Market Analysis with John Roach

Daily flash sales have helped cycles move above last week’s lower closes but the air seemed to leak out of the tires of the rally at week’s end. For the week, the nearby wheat contract fell 4 cents and the December corn contract added 11 cents. A surge in soybean oil helped pull the soy complex along. The January soybean contract gained 28 cents while December meal cut $9.80 per ton. December cotton shrank 31 cents per hundredweight. Over in the dairy parlor, November Class Three milk futures fell $1.13. The livestock market was higher. December cattle increased $1.82. November feeders put on 98 cents. And the December lean hog contract expanded $1.85. In the currency markets, the US dollar index added 80 ticks. December crude oil improved $2.55 per barrel. COMEX gold strengthened $22.80 per ounce. And the Goldman Sachs Commodity Index put on nearly 10 points to settle at 543.95.

Yeager: Joining us now is our senior Market Analyst John Roach. Good to see you, John.

Roach: Thanks, Paul. Nice to be here.

Yeager: The easiest thing to do in a market if it has no fresh news is to move sideways then down. Hello wheat. We've seen Russia and Europe weather be a story. Is it still the story impacting the wheat market the greatest right now?

Roach: For a moment. They're in a very critical time of their growing season. They've got to get the crop into a little bit of growth here before it goes into dormancy. And so that is the area that is right now suffering the most. But they've been exporting at a pretty rapid pace. And so, after shorter crops this year they're expected to run out here and then we'll become the market.

Yeager: But in the United States we have weather issues of our own in the Plains, Oklahoma and Kansas, a little bit of light rain but not really enough to change anything. Weather domestically is also -- so if you're sitting there with dry soils are you planting wheat with caution right now?

Roach: Well, I think everybody has to look at what their rotation is and so forth. But yes, I think you do plant wheat. The world stocks, if you look at the ending stocks for wheat forecast for this upcoming year, they're actually smaller than what they were last year. And last year was smaller, let's say the end of June were smaller than it was the year before. So, world stocks are coming down while U.S. stocks are increasing. So, what has happened here is the world has been slow to come by and this really applies across all the grain We had high prices and so the users became slow buyers and really have very little inventory. And now just in the last couple, three weeks they have really stepped up. We had big export sales that we saw this week. And we think that there's more business ahead. And so, it's a matter of finding a price level that we can get enough grain out of farmer's hands and that level is going to go up. Farmers don't like this price, it doesn't work in the budget.

Yeager: We're going to get to reluctant farmers in a minute. I think we're going to talk soybeans. You wrote something this week that caught my attention. Let's talk corn first though. Again, it's a weather story but it's the South American one. You laid something out there this week, again caught my attention. At what point does the South American delayed planting become a United States story and impacting farmers here?

Roach: Well, it possibly could with corn. It will depend on where prices are and so forth and how many acres of double crop corn will get put in because they're going to go in late because of the bean plantings being late. And it's still dry in South America. And they've had some rains. But when you look at the weather maps, we're really dealing with a very dry area with some rains. And we don't know for sure that we're going to have good rains all the way through the season. So, come next January, February as they're harvesting soybeans, it will be a question as to whether they want to put corn in or not. It will depend upon their weather conditions and what the price levels are.

Yeager: Flash sales have been a story this week. China buying corn. Is that a -- not a drop in the bucket -- but an indication of more things to come?

Roach: I think so. Not necessarily just China. We've had a lot of business from routine kind of buyers. Mexico has been certainly a big buyer here recently. Again, if you think in terms of where we came from, we had very high price levels and everybody let their inventories dwindle down. And then we had a growing season in the United States that we really didn’t threaten the crop very much and there was no rush to get anything purchased. And so, the buyers have really gotten themselves into a spot where they don't have big inventories. They have very small inventories. And now they're coming to the marketplace and they're getting bargain prices and so they're buying and I think that they'll continue to buy here. And so, I think that will be supportive. On the other side, we have the commodity funds that were big shorts and they were buyers and that took the market higher until this last week. And I haven't seen the numbers for today but as of last week they were big sellers again. So, we really have a two-sided kind of trade in here and I think that is what we deserve to have for a while is a two-sided trade back and forth at a level that we're able to get grain to move from the farm and at a level that the buyers will continue to buy.

Yeager: Is this happening earlier than normal? We're still in the middle of harvest. We're more than halfway done on corn harvest. That seems to be activity that happens in November, December. Are we ahead of schedule?

Roach: Well, I think that we're behind schedule on the buying side. The buyers just didn't find a spot that they needed to buy. There was no rush to buy anything. And suddenly they saw the prices start to move higher. And put yourself in the position of a procurement manager, you just had the lowest prices in a long time and you didn't buy any inventory? That's how you lose a job. So, the buyers need to get coverage and I think they're going to stay busy there on every break in the market. They're going to be buying and that will continue until we get done with harvest and then you'll have to deal with the farmer who doesn't want to sell at that price level.

Yeager: Let's speak of that farmer who doesn't want to sell. Argentina, the farmer there is holding onto crops, I think you said because of currency exchange issues and maybe some tax programs. What is the impact of that to us here?

