Market Analysis with Chris Robinson

Yeager: Attacks between Iran and Israel have upended many markets while Argentina appears to be the biggest influence in commodities. For the week, the nearby wheat contract lost 6 cents and the May corn contract shed two cents. South American harvest kept pressure on the soy complex. The May soybean contract fell 24 cents while May meal cut 70 cents per ton. May cotton shrank by $3.93 per hundredweight. Over in the dairy parlor, May Class Three milk futures added $1.37. The livestock market was higher. June cattle improved $4.20. May feeders put on $7.80. And the May lean hog contract gained $2.35. In the currency markets, the US dollar index increased 21 ticks. May crude oil lost $2.91 per barrel. COMEX gold rose $36.20 per ounce. And the Goldman Sachs Commodity Index was down 15 points to settle at 588.90. Joining us now is regular market analyst Chris Robinson. Hi, Chris.

Robinson: How are you doing, sir?

Yeager: This Iran/Israel, had a couple of questions, had a couple of texts today about this wanting me to ask this. First blush, you look at the wheat market and think, oh and crude, but it's more than that, isn't it, on influencing the commodities?

Robinson: Absolutely. It's hard to hedge or predict an event like that, how it will be felt around the world. Obviously, the two easy ones to look at were crude oil, but also the stock market. People don't like that type of big uncertainty and you also see moves in the bond market because if people get it's called flight to quality, you don't want to own stocks, you want to own bonds. So, it is a very quick reset. And you saw that last night, I was driving out here last night when it all happened and I pulled over to the side of the road for a while because I was getting some phone calls. But fortunately, things have calmed down and it was a good way to end the week.

Yeager: Volatility was the story of the last two years. We seem to have had less. We're more rangebound. Let's look at wheat specifically. We're kind of flirting with that 50-day moving average and we can't seem to break any way out of that. Is there any reason to think volatility is coming back to wheat?

Robinson: To wheat, no. Wheat has been just in a two year decline every time that we've had a fundamental story, and we've had plenty of them with Ukraine, it's pretty well documented that we've got very low stocks, there's other countries in the world that have low stocks. We just got done with a supply and demand, that data is all out there. The problem is there's still a lot of grain that has come out of the Ukraine. In fact, there's been a lot of stories about that, a lot of the Western European farmers are not happy about all the grain that has been coming out of the Ukraine. So, it has put pressure on wheat. And we've been in a two-year decline. We look like we might be trying to turn the corner, but we've had a lot of false starts in the last year and a half and I think a lot is going to depend on what happens with the corn crop this year as to what happens with wheat. I think if anything is going to turn wheat around it's going to be an issue with corn.

Yeager: We've had that though where there's been some weeks where one, it's like it's the en vogue thing to say and then it's not. So, tell me why these two are going to be paired moving forward.

Robinson: Well, we're heading into the growing season. There was no issue with the wheat growing season so far. We'll see what happens when it actually gets harvested. But these markets need a story because we're in a situation where whether or not you believe it or whether you agree with it or not, the market is telling you that everything is oversupplied and price is what matters. And when you look at the price decline that we've had in the grains in the last two years, that has been the number one issue. Also, the demand has pulled back. There were some stories out today where China is actually importing less than they have in the last four years in some certain categories. So, we had a demand-driven market, we had an inflation-driven market, those two kind of dual flames have gone away.

Yeager: You could argue that that's the China less interest in buying is what is influencing the stories we saw about trade. But I want to get to corn for a minute because there was some bullish news that came from the administration today on Friday as we record about E15. Is that a long-term bump for corn?

Robinson: Well, initially it's a good thing and it may have already been baked in. If you dig deeper into the story they've done it for the past two years, they're just extending the time now into the summer. But, like everything else, every little bit helps, it helps our demand, it will continue to be a support for corn demand. It still takes a third of our crop. A lot of people forget about that, we grow 15-billion-bushel crop, 5 billion of it goes to ethanol. And any increased demand is supportive, especially when you've got corn sitting here at call it a three-year low, 31-month low, depends, but that's really the issue. And we're going to have to watch how that comes out here in the next three or four months.

Yeager: Let's talk that front month real quick before we get to the December contract. When you look at the near-term when we're trading in that, again, 50-day moving average, but again, on the lower side of things, any reason farmers should pry open the bin door and sell some of that?

Robinson: Well, we had a little bump on the acres report and it didn't last. It looked like we were going to turn the corner on that. We had a nice 20, 25 cent rally. Every time we've had a rally it has not had any legs. So, I remain in the camp that I think it's an SOS market, you want to sell on strength. I'd much rather sell into a 25 or 30 cent rally than wait and sell it as we make new lows. Everybody has got a different approach, but I really do not like to sell into lows. But I've told you this before, when I was down in Houston at Commodity Classic, a lot of people were in a situation where their bankers were saying hey, you need to sell some of the grain you're sitting on. If you have to sell it, sell it, bite the bullet, get it done, but boy, with the situation is right now you could go out and reown that corn for pennies on the month out through June, July. If we have a market at least you'll get compensated. So, I would highly recommend that. If somebody feels like they have to sell corn, not because they don't want to, but you better reown it.

