Market Analysis with Jeff French and Ross Baldwin

Harvest progress along with weather led the increased pressures on prices. For the week, the nearby wheat contract fell 26 cents and the December corn contract cut 11 cents. South American weather improved along with the winding down of harvest in the U.S. and that certainly didn’t stop prices from moving lower. The November soybean contract lost 36 cents while December meal added 50 cents per ton. December cotton shrank $1.22 per hundredweight. Over in the dairy parlor, November Class Three milk futures increased 13 cents. The livestock market was mixed. December cattle fell a quarter. November feeders cut $2.20. And the December lean hog contract improved 18 cents. In the currency markets, the US dollar index added 69 ticks. November crude oil fell $6.15 per barrel. COMEX gold gained $56.70 per ounce. And the Goldman Sachs Commodity Index fell 26 points to settle at 534.20.

Yeager: Joining us now are two of our regular Market Analysts Jeff French and Ross Baldwin. Guys, good to see you again.

Baldwin: Good to see you, Paul.

French: Great to be here.

Yeager: Ross, you've got to hold on for just a minute. I've got some good ones for you, I think. We'll see. Or maybe Jeff does. Let's start with wheat. Geopolitical right off the bat here, Jeff. You have news from Russia that kind of reverberated through the wheat market on Friday about who they're going to sell to. The U.S. is not included. What does this mean for U.S. producers?

French: Well, right now it's the uncertainty. The news statement came about, about 11am Friday saying that Russia was going to sell directly to sovereign traders. So how do we interpret that? They're going to cut out the big traders, the ABCs of the world, so the uncertainty is there. When there's uncertainty in the market you always see lower selling pressure and that's exactly what we saw. And the trend of the wheat has been lower and Fridays are trend days. But Chicago made a one month low, did not look good on the close. Russia has tried to put this floor on the wheat at $250 per metric ton. They've had some people undercut that. So, I think this move is trying to see if they can stop that. But we'll have to see what happens here next week. It's very fresh news. But the market took it in a negative direction.

Yeager: How long would it take to sort through, if this is a successful move by Russia -- and the reason I ask a timeframe is we look at the movement with Iran and Israel on crude took a couple of weeks. Do we see it as a two-week hangover here?

French: It could take longer than that. Logistically I just don't see how Russia can supply the Egypt’s of the world and the other countries. And you have the biggest trading companies in the world that are still holding a lot of wheat, not only physically but probably in the futures market, and that is what you probably saw dumping on Friday. So, I think there's some major questions there. But again, it's the Black Sea and Russia dictating the world wheat prices.

Yeager: All right. What do you do if you're in drought-stricken Kansas and Oklahoma right now?

French: Well, I have clients there, they're not holding back. They're putting it in the ground. And depending on where you're at some have caught some rains and it looks pretty good. But you don't kill a wheat crop in October. You kill a wheat crop in May. So, they're going to put it in the ground and hope for higher prices. And if you look at prices here in the last five months, Paul, we've been in this kind of 50 cent trading range for the last six months. We just haven't gone anywhere. There is some big resistance up ahead but it doesn't take much, especially with how dry we're coming into dormancy, for this market to rally.

Yeager: So, farmers are planting. Should they be selling?

French: We're advising not selling on this. We made some sales back in early May when we rallied during the Russian freeze rally. But no, we are not advising sales down here at these levels.

Yeager: Four dollars seems to be the magic number in corn. Is that going to be the bottom of this run right now?

French: It feels like it. Yesterday, Thursday, we poked down there for three or four minutes, we traded $3.99, certainly did not like being below $4. And today I liked the corn action. You had wheat down 18, 20 cents and corn was down one to two pennies and did not even test yesterday’s lows. So, nearby I think the harvest lows are in, I do. Now do we get into the winter and South America looks perfect and they're getting rains? We'll have to reevaluate that. But I just, when we hit $3.85 in August you had the funds that were just slamming this corn market. They were short 350,000 contracts. I just don't see them doing that right now after how we've held these prices. There are inflation problems out there. We have an election coming up. This market could get volatile in a hurry. So, I just -- it feels like the low has been set here as of right now for the harvest low.

