Market Analysis with Matt Bennett

Next, the Market to Market report.

Pre-Election and USDA report calm kept the markets neutral for most of the week. Slight volatility Wednesday was replaced by rangebound trade by the final sessions. For the week, the nearby wheat contract added a nickel and the December corn contract put on 17 cents. Trade war fears moved to the back burner in the soy complex as USDA reduced the size of the crop Friday. The January soybean contract gained 37 cents while December meal improved 90 cents per ton. December cotton expanded 79 cents per hundredweight. Over in the dairy parlor, December Class Three milk futures fell 65 cents. The livestock market was lower. December cattle decreased $2.23. January feeders cut $1.77. And the December lean hog contract shed $3.65. In the currency markets, the US dollar index improved 77 ticks.  December crude oil strengthened 76 cents per barrel. COMEX gold lost $52 per ounce. And the Goldman Sachs Commodity Index added just over 8 points to settle at 549.10.

[Yeager] Joining us now is one of our regular Market Analysts Matthew Bennett. Hello, sir.

[Bennett] Hello, Paul.

[Yeager] Wheat if we could start with that, like we always do. It rained in some areas that needed rain. The crop is going to get a good takeoff coming into the winter months. But domestically is not always the story in the wheat market. We're still looking at dry conditions in Russia. We're still looking at a cheap product in Russia that is flooding the market. Is that all there is to talk about in wheat this week?

[Bennett] The report didn't really offer us anything. The wheat market really didn't do anything afterwards either. It was pretty much unchanged. And quite frankly, you would expect some sort of a break out in there at some point. We just kind of went sideways. As far as the U.S. weather, it's definitely a good factor. We feel much better about what the crop might look like. But at the same time, outlook numbers showed acreage wasn't going to increase any and maybe a little bit smaller crop next year. But Russia is an issue. Any time you see any sort of a wheat rally it seems like that pretty much is what holds us back. So, if I was going to see a break out of some sort, though, I kind of feel like wheat might be a little more of a follower. So, if you see strength in the other grains maybe you'll get a little bit out of the wheat market as well.

[Yeager] When you see a neutral report though on a commodity that obviously must mean traders feel like they've got it dialed in.

[Bennett] Yeah, I think that they do. Right now, it's that time of the year where you just don't get a whole lot in the way of wheat news. It's really not going to be your leader at this time of year typically.

[Yeager] How about more news in corn? What is your lead story in corn this week?

[Bennett] The corn market, it has been a very interesting dynamic in that we've posted a bit of a rally here. We all knew it was a big crop. Reports showed us a bit of a drop back though. Illinois back down to 218, still a record, but it gives you a national yield of 183.1. So, we're a little bit lower than what we thought we were before. The interesting thing, maybe more so than the report though, spreads have been awfully strong. Basis is increased or narrowed if you will. You've seen the grower get an opportunity at some cash prices that look vastly different than they did in the thick of harvest. And so, lead story wise I'd say your cash corn price looks awfully attractive as compared to what we've been talking over the last three, four or five weeks.

[Yeager] A mutual friend of ours and I were talking this week and she said that growers, her clients don't seem to be as nervous as they were, like you said, before harvest started. Do you concur?

[Bennett] Yeah, I don’t know that I feel as bearish maybe as what we did previously. We all knew it was going to be a pretty good-sized crop, first of all. But what we didn't know is that the cheap prices, curing cheap prices would happen maybe as quickly as what we've seen. Exports have been fantastic. Now, you've got to be really careful with these exports in that a lot of people have felt like these were front loaded. Mexico had some concerns reportedly that maybe some of the tariff situation after Trump might be elected, and he was, maybe that's why they were front loading export demand so much. But at the same time, again, the basis, the spreads, they have indicated that there are folks out there that don't have enough corn bought right now. And so, I'm not feeling as bearish as what I did previously.