Yeager: Real quick on that December contract, we saw some planting get started and then it rained. Is rain going to put a damper on that December contract?

Robinson: Well, if you're a bull you want to hope for it. But are we having big planting delays? No. I think if you look at the bigger patterns the crop is probably going to get in and we'll have to just deal with it as it happens.

Yeager: Let's go to beans. We did finally get a small bounce off the monthly lows as we look at that South American harvest. Again though, that's a heck of a lot of crop coming into the world market. Any chance on this May contract we can reverse course?

Robinson: Well, we tried again today. That's the 50-day moving average, I write about this every day in a letter. We need to get over that 50-day moving average. It's such a silly thing but it gives the financial community a reason to stay short because everybody knows they're short. They're just following the trend. It's not nefarious. The market is moving lower, they're moving with the market as it goes lower. If the market turns, they will gladly cover all those shorts. And I think that is your bullish thesis. We've got to get something to get these guys to cover their shorts and that will be the start.

Yeager: Okay. That's the technical side of things. Let's talk fundamental for a moment. Jim in Illinois asked us on Facebook -- thank you for the question -- is there any fundamental out there on the horizon that could rally this corn and bean market?

Robinson: On the horizon fundamentally? We're coming off of pretty tepid exports, not terrible, but tepid. They were kind of on pace. I think if that market was to wake up, it's always darkest before the dawn, that would be something that I think would catch people's attention. What is hurting that is the rise in the U.S. dollar. The dollar has just bumped up, it had been drifting lower, it bumped up with the concerns about inflation. So, that is something that we're going to have to overcome. But yeah, if there is a demand story out there that will probably raise its head sometime in the next two to three months.

Yeager: In cattle, you wrote this week, we've had four years of puts versus hedges. Which one has won?

Robinson: Puts. Puts. Go look at the pandemic lows for, I call it fat cattle, for live cattle and feeder cattle both. We've been up and to the right and that is the perfect market for someone to have used puts. Yes, if you have a hedging account, you really don't want to lose money in it, right? But if you're doing things right you want to lose money in your hedge, you want to make money in the cash market. So, anybody that used futures over the last four years, you left so much money on the table it's not even funny because, unless you were psychic which nobody is, every time you sold futures you capped your profits. But if you had a put, you paid for the put, the price keeps going higher, you lose value in the put, but you make the money in the cash market, which is what we're here to do.

Yeager: Do you see that trend continuing?

Robinson: We had a cattle on feed today and it was a little bit bearish for the front months, probably a little bit supportive, especially if you look at the numbers out into the fourth quarter. My guess is Monday we'll open higher. It just depends on how we settle. But that market continues to be a nice bull market. The problem is we've had these nasty corrections, which have caught a lot of people off guard. But if you look at the big picture, which I always tell guys to do, we're still in an upward trajectory when you look at those weekly and monthly charts.

Yeager: On feed 101, placed on feed 88 and then fed marketed 86. Let's get to hogs for a minute. You wrote a little bit about the technical trade for hogs. You don't see fundamentals playing as much of a factor there?

Robinson: No, fundamentals it's been a good really gift for producers because we bottomed out in December and we started hearing stories about certainly the Chinese cut the size of their herd, if you look at other countries around the world, they have a smaller herd than what they probably want to have. So, it has benefited the U.S. and you've seen it in the prices. We had a tremendous 20 cent rally from December to March. The problem is then we get these corrections, these nasty corrections where we lose what takes four months, we lose 40% of it in three days and then everybody does what they probably shouldn't do and they sell into the break. But again, all these markets have been really case studies for why if you're a producer and you want to hedge, some people don't want to hedge, if you don't want to hedge don't hedge, but if you want to hedge the put has been your best friend because it has let you stay long with a floor so then when we have these corrections you don’t feel like oh boy, I have to make a bad decision down here. So, I still think that the cattle herd is too small, that's a big long-term story that's not going to go away tomorrow. And we've continued to have really good demand for our hogs.

Yeager: All right, Chris. Thank you so much. Appreciate the time.

Robinson: Thank you.

Yeager: Chris Robinson. We are going to pause our Analysis and continue our discussion about these markets in our Market Plus segment. You can find both Analysis and Plus at our website of markettomarket.org. As plant '24 rolls on, prime Instagram season is here. We will post some of our own images and share your best work on our feed of @MarketToMarketShow. Follow along today. Next week, incentivizing farmers to protect a natural resource. Thank you so much for watching. Have a great week.

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