Roach: Well, again, we're seeing grain not want to move off of the farm or off of the farmer ownership. And as long as there's harvest going on you don't notice that so much. But once harvest gets finished and once we get the crop put away then we're going to have to find a level that you can get the grain away from farmers. And I think it's at a higher level. I'm not trying to be optimistic or bullish about the market at all. I just think we're too cheap to move the quantity of grain the world wants.

Yeager: I'm going to put you on the spot here. What does that mean? How high are we talking here?

Roach: Not lots higher. Not lots higher at all. If you look at the supply demand tables for the United States some people would say we don't deserve to go higher at all, we should go lower. But I don't think that we'll be able to do any business, you won't be able to source the grain from farmers if you take prices lower.

Yeager: And I think you wrote this week, we've kind of defended the 20-day moving average in wheat, corn and beans a lot this week, beans though not as much as the other two.

Roach: But we've been up testing it. We've been trying to get through it. Corn actually got through it but then fell back down. And the reason the 20-day moving average is important is that tells you the trend. If the price is higher than the average for the past 20 days, that's an upward trending market. And when you have an upward trending market, you get the spec funds in buying, and you also stimulate the users to make sure they're there on the next pullback.

Yeager: You know the easy thing to say now, John, is the trend is your friend because there's usually something -- I'm trying to use your line on things. Is that right?

Roach: Yeah, that's the old adage and it's true, it really is true.

Yeager: Well, let's talk about '25 then and a question here from Trent that he wrote to us this week. Will there be any crop trying to buy acres in the spring of '25 given what you've just said about the reluctance to sell? And will that impact our acres?

Roach: I'd flip it over the other way. There is going to be a push on to not plant soybeans. The soybean supply demand tables are scary. We have a record world ending stocks coming at us and we have a big ending stocks coming at us in the United States. And so, we're going to distort the relationship between corn and beans so farmers will plant more corn and less beans.

Yeager: That is interesting and that has been consistent with a lot of people that have sat in that chair. Just the bean outlook long-term doesn't look real good.

Roach: It doesn't look good if the Brazilians have a good crop. Now, if they have weather problems and have crop issues then it's a whole new ballgame again.

Yeager: But we seem to have this issue a number of years. At what point does it become, it gets to be too late for rains to come to Brazil where it becomes a major story. Is that a November 1? A December 1?

Roach: It's probably a late November story.

Yeager: All right, let's go to livestock if we could. Just when you think cattle can't go any higher, the buyers return. Why did they come back?

Roach: We have holidays coming up and the packers are making money and farmers are, the feedlots are reluctant to sell because they need more money in order to make the cattle work. And so, they're putting extra weight on, but meanwhile are having to bid up to get the cattle to move. And that is good as you come up into the holidays. But as you come out of the holidays, particularly with the credit card situation that we're hearing and the concern about people's money situation, we think we could have a really tough sledding once you get through the holiday. So, we think you've got a period of time here where it's a good party, enjoy it, and make sure you get your protection in place here at these higher price levels.

Yeager: Right before we recorded on Friday cattle on feed came out and on-feed was 101%, placed on-feed in September 98%, fed cattle market during September 102%, other disappearance 98%. What is your take from those numbers?

Roach: A little bit bigger numbers on feed, a couple percent more than what people were anticipating, a little more placement, bigger placement number, a couple percent more than people were thinking about. And so, they will be considered negative reports. But that's a little longer term. The immediate situation as far as beef movement is concerned will be what governs the market next week.

Yeager: We had a good long discussion about livestock last week and it, again, kind of centered around that first question I asked you about where hard to believe we can go much higher. But what are you hearing about lots and filling up in some of the cattle feeding regions? Are they stocking up at regular pace? Or are they hedging their operations?

Roach: The interesting thing is that we look at the cattle crush, which is the cost of feeders, the cost of feed together with the price of fat cattle and most of the weights, particularly the heavier weights, you're in the upper 90 percentile of what profits have been available looking over the last ten years. So, it really is a good time to take a look at, particularly if you're a hedger, of coming in and accumulating replacement cattle and putting hedges in place.

Yeager: In the hog market, we look at, this was a new one for me. I didn't understand why would Brazil farmers delay in planting have an impact on the hog market?

Roach: I'm not sure that it has had that much of an impact on it. The hog market, we've just got solid demand and we're just moving on higher. But again, we're up into that area where we think it's time to be looking at protection and understand that we'll have two different kinds of markets. One is before the holidays and one is after, in my opinion.

Yeager: Before we go, dollar, a strong rally this week. Does that have - is that going to be much more volatile here in the next two weeks before the election? Is that going to be the biggest influence on it?

Roach: It sure could be. The election has got everybody's attention. But the other part of the lead-in that we talked about that I thought was important and that is look at inflation, look at what the commodity index is doing, look at gold, look at petroleum, we're not deflating, we're inflating.

Yeager: Okay. We'll continue on that one because I do like that topic. That's a good one to discuss. John Roach, good to see you. Thank you.

Roach: Thank you much, Paul, appreciate it.

Yeager: We are going to pause our Analysis and continue our discussion about these markets in our Market Plus segment. You can find both of them on our website of markettomarket.org. We have launched the Market Insider newsletter and there's still time for you to join our exclusive club. Each Monday we deliver inside information about this program as well as information on what's ahead and only insiders will get the first dibs. Subscribe at markettomarket.org. Next week, big ideas to help feed the world. Thank you so much for watching. Have a great week.

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