Market Analysis with Arlan Suderman

A big dose of rain slowed the waning harvest while some buying showed up just before the weekend. For the week, the nearby wheat contract lost a penny and the December corn contract cut a penny. Soymeal was under pressure while veggie oils rose and the soy complex moved lower. The January soybean contract dropped 4 cents while December meal fell $10.50 per ton. December cotton shrank 51 cents per hundredweight. Over in the dairy parlor, December Class Three milk futures fell 50 cents. The livestock market was mixed. December cattle decreased $3.22. January feeders cut $2.43. And the December lean hog contract added $4.40. In the currency markets, the US dollar index improved 7 ticks. December crude oil weakened $2.07 per barrel. COMEX gold lost $10.40 per ounce. And the Goldman Sachs Commodity Index dropped just over 3 points to settle at 540.80.

[Yeager] Joining us now is one of our regular Market Analysts Arlan Suderman. How are you doing, Arlan?

[Suderman] Doing well.

[Yeager] Let's talk about wheat country, shall we? Drought to start the week. Major rains come through with more rain on the way. So, the wheat crop had already died once. Does this bring it back? And does it bring the market back to life?

[Suderman] It's got eight more lives. So, we're missing out Colorado, western Kansas, the southwestern Plains, that has become all too frequently true. But much of the winter wheat belt is getting a boost. And we'll take the rain where we can get it. That rain is coming up into the Midwest and doing some benefit there as well, reaching into the eastern Midwest. So that’s a positive for wheat growth. Does that mean that we tank the wheat market? I don't think so because we still have problems in Russia, Black Sea region. They've had some showers but they haven't solved the drought problems there.

[Yeager] Do you get the sense that this market, the way it didn't react, that Russia still is the big bearer on this market?

[Suderman] It is. When I've looked at correlations, statistical correlations, U.S. wheat prices on the board correlate more to Black Sea fundamentals than they do to U.S. or to European fundamentals, which are related there. And I anticipate that will continue to be the case. And also, if you look, these winter wheat ratings, the first that came out where the second lowest in history going back to 1986 when USDA started. If you go back to the lowest was two years ago and we ended up with a trend yield. So, it's spring rains that matter more than fall rains.

[Yeager] That sounds familiar. I've heard that in corn and beans. It happens in wheat country too. What are you hearing about producers who are -- are they making any sales right now?

[Suderman] We have seen some sales on rallies. I think farmers have been paying attention to the fundamentals, particularly on soybeans they see that South America is getting the rains now and is on track for a big crop. I know our StoneX survey first of November raised their production estimate 1 million metric tons to 166 million metric tons. That's still one of the lowest estimates in the industry. So, there is more upside potential. That is up from 149 last year. And so that looks like a big crop. They're storing the corn, locking the bins for the most part where they can and wheat, what they were going to sell they pretty well have sold now.

[Yeager] You can't use locked bins to talk wheat. We've got to save that for corn and beans here in a minute, Arlan. Let's look at corn for a minute. Same story with weather. Harvest is going to probably be well over 90% come Monday. Today is also the first day of the month of November. Which was the bigger factor this week do you think in trade?

[Suderman] I think we're seeing reduced harvest selling. We haven't found a home for every bushel yet. And we have some hugs piles out there on the ground. We're putting it about everywhere we can. But particularly with these rains coming I don't think it's particularly a production problem yet. But it does slow, it gives us time to find homes for these last bushels coming in. That should ease a little bit of the basis pressure in the country from what it would have been overall. And, of course, we love having the rain. We'd like to see the Mississippi River levels come up, see those soils get more saturated. Unfortunately, the northwestern areas of the Midwest are going to stay dry.

[Yeager] I want to go back to something you said right there at the beginning. So, are you in the camp of there are corn piles out there?

[Suderman] There are definitely some piles out there of just about everything. Sometimes they're corn piles, sometimes they're bean piles, sometimes they're wheat piles made so that they could have room for corn and soybeans. So, we have some big piles out there this year.

[Yeager] In terms of harvest pace, did that contribute more to the piles than the volume of the crop?

[Suderman] Obviously both were a factor, but I think the pace was the big factor. We just didn't have time to move it out as it was coming in. This crop dried so fast because of the dry weather pattern that we were in. The farmers were worried about losing bushels just simply from being too dry and drying too fast. And so, they were bringing it in just as fast as they could.