Yeager: Ross, have you been on the phone this week calling people saying, this is a pretty good time to be buying some corn?

Baldwin: Yeah, I think it's a really good time to get corn needs locked in. I agree with Jeff, as a cattle feeder I'm probably usually more bearish corn than I am bullish. But you can't ignore the fact that corn held the $3.99 the way we bounced off of it. And like Jeff said, when the funds got corn down to $3.85, they were so massively short not only corn but dang near record short beans at the same time. And I just, from a timing standpoint, I just don't know that there is a tremendous amount of downside for the corn market. I still think we can probably probe below $4 on corn. I think we could get close to the lows at $3.85. But I don't think there is a tremendous amount of downside that I think you have more of a risk that you could see a bounce back higher in corn say to the tune of 25 to 30 cents as we move out over the next few months versus corn selling off that much.

Yeager: So, if you look specifically at feeders and the cattle feeder himself or herself, is this the last of the cheap input? You say we might probe a little bit lower but I'm hearing, I'm picking up we've got a run higher coming.

Baldwin: Looking at the big picture yeah, I think this is going to be some of the cheapest feed needs or cheapest feed that you could lock in for the foreseeable future. So, for a cattle feeder that needs to get corn locked in or to book some feed needs further out, I would no question be getting some covered here.

Yeager: Do you get the sense that there is an appetite to do that though?

Baldwin: I think there is. From the cattle feeding standpoint I think there is the -- there is a little bit of a sense of urgency just because these are the cheapest feed stocks that we've had going back to just about August of 2020 when the bull run started. This is the cheapest we've been. It's the cheapest cost of gain that we have had for our cattle. And when you look at $4 corn, so if you take a little bit of basis off, say you take 20 cents off or even use $4 cash corn at an even basis, that is the cheapest cost of gain that we have had. And with $1.85 in cash trade and $1.88 today, it works, and there is a reason that these feeder cattle, they have exploded higher the way they have across the country over the last few weeks and it is because of the amount of cheap feed that is put up across the country.

French: Cheap corn, you know what they say, usually cheap cattle. But we have definitely not seen that. So, cattle at all-time highs here. Cheap corn. Take advantage of it, absolutely.

Yeager: I'm going to get to the cattle because there's something else, I want to get to, but I need to get to beans for just a minute here, Jeff. When you look at this South American weather reports it always seems to be we're always studying that but we're studying it earlier and earlier. You mentioned something about something will eventually work itself out. It usually eventually rains in South America. Is that what we're just finally seeing right now?

French: Yeah, and that was the story of the week, early in the week. They had the rains return into Mato Grosso, which is the highest producing state, and the forecast for the next two weeks looks plenty wet. That forecast is red all around. So, they're going to get the crop in the ground. Right now, CONAB is at 163 million metric ton crop. That's a 6.2-billion-bushel soybean crop. So, they have massive expectations down there. So, I think that story of late planting is going to go away. I'm going to look at by November 20th do we have 70% in the ground down in Brazil? I think historically that's what we have. But then you get into December March and then you start watching the weather. I think that's a big step. But the late planting rally that we saw that contributed to beans going up to nearly $10.70, that has gone out the window, and obviously you can see that with the price action.

Yeager: So, do you get more angst watching soybeans right now than you do corn?

French: Yeah. Soybeans were the play. You had a couple of things going on. You had the SIF basis down in the Gulf rallying to levels as high as we've seen back in August of '23 and then you have the spreads that just caught on fire here this week during the last seven days. You have the Nov-Jan spread going from 19 under, which is typically of huge massive carryout years, which we have a 550-million-bushel carryout, it worked all the way down to seven cents today, which showed me that we were running out of beans, which we are not obviously. And then that spread broke hard late Friday. But yeah, there was something going on. We don't know exactly. But it sure looked like a commercial got caught short with needing some beans there.

Yeager: But do you get the sense though that yeah there is this talk of huge harvest, there's piles, whatever. Somebody has to have a need somewhere. You mentioned a commercial opportunity. Are we to that point? Do you buy into the theory that maybe there is just not as much beans out there as originally thought and this is why we're responding the way we are?

