Market to Market - October 4, 2024

Coming up on Market to Market - Helene crosses a grim milestone. A port strike arrives at a pivotal time in the shipping calendar. And a major government report arrives at harvest. Double the analysis with Matthew Bennett and Ted Seifried, next.

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.

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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.

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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.

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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.

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This is the Friday, October 4, 2024 edition of Market to Market, the Weekly Journal of Rural America.

Hello. I’m Paul Yeager.

The story after hurricanes is usually the damage done by the winds and storm surge.

The torrential rains brought by Hurricane Helene wiped out whole sections of rural towns and all of the drought readings in four states.

This storm is now being compared to Katrina - a dark note in American history.

Here’s David Miller.

Clean up is slow in the path of Hurricane Helene as basic infrastructure needs are being restored, even though the effects of the storm could be felt for decades.

Thousands are still without clean water and the modern necessities of electrical power and cell service.  More than two dozen water plants in North Carolina are either offline or were swept away by the hurricane. Several local restaurant owners have set up shop in the streets across the region offering free meals.

The death toll has already passed 200 with dozens more listed as missing. Many families continue to hold out hope that their relatives will be found alive.

Helene came ashore late last week bringing high winds, torrential rains and raging flood waters. The storm rolled over Florida wreaking havoc and then headed north devastating parts of Georgia, the Carolinas and Virginia. The hurricane dropped 40 trillion gallons of rain on the Southeast, enough precipitation to fill Lake Tahoe.

President Joe Biden met with North Carolina Governor Roy Cooper to survey the damage and then followed up with a visit to Florida. Republican presidential candidate, former President Donald Trump viewed damage in Valdosta, Georgia while Democratic presidential candidate, Vice President Kamala Harris spent time with hurricane victims in Augusta, Georgia.

For Market to Market, I’m David Miller.

The pace of hiring matched the country’s temperatures in September - hot.

The Labor Department reported Friday that employers added 254,000 positions last month.

The biggest gains came in restaurants, bars, healthcare and government agencies.

Unemployment dropped a tenth of a percent to 4.1.

Factors in next month’s report will be actions from this week’s labor strikes.

Boeing machinists have been on strike for three weeks, but a three-day work stoppage at eastern and southern ports has ended.

A strike by dockworkers on the East Coast has been suspended after an agreement on wage hikes was reached late Thursday.

Dock workers at ports from Maine to Texas went on strike early Tuesday morning, but were back to work on Friday morning.

A large number of the 45,000 members of the International Longshoremen’s Association walked off the job and manned picket lines at 36 ports that serve the Eastern Seaboard and Gulf states. This was the first dock workers strike in the U.S. since 1977.

The union argues that shipping companies saw large profits during the supply chain disruptions caused by the COVID pandemic and it is time for workers to receive some of those windfall profits.

The suspension of the strike came after ports and shipping companies agreed to a 62 percent raise over six years. Other issues, including a ban on automation at ports, remain on the table. Negotiators now have until January 15th to finalize a new contract.

For Market to Market, I’m Peter Tubbs.

Next, the Market to Market report.

A litany of market movers this week from weather to geo-politics that were coupled with a government report. For the week, the nearby wheat contract gained a dime and the December corn contract added 7 cents. Rain in the forecast for Brazil dampened the weather premium in the soy complex. The November soybean contract fell 28 cents while December meal dropped $13.60 per ton. December cotton expanded 50 cents per hundredweight. Over in the dairy parlor, November Class Three milk futures declined $1.06. The livestock market was higher. December cattle strengthened $2.52.  November feeders put on $3.58. And the December lean hog contract increased by $2.77. In the currency markets, the US dollar index added 216 ticks. November crude jumped $7.10 per barrel. COMEX gold cut 60 cents per ounce. And the Goldman Sachs Commodity Index added 27 points to settle at 560.25.

Yeager: Joining us now for an extended discussion are two of our regular Market Analysts Ted Seifried and Matthew Bennett. Good to see you gentlemen.

