Gold: Hi, Paul, nice to be back.
Yeager: You've got the smile, but we're going to see if you have much to smile about after we're done with the discussion. So we'll start positive. Wheat, split contracts, everything is moving differently. Why?
Gold: Well, most of the dryness is certainly in the Kansas City contract so that has been very strong. Plus they have problems in Canada and Montana and North Dakota. So the spring wheat has been a hot item too. Chicago has kind of kept pace and at times even outpaced them. Hard to understand why, frankly. We had plenty of moisture north for the winter wheat. But overall the funds have been in and out of the wheat. They've been long, they've been short, they've been long, they've been short. Right ow I've got them short a little bit, maybe a couple of thousand contracts literally. But overall, we've got so many problems around the world for supply, the French wheat is now having problems. We've got all this heat and dryness out west with the fires. We see it everywhere. The supply side is certainly in question. It's the demand side that remains an issue with the dollar making new contract highs on Friday over a dollar four.
Yeager: I think you wanted to talk about India, we were discussing earlier. India had this news, not news statement that kind of sent the market and then it responded. But even with all of these pictures that are happening it doesn't seem to be that the U.S. market is moving. Is that what you're trying to say?
Gold: Well, I don't know if the U.S. market isn't moving. We've seen a lot of volatility. And it's interesting, India came out with the news, we were up 30 or 40 cents, they retracted the next day. We were even higher again the next day. So, you wouldn't expect that, which tells you that there is some underlying strength there and certainly the weather is playing a big part in that. I just worry about the U.S. demand. Where are we going to export this? The weekly export figures have just been terrible and with the dollar so strong. But the question is, when push comes to shove where is the world going to get all the wheat? The world will get the wheat. We've seen Russia now steal grain from Ukraine. They're going to wind up probably selling it in the market. We see the ruble from the low after the invasion of three-quarters of a cent rally back up to over yearly highs. It has doubled in value. Somebody is buying those rubles and they're buying those rubles either to buy oil, gas or grain. So there is grain moving around the world. And as you know we harvest wheat somewhere around the world every month.
Yeager: I was going to say, almost all the time. We're in planting season for corn. We'll get to the deferred in a moment. I want to start with those that might still have corn sitting in the bin. Did the high, your famous question, have we hit the high?
Gold: Well, if $8 corn wasn't good enough for you, what is? Are we going to go to $10 or $12 corn? We might if we have a drought in this country in July and August, we will see grain prices far exceed any records we've had before. In my opinion, we could go to $10, $11 corn, we could go to $22 beans. If we don't have a drought and we get this crop in the ground, I've always said every spike we've had since 1972 in the grain market we're back under the cost of production within a year and a half because supply and demand still rules the markets. High prices bring less demand, they bring more acres and prices go down. And how far will they go? They'll go back under the cost of production. It's never been wrong. That doesn't mean this summer we can't go higher first. But therein is the tough part of the question. Farmers don't want to sell it now because they don't even have it in the ground. But if we get 50% of the corn in the ground, we're going to see these prices move significantly lower.
Yeager: As we sit here on Friday afternoon to record this, by the time this airs in many places the weather could be dramatically different. The planting window is going to open. Everybody is going to roll that can. What is that going to have an impact on corn? Mark, in Iowa where you're sitting last week at this time 62% of the acres were planted, we had 9. The nationwide average was 33 versus 7. We know those numbers might look ugly Monday, the next Monday is coming. Is the market going to factor all this in?
Gold: Well, I think they'll factor it in if we do have that window Monday morning when we come in and there's any weakness anywhere in the world we're going down. If we come in Monday and the window is suddenly closed for whatever reason we're going right back up. We're just at a very delicate balance between supply and demand right now. So again, this crop progress report won't tell us the whole story. It's going to be the next week that will really be the definitive answer in my opinion.
Yeager: What's going on in soybeans? The oils have maybe some of that demand has dried up. Is that the big driver?
Gold: Well, that and the mean has been under a lot of pressure here. We made highs in the oil at I think it was 88 cents, we backed off to 80, 81. It certainly looks like highs are in. IT's going to be tough to beat that. But again, that is without a drought this summer. I think what is driving the beans is if we can't get the corn in the ground we're going to plant a few more beans. We've already got a pretty good leg up on beans right now with the acres. If we do have the crops we're going to see lower prices. And we're hearing stories of guys planting beans first this year waiting for the weather to warm up for the germination on the corn, then they're going to plant the corn. So it's going to be an interesting time. But again, I think a week from Monday we'll know the real picture of what's going on.
Yeager: You see that bean before corn happen a little more and more. That trend has happened. It might necessarily not be tied to weather. But the same question I had in corn about the planting this weekend. If that opens, what is going to shut any type of rally down? Is it good weather? Consistent weather? Average weather?
