Market Plus with Sean O'Leary

Market to Market | Extra
May 26, 2023 | 12 min

Sean O'Leary discusses the commodity markets in a special web-only feature.

Transcript

[Paul Yeager] Welcome into the Friday, May 26, 2023 installment of Markets Plus joining us again, Sean O'Leary. Sean, good to have you back.

[Sean O'Leary] Thanks, Paul. Yep.

[Paul] You always have to. You're hesitant. I can tell when I'm asking you a question. You really don't know what I'm going to ask you.

[Sean] I meant to start the show by asking no hard questions.

[Paul] No hard questions. Okay, well, they're not my hard questions.

[Sean] Lighten up, will you?

[Paul] They're from all the people who watch. And that's what we do with Market Plus, So your questions come in via Twitter and Facebook. And some of these are really good. There's a couple. The last question we're going to ask, you're going to want to stick around for this one, but here we go. Let's start with Gary in Wisconsin, shall we? He's asking you on Twitter, what will be the bigger market move over the next two weeks, Sean? Dry weather or the strengthening dollar?

[Sean] I would tend to say the weather, although we've we've seen a little bit of that in the market. We're still so early in the growing season. The strong dollar. That has been the case for several weeks now. But if you if you look at that market and compare it with the euro, I think that the dollar has strengthened. The euro has given back enough value where that might kind of level off a little bit, where there's no doubt we're going to start talking about our own weather with with the forecast near term. But as I said earlier, that that same time means we're getting things planted on time.

[Paul] Put away commodities for just a moment. Equities and live cattle tend to move somewhat together. The dollar. What's been influencing that? Because globally we're dealing with now the talk of recession. And I think Germany, China always that talk we're doomed for a recession. What's moving and influencing the dollar's moves right now?

[Sean] I would say I would say China has a lot to do with that. I think that would be a concern of if they do have some financial hiccups, you might say that's going to have a big effect on that. I don't know if you're going to see that move. Either of those markets, the dollar and the affects here will move drastically out of the ranges that they've been in, at least for the time being.

[Paul] Okay. I'm always curious the take and then we could ask another question. But I do want to ask I want to get to corn. This is something that Shaun wanted to talk a little bit more about. This one came via Twitter AG Meme One If you ever want to tell me what your real name is, that's always good. This question Will we see full carry for corn this next crop year.

[Sean] Could very well be the case. I would point to how much variance there has been in in the cash market in basis levels east and West Belt and down and into the south. And I think that's a reflection of of how much variance there were in the places where we were just a little bit short on bushels. So I expect that to be the case. The other thing I think we have to be mindful of is El Nino. The prospect of that is pretty strong and it sounds like that is a later in the summer and into fall event. And if that's the case there, I think we're going to see a lot of variance there, too. You're going to see some areas that are the kind of get that greenhouse effect and you're going to have other areas and just turn out to when all is and said and done lacked the moisture that they need. So that I think is going to mean the end of the fall and next spring. We have a lot of variance in basis levels again.

[Paul] Well, weather is always a topic and we have another one that came in. Another question, Neil in Ohio asked this on Facebook, How many more dry forecast until the traders put some major weather premiums into the market? Before I let you answer that one, Sean, you mentioned during the the show, Iowa, Illinois, but I was reading some of the weather forecasts. Ohio, Pennsylvania, really Indiana looking like dry is heading for them. Is that part of that El Nino and long term forecast that you're referring to in your last statement?

[Sean] I don't think it's probably so much El Nino, just a function of that's that's how we're starting out right now. And, you know, both of those markets I mentioned earlier that I think they might be good buying opportunities from the point of view that they've lost the value that they have over just past eight and ten and 12 weeks. And that's coming at a time where if things, you know, stay the way they're forecast, you're going to see you're going to see the markets rally a little bit. I would say that if I'm a producer, I'm going to treat the early half of that rally as kind of a second chance opportunity to get some things marketed.

[Paul] We'll get to that second chance in a moment. Again, I'm going to tease the question that's come in at the end, but I want to get back to livestock. We were a little short there in the program. That's on me. Joel in Oklahoma, as a two parter here, what's the biggest possible threat to the current cattle market? And absent that threat, could this current market last for 2 to 3 years due to the massive herd reduction the last few years, the biggest.