Seifried: Hey, thanks for having us.

Yeager: I just mentioned a couple of things, but I'm going to read you something, Ted. Supply, demand, U.S. weather, global weather, geopolitics, the value of the dollar, port strikes, U.S. elections, all were big stories this week. Which one has the longest tail on commodities?

Seifried: You know, the port strike is interesting as that was just stayed for 90 days. That's going to come back. And the bigger sticking point there is the automation. I don't think that is -- when it comes back to January and that comes up again, I don't think they're going to come to an agreement on that. So, I worry about that longer term. But I think the stimulus in China is the one that might be the immediate but also lingering impact. When they have more money, they have more money to spend, maybe that means more exports, maybe we're more optimistic about it. But, on the other side of that, China has been really reluctant to admit that they've had some economic troubles and this is a very sound admission of that. It makes you wonder how bad it is and if this stimulus by itself is going to fix that problem or not. So, I think we have to be a little bit on eggshells with the Chinese economy and what is going to happen with them going forward.

Yeager: Matt?

Bennett: Yeah, I would agree with that. As far as China is concerned, obviously you come out here and China says hey, we're going to lower interest rates, we're going to stimulate this economy, and then all of a sudden, the market jumps, you see that they buy seven cargos of soybeans. And so essentially it looks like China is really kind of back in the game, so to speak. And so, I would agree with that to a point. The other thing though, I think when you look, for instance, at just the quarterly stocks number, it wasn't a huge reduction for corn but you go in and you take that down to 1.76 is what they said our ending stocks number was, that puts you around a 2 billion type carry. I understand some folks are saying that yield could be lower in October, some say it could be higher, but demand has been pretty good for corn. And so, all of a sudden, you've kind of worked yourself into more of a demand led type story that maybe this corn market is not just one that you want to throw in the wastebasket, so to speak. It has looked pretty rough over the last few months, don't get me wrong. But at this point you've started to make a little bit of a story. The unfortunate part is you look over at soybeans and it's a little bit on the other side of the spectrum.

Yeager: Anything from the quarterly report on Monday that jumped out at you?

Seifried: So, corn quarterly grain stocks came in lower than the trade expectations. They came out within six million bushels of what Zaner was expecting. I wasn't surprised by that. But the big takeaway there isn't because they lowered production from last year, it's that fourth quarter demand was half a billion bushels more than it was the year before. As Matt said, the demand story in corn is really very good. Now that's a function of lower prices, so it makes you wonder what happens if prices rally, or now that they have rallied almost 50 cents does that start cutting back into that demand again? So, we'll have to watch out for that. Weekly export sales were really good. So, there's a good sign there. But we'll have to keep an eye on demand going forward. But I think corn does have the better story going into the end of the calendar year into spring because I think corn maybe needs to buy some acres. If we need to have a 183 national average yield in order to get to a 2 billion or just below 2 billion bushel carryover, to me that says we need more acres because what if we have a poor growing season or a 176 national average yield, then we're really tight on corn.

Bennett: Absolutely. I think when you look at it, the thing that keeps me from thinking corn is going to outprice itself is potentially the bearishness of the soybean situation, both domestically and worldwide. You've got a really big issue as far as the balance sheet is concerned. So, I agree with you, when you look at 183.6 and that gets you to 2, we might get under 2 with demand, if it's 1.9 it's still a lot of corn, right? But as Ted is suggesting, if you come in here next year, input prices are still quite high, so if the corn market doesn't really now at this point what if acres come in in the high 80s? You have to have a pretty big yield. If you just go back to the old high, 5 bushels lower than where we currently sit today, you've got a bit of an issue now.

Yeager: Have to. Isn't that interesting how quickly things can change in describing corn?