Gold: We need good weather right now because we do need top yields in order to keep those balance sheets from really getting dangerously low. But we've seen farmers plant 40% of the corn crop in one week. So in the next two weeks can they plant this crop? They sure can. Can they get it all in by May 25th? They sure can. And these stories you hear about the drag on yield for late planted corn, the University of Illinois just came out with a study, you guys can get it at farmdoc.com. It was that late planted corn, as long as you get good weather in the summer really it doesn't have much of a drag yield and I agree with that. But the fact of the matter is, the farmers don't want to sell it now. And by the time they realize they've got it in the ground and everybody else has got it in the ground we could be another 50 cents lower in corn and a dollar or two lower in beans. It's going to happen very quickly if we think we're getting the crop in the ground.
Yeager: All right, the supplies, you've already kind of answered this question and teased it but I want to ask it officially on the record and it's a question that came in via Twitter. Nathan in Inwood, Iowa asks you, high prices cure high prices. Have high prices destroyed any corn or soybean demand yet?
Gold: Destroyed it, no. Have we slowed it down? I think that's possible. We were supposed to see the Chinese come back from their holiday on Wednesday night, Thursday, Friday buy grain. No export sales announced. I think that is significant. Again with the high dollar. We just don't see the demand from anybody really but China and if China is backing off I think that is key. They are rebuilding their hog herd very quickly which is one of the reasons the U.S. hogs have been under such pressure. But the fact of the matter is they're going to need some grain. But if COVID continues there and they keep having these shutdowns and it's getting worse and if COVID picks up here demand is going to shut down in a hurry and we're going to see that ration, the price will ration demand at that point for sure.
Yeager: Let's go into livestock with the hogs. You mentioned the Chinese side of this equation. It has been under pressure. This week we finished down 2%. Is there any demand story outside of China that can change the narrative?
Gold: Well, if cattle prices got high enough and we've got such a disparity between the futures price and the cash price in cattle now. You had cattle $10 over the futures. I'm not sure how that's going to wash out. I hope it washes out higher. But the fact of the matter is we've got to curb the demand on cattle. We're heading into the great grilling season. Box beef prices have come down. So one would expect that cattle, beef is going to be in favor of pork. So I'm not sure where the demand side is going to come from on the pork, particularly if the Chinese aren't there. We're still pretty high price hogs here.
Yeager: Well, we're not too far off on cattle either, live cattle. Next week we're going to have a story about the independent producer, the big four were under the spotlight last week. Was there any fallout in the market because of that last week?
Gold: You know, when I was sitting in my hotel room this morning I was watching those hearings. It's amazing some of the stuff that comes out and some of the sad stories that the big four tell. And they always talk about cycles. Farmers had their turn back in 2016, made a lot of money, now it's their turn to make some money and it goes in cycles and that's all true. One of the representatives says, what are we going to do for the farmer right now who's not going to make it through to the next cycle? And it's a point well, well taken. We've got to do something out here for the ranchers and the feedlots. The packers are making a fortune out here. And how many farmers, how many ranchers are we going to put out of business in the meantime? I'm all for competition and free markets. But we have to have competition. Four big buyers don't make enough competition, in my opinion, and we need to do something about getting more smaller plants out around the country.
Yeager: Always a topic of discussion that we could do probably another couple of hours on, Mark. I want to finish with feeders here. Say you're somebody starting, are you expanding a herd right now?
Gold: Not with corn prices and energy prices where they are. Shipping is a big expense, you can't get around that for the time being. Feed costs are going to be high. Why would you come in now when you've already got relatively high feeder cattle prices? November feeders I think are $180, $181. That's not cheap feeder cattle prices. So where is the price likely going to go? Back down. So do you want to be building inventory now with higher gas prices? I don't see that happening, which I think long-term is a little bit friendly for the cattle market.
Yeager: I was going to say, where is that break between the short and the long-term?
Gold: I wish I knew. Four months.
Yeager: Three months? Four months?
Gold: Yeah, that's what I'd say.
Yeager: Real quick before we finish up here, the crude oil market. Does this thing stall out at any point any time soon?
Gold: If somebody shoots Putin, there's any kind of regime change there, he's going in the hospital I guess for a cancer surgery. Who knows what happens then. That could spike the oil. I don't really see it coming down any time soon. But again, if we have COVID and all of a sudden the economies fall out of bed crude oil is going with it.
Yeager: Okay, thank you, Mark Gold. We'll continue that discussion in a moment.
Gold: Thanks for having me, Paul.
Yeager: Thank you. That will do it for the TV side of Market to Market and this installment. We're going to keep going in Market Plus so I'm not just cutting him off for show. Find it free on our website at MarketToMarket.org. And a few of you have a love hate relationship with Twitter. We've been on that platform since 2009 as we offer links of our content and requests for your input. Follow along if you like @MarketToMarket. Next week, we look at the meat processing workflow at the local locker level. Thank you for watching and have a great week.
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.