[Yeager] All right, so, if I don't have much bought right now and I'm sitting on maybe still some '23 and now I just have this new '24, at these prices is a producer inclined to sell or hold?

[Bennett] Yeah, I think if a producer is sitting here today and vastly undersold, which the average producer is if we're honest about it, you're looking at prices that got 45 cents off of the lows, first of all. Second of all, some of these basis appreciations have been so strong in some of these areas as you get out past harvest, of course the producer once they decide if it's in the elevator, hey I've got the minimum amount of storage, probably not going to do anything for a little bit. Once it goes in the bin, typically we don't want to do anything right off the bat. But just a week ago on the river we saw, towards the end of October, the last few days of October, the cash price was five under the board, December 1st price was 35 over the board. And so, as a producer if I've looked at a 40, 45 cent rally and basis appreciation in some areas of anywhere from 20 to 40 cents, selling an increment into that makes a heck of a lot of sense to me. I'm not saying I'm bearish and it doesn't mean you're bearish because you're selling some, it just means you're smart.

[Yeager] It means you're taking advantage of what the opportunity is.

[Bennett] Absolutely.

[Yeager] Another mutual friend, you've got to think about base hits instead of home runs.

[Bennett] No. That's taking something right out of every presentation I make because the thing is what our mind typically will tell us to do right now, Paul, is that hey, this corn market is starting to catch some life. How much more can we get out of it? Instead of hey, what does 50 to 60 cents a bushel mean for my operation times 230 bushel yield? And that’s serious money that a lot of us felt like we weren't going to be able to latch onto previously. It's no secret the average grower if we would have kept prices at $4 and below would have lost money this year. We know that. Now, can we make money at $4.10 cash, $4.20, $4.30? That's still going to be really tough for the average producer. but it's better than what it was.

[Yeager] Let's look at that March contract, $4.44, up again this week. Are you looking -- do you like any of the deferred months to place some type of a hedge?

[Bennett] Yes, I do in this situation. Let's say a grower is sitting here with bin corn and they say, you know what, I don't want to do anything right now, I want to sell maybe some carry in the market. Now, is there enough carry in the market for, you're still talking 1.39 billion bushel stocks number, I think carry should be a little bit wider than what it is, Paul. But that doesn't mean as a grower I don't look at, for instance, you get out to some of these levels, $4.45, $4.50, if I sell out to May or July I'm selling carry in the market, basis improves for me, that's exactly what typically we used to do in the grain business is we hedge the carry, we wait on the basis to come to us, try to make the bins pay for themselves. And on-farm storage, in my opinion, you could put yourself in a much better situation than what we thought we were going to be in. But just putting it in the bin and forgetting about it doesn't always make a whole lot of sense. So, I don't mind selling the carry, even though there's not enough carry for me, I think it should be more. But if I'm ready to make the decision today I don't mind selling the carry. If I've got the bins, I think I can make that work.

[Yeager] We're going to get back to that bin discussion in a minute. But I need to get to soybeans because we're solidly above $10 and there's this seems to be some momentum. We've retraced half of the move back. If you look at the chart we're bouncing. However, technically it also means we might move lower too.

[Bennett] Oh absolutely. The thing you've got to be cautious with whenever it comes to soybeans, so this report, we took quite a bit of air out of the sails. And so, you go from 53.1 down to 51.7. That's a big drop. I don't recall a drop from October to November, anything close to this. I have to go back and look but I don't believe we've ever done this before. And so, with that being the case, the market you would think taking carryout all the way down to 470 it was a bullish report clearly. The market didn't act like it was a bullish report but we have had some strength. Post-election on Tuesday night we were down 20 cents and a lot of folks felt like well there's reason for that, maybe China is going to back away from the export table. That had been widely discussed. But then here you sit at the end of the week almost 50 cents off of those lows. So, Friday's move, I'm not super concerned with it, but I did think it wasn't quite as good of a reaction as what you would expect with a report that was that bullish.