[Sean] Biggest threat with the cattle market seems to always be something that comes out of left field that nobody saw coming. I, I will admit I've been surprised over the past, you know, 12 to 18 months really that the demand hasn't that the consumer hasn't backed away from those prices. You go back to, you know, mentioning the equity market, I think it bears watching the relationship between those two, the cattle market, you know, when when we've had dips in the equity market hasn't really seemed to phase the cattle market. So as far as the next 2 to 3 years, what's your take? It's hard for me to figure out what's going to happen next week.

[Paul] Well, we do. We talked about it in wheat, you know, the rain coming too little too late. However, pasture is getting recharged, maybe some regrowth. Some of those pastures. Producers have pulled their livestock off, gives them another option, buys them a little bit of a chance. But when you say buy, we're entering the real season this weekend. This is the unofficial start to summer hamburger might be pretty expensive for some, but the stakes are a heck of a lot more. Is it going to take that? I think you said to me a $20 rib eye before we get the attention of the producer or the consumer.

[Sean] Yeah, well, yeah. And I said, you know, the cure for high prices is high prices. It hasn't cured anything yet, but at some point, you know, there might be some destruction of the demand, regardless of the size of the herd. That's that's what rallies are all about. At what point pricewise do we kind of see the consumer push, push women and herself away from the table a little bit?

[Paul] Well, I know I'm expecting to see a sale on pork again, It's been low values. You talked about that. But Brant and Oklahoma wants to know why is that cattle and hog spread staying so wide. We know it's there, but why is it staying there?

Sean O'Leary Yeah, well, as I said, the cattle just yesterday and today, new contract highs on most months. Same thing with the hogs, new contract lows. Most of some of those contracts were down over $3 today. And and there just seems to be no end in sight for the hogs in particular. Cattle prices have been high but have been a little more stable, whereas the hog market has given up. I think after today it's over 20, 25% of its value going back to the third week of February. So I have I have customers that call and inquire about cattle hogs spread, and thankfully I haven't been very aggressive on it because today was worse than yesterday and worse than the day before, the day before that. But I think there will probably be some opportunity in in a trade like that. But I think it would be advisable if you're a speculator in particular, to figure out how to do it without having that much exposure. Even though that's a spread, there's still still plenty of volatility to it and plenty of risk. So I think I'd approach it from the standpoint where you can build a bullish hog position but not liquidated if the market goes against you two or $3, maybe you add another position because you're only out a dollar on a covered short puts spread. For example, same thing with the cattle.

[Paul] Well, speaking of options, speaking of missed windows, missed opportunities, this is the question I know is not just it's not the only one who has this question. He says, Why didn't I sell all my beans for $15.50 He's asking for a friend.

[Sean] Okay.

[Paul] Because there's plenty of people who are feeling they've missed their opportunity. You mentioned if there is an if there's a little rise, take advantage of that. I know there's some protection issues that can can help. But then I also hear from the crowd that says it's rallied the last it's rally counter seasonal and against everything else we thought the last couple of years Wible did not do it a third.

[Sean] Yeah yeah that's that's an optimistic way to look at it and it's you know pricewise some of that's water under the bridge at this point but I think it would a good way to approach any growing season in my opinion is make a sale every four weeks whether you want to or not. You can be as aggressive or passive on re ownership depending on your sentiment at the time of the sale. So I do think over the past couple of years there have been a lot of opportunities and then the sharp guys I think are just consistently not looking at what they might miss out on, but rather look at it as What do I have right now?

[Paul] Because really only one person has the top.

[Sean] Exactly.

[Paul] You have to be happy. You were close to the top.

[Sean] Exactly. Exactly.

[Paul] Were you happy? There weren't too many hard questions for other than predicting, you know, something crazy like a Triple Crown or something like that. Sean, good to see you.

[Sean] Yeah, you too, Ball. Appreciate it. Appreciate it.

[Paul] All right. Next week, we are going to look at the work being done to connect that last mile of the digital divide. And we'll have the market analysis of Elaine Kub. Thank you for joining us here on Marketplace and have a great week.