[Yeager] I just looked at that March chart and it made me think I kind of needed to add one more about that December -- do you see technically this bottom of I think it was called the $3.90 flush? Do you see a technical fall coming in that December contract here?

[Suderman] Obviously nobody rings a bell in Chicago when you hit the high or hit the low, so anything is possible. But based on what we now know, I'm feeling increasingly comfortable that the low is in on corn. The question is when do we pull out of this? How long does that take? Frankly, long-term it would be better if prices stayed low for a while before they make their planting decisions in South America for their safrinha crop. But I do feel like we're going to see stronger demand that helps lift things as we go into the last half of the market year and we're already seeing that strong demand.

[Yeager] Keep prices low to force Brazil to plant less.

[Suderman] Less, mm-hmm.

[Yeager] With the price moving in the direction, do you get the sense that, again use the word muted like I used in wheat, that this thing didn't go any lower, that that's why you feel so strongly about the bottom being in?

[Suderman] I think a lot of the concern was is how big is the crop? We priced that in. How fast is it going to come in? Storage issues and stuff like that. But you have to look at this in the context of what is happening around the world. First of all, the Black Sea had a short corn crop. Then Argentina is planting 20% plus or minus fewer corn acres this year. So, there's your number three and number four exporter. The Brazil soybean crop going in late doesn't hurt the soybean production necessarily, but it does put their winter corn or safrinha corn crop at risk. And so, a lot of things starting to come together. And then you add in reinflation concerns. If you look at the two-year breakeven inflation rate, it has really spiked over the last six to eight weeks. And so, the funds don't like to be short the commodities. Soybeans they are starting to rebuild shorts because they just have bearish fundamentals. But corn now we're starting to feel a little bit better about it, not bullish, but we're feeling a little less bearish about it.

[Yeager] How do you feel about beans? Do you feel bearish on them?

[Suderman] It's really hard to have a positive story on beans. If I'm going to look for it, it would in soy oil what we've seen. We've seen a spike in export demand. We're seeing a spike in palm oil prices that are helping hold up soy oil. Strength in crude oil has been a factor there as well. Soy oil long-term needs to have those 45Z requirements really laid out and we're starting to see a lot of domestic producers simply not want to buy until they know what those are. That is hurting domestic demand. That's why we have soy oil available to export.

[Yeager] Do you get the sense that -- you talked about money coming back into commodities -- is there anybody coming back in right now?

[Suderman] What we've done is unwound the short positions. We did it last spring when there was reinflation talk and then we saw inflation kind of die down once again. And this fall we've seen reinflation talk come back and they covered the short positions simultaneous to having some good export demand. Both of those things work together to help hold this market up. We don't have the fundamentals to sustain a rally right now in corn or wheat, definitely not in soybeans. But it was less bearish and it helped the funds go ahead and unwind their short positions. Now let's see if they actually build any ownership. I'm not convinced we have those fundamentals at this time. There are some scenarios that could develop to cause that down the road. But right now, I think we're defining a broad sideways trading range.

[Yeager] Let's look at some '25 things. I think Phil in Ontario wants us to do that, so let's do it now. With harvest in the rearview for most, how do we initiate marketing for the '25 crop? With Dec '25 corn at $4.42, November beans at $10.38, it's not that joyful. What do we do to look -- what do we look ahead at?

[Suderman] I've been in this for more than four decades and I've seen a few cycles and unfortunately the downside of those cycles are very painful. And until we see a significant change in dynamics, I think we continue to go through this painful cycle. When you're in that, we're just coming through the World Series, we back away from trying to hit home runs like we've had the opportunity in recent years and you start going for base hits. Where can I get the little victories whether it be basis or pricing on a carry. We look at the premium in those deferred contracts versus the carry in the market. We look at soybean fundamentals in that $10.38 I think you said. That could be much lower a year from now. And so, we may not like it but there's things we can do to keep the topside open, some tools that we can use to do that if you think that that may happen or have a plan in place what will trigger to rebuy it. But take advantage of that carry because when you have a lot of carry in the market like that, that's not bullish, that's bearish. That means the market is saying, we have too many bushels, we don't want you to deliver now, keep it in storage until later and maybe we'll need it and then it just keeps ratcheting down as that time moves forward.

