Market Analysis with John Roach

Next, the Market to Market report.

The U.S. wheat tour wrapped up while a third of the Black Sea region’s crop is in stress as U.S. corn planting resumed in the western Corn Belt.  For the week, the nearby wheat contract lost 12 cents and the July corn contract shed 17 cents. Some funds exited their positions and others took profits while keeping an eye on planting progress in the soy complex. The July soybean contract gained 9 cents while July meal gave back $3.10 per ton. July cotton shrank $1.42 per hundredweight. Over in the dairy parlor, June Class Three milk futures improved 93 cents. The livestock market was mixed. June cattle expanded $4.90. August feeders surged $8.95. And the June lean hog contract subtracted $1.88. In the currency markets, the US dollar index fell 85 ticks. June crude oil added $1.67 per barrel. COMEX gold improved by $42.20 per ounce. And the Goldman Sachs Commodity Index was up almost 8 points, to settle at 585.70.

Yeager: Joining us now is senior Market Analyst John Roach. How are you doing, John?

Roach: Good, Paul, thanks. Nice to be here.

Yeager: This wheat market is one that had been a leader, then you were kind of hoping that maybe beans and corn would go with it. Is wheat still a leader for you?

Roach: I think wheat is still a leader. And we have to back up a little bit further. The reason that the wheat market was down so hard was because spec funds built record net short positions. So, when you have all of those contracts short in the market and then you start to have something kind of worry traders, prices start to rally, you move prices up through the moving averages, we like the 20-day moving average, turning it into an uptrend, which causes the funds to step out of short positions and their buying has been the real power. I know we're all talking about the weather. But the power is coming from speculative buying from the commodity funds and they are very much trend followers. So as long as the market is trending higher, you can expect that they'll keep on being buyers. But if this trend turns down, if we break below the 20-day moving average, you're going to have a different ballgame here. So, producers need to be very careful to not miss getting some sales made on the Russian weather worry.

Yeager: Are you in a buying or selling mood right now in wheat?

Roach: We have sell signals. We printed sell signals here earlier this week and then the market has taken a pretty good dive to the downside here in the latter part of the week. I think we've had plenty of willing sellers on that strength.

Yeager: Corn wise, when you look at planting progress, there's a lot of folks looking for some type of boost to the market. But we're back into that $4.50 range. Are we stuck there?

Roach: I'm afraid we might be. We've been stuck in a big, broad trading range really for quite a few months and the trading range was sort of upward until December and then downward since then. And again, speculative fund selling is what really pushed prices lower. And then when the wheat started to bounce, then the corn started to, triggered the moving averages, we moved up over the 20-day moving average and you saw fund buying. Last week we had I think 285,000 contracts purchased, net long contracts purchased across the grain complex. So, you're talking about huge, huge kind of buying that came because of a move in the, a change in the trend. So, we have to be careful here that we don't look at the weather and think that is what is driving us and ignore the real power behind the market, which is basically trend following. So as long as the trend is moving above the green line, we call it the 20-day moving average, we think it's solid. But as soon as you break below, which corn did today, now you're going to get wobbly here. So, if we continue to slide a little more early next week, you can bet those funds are not going to be our friends.

Yeager: The funds, what did inspire them in the first place?

Roach: They just follow the averages for the most part.

Yeager: It's just technical things for them.

Roach: It's mainly technical. So, some people dial some fundamentals in, but by and large, they follow the rule, the trend is your friend, and they're professionals at it.

Yeager: Let's look at the new crop quickly here and in '25. Are you making any sales right now on either of those years?

Roach: We did, we had sell signals here earlier in the week and we did both for corn out of the bin, corn that is recently planted, but we didn't go out and do '25 yet. When we're ready for the next push, we'll do '25 corn as well.

Yeager: Let's look at beans for a minute because, again, are you going to give me the same answer of don't look at the weather, look at what the funds are doing in beans?

Roach: I'm not saying don't look at the weather. What I'm saying is look at the trend of the market because if you want to know the very best weather forecast, the very best weather forecast will be shown on the Mercantile Exchange on the futures prices because if enough people believe there is a weather problem, prices are going to be trending higher. If it's going the other direction, not enough believe there is a weather problem. And in the case of corn, not enough people believe it's a weather problem yet. That may change next week or the week after, but today we went home with a cyclical corn market.

Yeager: Let's talk new crop here with both beans and corn. And let's use Phil in Ontario's question for you here, John, that came in via X. Historically, seasonality tells us the best new crop prices are there for the taking in the next six weeks. Is 2024 different than past years regarding that?

Roach: I don't think so. We love making corn and bean sales in April, May, June, July. Those are our selling season months. We reward the market with extra quantities during these months and we tend not to fight the market. If the market says hey, there's not much going on here, it's probably good to believe that. And so, this next week will be pretty important. Can we continue the upward trend or does the upward trend stall out with this bad weather forecast that we were dealing with this week?