[Yeager] It was a pretty positive response initially. And then we closed much closer to an even for the day. So, why did that happen then?

[Bennett] I think there's a variety of reasons. I know that during the middle of the day there was an announcement that they thought that Lighthizer was going to be our U.S. trade representative. When that was announced, beans went lower at the time. And then all of a sudden you turn around and you go back higher. Clearly, he was involved in tariff discussions. So, that is something to kind of keep an eye on, there's no doubt about it. That's something we're going to talk about for some time in here. Until something happens there, I guess I'm not going to lose any sleep over it. But I think the bean market is going to be pretty reactive with that kind of information.

[Yeager] And we're still going to sort out a bunch of things. But let's sort out weather if we could. Let's play forecaster. Phil in Ontario wants to know, La Nina is building in the Pacific. What does history tell us this means for South American crop production in the next three months? What implications will it have for U.S. production in '25? See, we're back to the bin talk there.

[Bennett] Yeah, so first of all, obviously Brazil was extremely dry when they were supposed to be dry. But we turn off in October and we got moisture down there, they started planting, they're on a normal pace. Sometimes in a La Nina environment they get wetter actually later in the growing season as well. They stay wet. We've had instances like that. I don't think that total overall production looks like it's at a major issue at this point. As far as U.S. production though for next year, there's a lot of correlation between a very dry September and October to the next year having drought implications. And so, I do know there has been some fairly prominent people that have talked about '25 being a drought year. As of right now there is a decent correlation based upon the weather that we just exited. I know you and I just talked before we went on the show and we had four and a half inches of rain around home over a four or five day period. We were so dry that we didn't have a tile running. And so, everyone was dry. The Drought Monitor will show you that. But by all means, this rain was very much welcome that we had over the last week to ten days. Fortunately, river levels came up just a little bit and we've got hope that that continues to happen.

[Yeager] They didn't lose and that's actually a win considering what it has been. Livestock, live cattle, ended a six-day losing streak but it's still down for the week. I asked one of your guys a couple of weeks ago, I asked Ross, have we seen the peak? What do you think?

[Bennett] I was on I believe around a month ago and I did not feel like I wanted to be bullish in the high 180s. I still feel this way, the funds had a long position in cattle for quite some time. It kept sticking around hoping maybe are we going to push back towards these all-time highs? Cattle on feed reports have been a little underwhelming. They haven't been quite as bullish as what I thought they might be. You've got to ask yourself though, why are people still, for instance, putting heifers in a feedlot? Well, you know what, the Drought Monitor will show you that the pastures just simply aren't there. And so, you would think, well maybe this cattle market could go on higher, right? I just think the funds have gotten tired of pushing that envelope. Boxed beef dropped like a rock here towards the end of the week. At this stage of the game, I can't be real bullish in here and I would say the same thing I said last time, if I am a guy or a gal with a lot of risk, I've got to at least have a floor in here. This cattle market is still historically very, very strong. But I wouldn't just sit here and do nothing.

[Yeager] You feel the same way about feeders too? Do something, not nothing?

[Bennett] Yeah, here's the thing with feeders. It's still hard to get feeders bought. I just saw in the last week some 400 pounders bring $4 a pound, Paul. That's just absolutely insane. I know that the board doesn't reflect that. But at the same time, if I had a lot of risk there, I think I would be moving on it. If I was trying to decide, I'm going to move on and get these feeders out of my possession.

[Yeager] And I'm going to move on from our discussion. We'll see you in Plus in a minute. Thank you, Matt.

[Bennett] Absolutely. Thank you.

[Yeager] That's Matthew Bennett. 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. Our latest offering gives you a behind the scenes look at this program and insight on what will be in our next program in our Market Insider newsletter. Subscribe today at markettomarket.org. Next week, the competition for bragging rights in the world of the giant pumpkin. Thank you so much for watching. Have a great week.

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