[Yeager] Well, let's go back to what you said about corn then. If we keep this price low here and we discourage the Brazilians from planting so much corn, what are they going to plant? They're going to plant beans. Right? And that would further exacerbate what you’re talking about?

[Suderman] Except we're talking about a year-round crop. So, where they plant their soybeans, they follow the harvester with a planter to plant winter corn. And so, if their costs are too high to plant that they can pull back on how much corn they plant behind their soybeans. In America, we call it double crop, there they call it safrinha or the winter corn crop. And that is their big exportable corn.

[Yeager] All right, fair enough. I just wanted to make sure I get that right. Let's talk livestock because there was a moment in time this week where we were unwinding that market. Cattle on feed last week, we responded to it pretty neutral on Monday, but then kind of gave some things back here on Tuesday, Wednesday, Thursday. Is the high in cattle here?

[Suderman] The cash market hit $190 this week. We've had good movement at $190. But on the board, you look at that December contract, I know the continuous high is 193. But the 190 on the December contract, every time we've been up there and we've been up there about three or four times, the funds still want to go through that and they sell off. And when they sell off, the board drops, those feeders who have hedged see some basis opportunities to sell, that drops the cash. The cash held up this time. And so, I guess we're going to have to see that cash actually push higher and sustain a move higher in order to pull the board up with it. But we've been very impressed how well the demand has held up. And even though we had a terrible jobs report on Friday, the consumer confidence index that came out this past week was very strong, a massive jump, the biggest we've seen in many years showing the consumer is willing to spend. We've had several other reports showing them spending as well. So, that is good for the cattle industry, showing the consumer is willing to continue to pay up at this point. Steer weights up ten pounds, record high for any week of the year, heifer weights up three pounds. That cattle on feed report, heifer numbers down 1%, steers up 1% from a year ago. That's not rebuilding yet, we're still not there.

[Yeager] So, if cash has become the winner I get in cattle, in feeders has it been more futures this week that has gained the interest?

[Suderman] Yeah, it really is. And I think that does reflect some demand. They're thinking if the cash is holding up this week, we're seeing these fundamentals hold up better than we expected and you look at the whole protein complex, you look at the supply of pork product and the hog numbers have not been what USDA said. This may be one of the biggest misses in history for the last quarterly hogs and pigs report. So, the numbers aren't -- we're slaughtering 2.6 million hogs per week and yet we're holding the cutout over $100 per hundred weights. That's pretty impressive both domestic and global demand. That is helping hold up the cattle demand as well.

[Yeager] The hog market, another part of that, what we talked about on the top, this H5N1. It was a backyard flock, not a confined situation. Is that doubt if it could go to a more confined situation create unease in the market?

[Suderman] Anything like that can, if there's not good education with it, it can create it. But at this point we don't see any risk to the hog health really, the hogs weren't even showing symptoms. I think the bigger concern, and this is extremely low, is the mutation that can happen between the hog and the bird flu that can be transmissible to humans and there is simply no significant evidence that that is there yet.

[Yeager] AFIS came out with news on it very, very quickly and they clearly want to make sure they're ahead of this story. It's kind of crowded. There's this election thing going on. Do you think, in 30 seconds, has any money gone to the sides until this election sorts out next week?

[Suderman] I think the choppiness of the grain markets over the last week to ten days is really indicative of a market full of uncertainty and the elections are a big part of that.

[Yeager] Do you think that money -- we could do a whole Plus on if something falls quickly one way or another. But is there a certain reaction that we expect?

[Suderman] I'm just saying, the corn charts right now in a corkscrew formation, which usually is indicative of a significant move one way or the other.

[Yeager] Fair enough. We'll explain that one in a little bit. Okay, Arlan, good to see you again. Thank you so much. That's Arlan Suderman. And we're 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 have launched the Market Insider newsletter and we want you in our club. Each Monday, we deliver inside information about the program as well as info on what is ahead and only insiders will get the first read of the information. Subscribe at markettomarket.org. Next week, a small insect makes a big impact on the landscape. Thank you so much for watching. Have a great week.

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