French: No, I don't buy into that thought. The yields I've been hearing and I've been seeing have been very, very strong, eight to 15 above APH and many farms are making record yields. I believe that we're within a half to three-quarters of a bushel national average with the estimate that we have right now. So, I think the market is very comfortable on supply. And what the market now will have a laser focus on is demand. And we've actually had some very good demand here as of late. China was very active here today booking cargos, not only from us but also from Brazil. Does that continue past December is going to be the key.

Yeager: But do we know that it truly is China because certain things this morning said unknown, so do we always just assume that unknown is China?

French: In beans, yes. In corn, no. But in beans, yes.

Yeager: All right, well let's ask Shamus in Iowa's question then if we could to you, Jeff. There have been huge commodity sales lately and it has been dry in North America. Rains in South America have been less than forecasted. Are we looking at a good rally in the near future? Pick whichever you want. I get the sense corn, you think beans maybe not so much. Is that accurate?

French: Historically you look at post-harvest rallies. I look at '21 when we made our lows in the first week of September. Corn rallied 70 cents by late November. We've had that early rally, we got up to $4.34, that was 50 cents off the lows. Can we take out $4.35 in the December? That is going to be the real key. Whenever this market rallies 20 or 30 cents in the corn and 50 to 70 cents in the beans, it's going to be hit by selling pressure. There is a lot of unpriced grain out there that has to come out of the farmer's hands.

Yeager: Are there piles in your part of the woods?

Baldwin: Yeah, I drove by quite a few piles on the way here to the studio today. And you're hearing that across the whole Corn Belt. You're hearing of emergency ground piles going down. And I want to be cautious in saying all of that. I don't know that that's a function that the corn crop is that much bigger than what the USDA is saying. I think the 2-billion-bushel carryout, it's probably accurate where we're at. We know the yield is big. I think the amount of piles that you're seeing across the country is more of a function of the velocity of harvest. And that has played into that November-January soybean spread here recently where you can't get the beans to the export market. Exporters have sales on year-round and they need beans. Well, one of the issues has been we've went right from bean harvest into corn harvest with no breaks and there's a lot of people that want to get beans going but they don't have the freight to get it done because all of the freight is going on corn right now. So, it's a big crop. There's a lot of it out there. But there's also we're having such an influence from how fast this harvest is going with no weather delays.

Yeager: Yeah, it has been a break neck pace for many people. I actually did see rain in the forecast for some and they actually say I can't believe I want a rain day in the middle of harvest. Let’s go to a question here that is for you specifically, Ross. And that is from Joel in Oklahoma who wants to know, at the ten-year market of a shrinking cattle herd, when will the rebuilding of the U.S. herd begin? 2025? 2026? Or is that undetermined?

Baldwin: This is a great question. It's largely the billion-dollar question for the entire cattle industry because once we do start expanding then you look for prices to fall rapidly and that is what happened in 2015. We all have that engrained into our mind how the velocity of that selloff that we saw. Have we started rebuilding yet? I think we have to a little bit. I have long been in the camp that '25 was going to be the year that we really started seeing it, really fall of '25. We will get a look at in next week's cattle on feed report the breakdown between steers and heifers on feed. I'm curious to see if heifers on feed drops below 40%. 40% it's an equilibrium to where you're not expanding. If you're in the heart of expansion for the cattle industry you start to see heifers on feed down into 35%. I don't think we're anywhere close to that. I'm more curious, are we at 39%? Are we seeing a little bit? I think we are. But I think you've got to get out into next year before we really start expanding this herd. And the tricky part is with feeder cattle essentially back to some of the highest prices that we've seen, I know of eight weights that are bringing $270 or better right now this week. And so, feeders have exploded. And when feeders and heifers are worth that much money, the rancher is looking at selling them or do I hold them back? And interest is still high. Yes, the Fed cut interest a half a percent. But you still have interest in the 8 to 9 percent category. That takes a lot of money to carry heifers until you can get them to market. So, I think '25 we see more expansion than what we have. But with feeders staying where they are and interest where it is and I think there is a possibility that it could take until '26 even. Now, I do want to caution people that the market is not going to wait around until '25 or '26 if we know that we're starting to expand the U.S. herd to wait and sell off. I bring that up because back in 2015 the herd was still tight. We didn't have bigger numbers increasing until 2016 but the market had already priced it in. So, I just bring that up to manage risk on these rallies, have protection underneath of your cattle because the market won't wait around for it.