Yeager: I use this a lot because you said it to me a couple of years ago. But everybody on the same side of the boat. Let's take the funds out of the issue. What if all the farmers are on the same side of the boat and they all believe a certain thing? Does that concern you?

Roach: It does. And all the farmers are sort of on the same side of the boat right now, and that is most farmers, not all certainly, but most farmers really don't want to sell at these prices. They think that there's better opportunity or there is risk involved yet and they just are not anxious to sell much. Now, we had the strength, we got up toward those highs, we ran into a blizzard of farmer sales. And that is what turned the market back down is farmer sales. It wasn't the change in weather as much as it was farmer sales.

Yeager: Let's get to livestock because this was a reversal. The last couple of weeks had kind of, I don't know, was it a correction? Was it a pause? What did you see in livestock the last couple of weeks?

Roach: Well, you've got two different markets. You have a cattle market that has a cash market that is very strong. You have dressed beef up $15 this week. You have cattle coming in heavier than a year ago, about 25 pounds. So even with those supplies the demand is clearing it from the marketplace. Now the cattle futures don't quite see it the same way and so they have been continually dragging behind the cash and sort of getting drug up by the cash market. But the cattle market it seems on fairly solid footing. Now we can run into some trouble here at any place. But the feeder cattle market tells you that that's kind of the attitude. The feeder cattle market is really hot out there. And so, it's a great time if you're in the cow-calf business and you're looking for a spot to sell feeders, this is a real good time to be liquidating some of that inventory.

Yeager: But the chart we just showed, we're still below what we were trading to start the year, do you see feeders returning back to those levels here in the next couple of months?

Roach: I'll tell you, the price levels that we're seeing right now, that gives you a very high breakeven price. In fact, if you look at the cattle crush where you buy the feeder cattle, buy the grain and sell the fats, we're between 8% and 45% of the worst that we've had in 10 years and most of it was closer to 25%. So, the market is structured right now really not very good. It's worrisome.

Yeager: Here's a thing that might be worrisome to you in hogs. Pork exports sales set marketing year low this week. Does that concern you?

Roach: See, that's the difference between the two markets. The cattle markets I'm talking positive, positive, positive here with some concerns, cautions. In the pork market we've slid and slid. However, we're down to a price level here on hogs that we want to be careful about being too negative. We actually have buy signals on hogs and remember June is the pork month and so we tend to have demand that comes a bit surprising during June. So, we don't want to be quite as negative as the market appears on hogs. But we're still pretty positive on cattle.

Yeager: Do you see this -- the buy signal -- you didn't say recovery. I guess I'm going to put a word in your mouth. Do you see the recovery lasting a long time in hogs?

Roach: I'd like to think we'll have strength into June because of pork --

Yeager: Because of that. Okay. When we look at metals for a minute, copper has kind of been crazy. You wrote about metals this morning. Is there any one of those that farmers need to be paying attention to that might give them some type of signal of what they should be doing?

Roach: Well, my way of thinking, although everybody came away this week thinking interest rates are coming down, that inflation is slowing and we might have a cheaper rate in September or something like that, I look at the marketplace and I don't quite see the same thing. I don't see inflation slowing down much. It might be slowing down a little, but it's not slowing down much. And the government is still spending a lot of money. The last numbers I've seen we're spending an extra trillion dollars every 90 days. That's a lot of money you're pushing into the system and now they're talking about more giveaway kind of programs. You're putting a lot of cash out there and that is going to go into the buy bucket and that is inflationary.

Yeager: And I'm going to have to say goodbye to you. Thank you, John.

Roach: Thanks, Paul. Thanks for having me back.

Yeager: Good to see you. All right, we are going to pause this Analysis and continue our discussion about these markets in our Market Plus segment. You can find both Analysis and Plus on our website of markettomarket.org. We still keep the email machine on and ready for you in case you've ditched the social networks and still want to reach us. Fill our inbox with more than just press releases. Drop us a line any time at markettomarket@iowapbs.org. Next week, the discussion of the challenges and stressors of agriculture. Thank you so much for watching. Have a great week.

(music)

Market to Market is a production of Iowa PBS which is solely responsible for its content.

What's next doesn't happen by chance. It happens when researchers and farmers work together to solve tomorrow's agronomic challenges. We're committed to creating what's next because at Pioneer, our name is our mission.

(music)

Family owned and operated for more than 60 years, Sukup Manufacturing is a full-service provider of grain handling, storage and drying equipment, helping farmers feed and fuel the world.

(music)

For over 45 years, Steiner Tractor Parts has shared your love of antique tractors. New parts for old tractors. Learn more at steinertractor.com or at 877-559-7887.

(music)

Tomorrow. For over 100 years, we have worked to help our customers be ready for tomorrow. Trust in tomorrow. Information is available from a Grinnell Mutual agent today.

(music)

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.