Yeager: We just put the cattle chart up. It illustrates a tiny little bit of a question I think you made, or a statement you made earlier this week. Are we standing on the top of the mountain of this live cattle market right now looking there's not much up, it's flat or down? Have we run out of steam here?

Baldwin: When you get up to this $1.90 futures range, I am in the camp, and for the market to prove me wrong, that there is far greater downside from $1.90 than there is upside. Can the cattle market go above $2? Maybe. Do I think you need to be betting your entire operation on it? No, I don't. And when I say the entire operation it's how fast these markets can move that it could just add up so fast. We watched last winter when the cattle market broke $30 on fed cattle and about $60 on feeders and really for not a whole lot of reason. And I would say that was probably similar with the 550-million-bushel carryout that soybeans went from $9.55 up to $10.70 recently, probably didn't need to go that high, and here they have broke all the way back down. And it's just the influence and the aggressiveness that the managed money crowd can move these markets and the cattle market and the hog market has long been known as two of the markets that can move so fast.

French: I just look at it, look at the stock market right now, all-time highs, S&P up at 5200, directly correlates to high cattle prices. Election coming in here in three weeks. Lay off some risk. Get some LRPs bought. Get some put options bought. Again, we have kind of plateaued up here and absolutely agree with Ross, there's far more risk to the downside than the upside right now.

Baldwin: The equity markets, I'm so glad Jeff brought that up, the S&P 500 has not closed below a previous day's low since September 6th. Up until earlier this week the live cattle and feeder cattle markets had not closed below a previous day's low until like September 6th or September 10th timeframe. They have tracked identical since early September, these two markets have. So far, the cattle market has kind of shown some signs of running out of steam this week. Now, cash trade has been a dollar higher again this week. But the cattle markets have shown a little hesitation that hey, maybe we have rallied too far too fast or we've rallied enough for the time being. But that equity market still has not run out of steam. I know we were cranking out or back to yesterday's highs here earlier today in the S&P. I do think for the cattle market that is the one market guys should really keep their eyes on because if we were to see that equity market start to break from these highs, we've made highs it seems like day after day. That market could sell off so fast if it got to going and I think the cattle markets, livestock markets in general could go right along with it.

Yeager: Let's go on the in general part of your statement to hogs. What do you think it happening there?

Baldwin: Hogs have had a tremendous rally recently. Since about mid-July hogs have worked higher. That rally really took off early August. Cash hogs they have been drifting lower, working lower, which is very seasonal for this time of the year. I don't think anyone is wildly bullish for cash hogs working out through Q4, it's very seasonal that you have losses Q4 or Q1. I'm sure they'll rebound as you get through Q1. Probably the thing that sticks out to me the biggest with the hog market is the managed money crowd last week, I haven't got to see this week's commitment of trader's report, but as of last week they were long 78,000 lean hog contracts. They were actually long just a few more hog contracts than they were live cattle, which I'm not used to seeing that. The all-time record hog long was back in 2013 and it was in the mid-90,000 level. I want to say 97,000 contracts. I would imagine we see them, they added to that length here with what hogs did this week. They're probably in the low to mid-80,000s for hog length. That is a big position and people need to be protecting downside risk in the hog market.

Yeager: And our risk is we are at the end of time. How about that? He did pretty good, huh? Keeps filling it.

French: Went quick.

Yeager: Went quick. All right. Jeff, we'll be back with you in a minute. Ross, same as well. Got a lot of good questions coming up. Thank you, guys.

Baldwin: Thanks, Paul.

French: Thank you.

Yeager: We are going to pause this Analysis and continue our discussion about the markets in our Market Plus segment. You can find both Analysis and Plus on our website of markettomarket.org. We are again approaching a milestone on our YouTube channel and we'd love to see you be the one that got us there. Click subscribe on our channel to be the first to watch the full program, Market Plus and the MtoM podcast. Next week, a simple strategy to lower temperatures and open up miles of new habitat. Thank you so much for watching. Have a great week.

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