Bennett: Well, in a demand-led market you definitely have more staying power. The thing I would caution us on and the reason I'm not super bullish here once again is you look over at the soybean side of things and you look at the domestic balance sheet, you look at what the USDA likes to use, this two-year window, and you go from around a hundred million tons of beans to the end of this marketing year around 134. If that happens, we don't know what Brazil's crop is going to be but let's say it is close to this 169, now all of a sudden, you've raised world stocks 33%. That's massive. Right now, you're looking at a 550 for this year. Soybean acreage should be strong once again. I would assume if you keep input costs where they're at I do think that a lot of growers are going to take a look at soybeans and say hey, we can put these beans in the ground a lot cheaper if the price stays relatively decent. I think that acreage could be fairly strong there too.

Yeager: Ted, your last stop here you had a hard time finding anything positive about beans. Has that changed in your mind?

Seifried: No, you took the words out of my mouth. I've been really harping on that global carryover increasing by 35 million metric tons in two marketing years. That's insane. The world is awash with soybeans. And again, that is dependent on the Brazilian crop and we've had some concerns about that. But it's starting to look more and more like they are getting into their rainy season. So, it makes it really tough. Now, with kind of to follow along with what Matt is saying, you can see an acreage shift in two ways. Soybeans can come down and is that going to buy corn acres if corn doesn't follow? Well, I don't think so because, like you said, input costs are so high I think that means that corn prices have to get enticing enough that guys are willing to plant acreage. So, I think they're kind of independent of each other when it comes to the acreage battle. But soybeans need to -- that market needs to find a way to lose acres or stimulate more demand. The problem with that is that soybean demand takes longer to grow than it does for corn. Because what do we do with soybeans? We crush them. And what is crushing? Well, it takes a lot of infrastructure and a lot of investment into crushing facilities to do that. And it's a slow-going thing. We talk about SAF and everything like that and I think longer term that's really positive for the soybean market, in particular the domestic soybean market and the value add. But it's going to take years of very positive crush margins to entice the crushers to add to their investment, to put up these new facilities and to feel comfortable about hey we're going to get our money back. So yeah, I think the unfortunate truth is that to get to that light at the end of the tunnel where SAF does come in and become a much bigger domestic demand for the balance sheet, we have to have a long period of low prices of soybeans and then decently priced products in order to get that to happen.

Yeager: Well, listening to what you're saying, I'm going to go back to the crush side of what you're talking -- building that capacity to build. Usually those that invest in those facilities are outside money. And right now, today as we sit here on Friday, pretty good day in the stock market, outside money left commodities and went because they saw the jobs number. Is that going to further impact the ability to expand or the stomach for outside money to expand that crush capacity in this country?

Seifried: If they're in the stock market and the stock market is going higher and they're making money in the stock market they'll start looking for other places to put money again. So no, I don't think that in and of itself is a limiting factor. But to kind of go along with that, with jobs coming better than expected, with inflation coming in hotter than expected, I don't think we really should be talking about any further rate cuts for the time being. If anything, you might see that go back the other way. And so high interest rates are very, that's a headwind for any additional investment into infrastructure like that. If we don't see interest rates continue to fall, that's going to be another problem, another road block for these big crush facilities to get built.

Yeager: Matt, I'm going to ask you a question that came in that is tied to a little bit of what you're talking about. Jim in Iowa asked this one on Facebook. Let's go to Jim's question. When you recommend that farmers sell into this rally, isn't that the same as killing the rally? Or does reality have nothing to do with the markets?

Bennett: Some days you don't think reality has anything to do with the markets. But when you're telling someone to sell into the rally, let's stop and think, we were down here at $3.85 for a while. You had beans at $9.55 in that area. Bottom line is things still looked bearish when you looked at them from a fundamental standpoint. We rallied 40, 50 cents on corn, over a dollar on soybeans and you say hey, let's sell into this rally. The whole point is that we were sitting in a pretty tough situation. Now we're in a little bit better situation. And I would say a rally is not a rally unless you sell something because, let's face it, what do we typically do? Our head tells us, whatever is driving the market is going to drive it even farther. And so, what do you do? You get bullish whenever the market rallies. And then all of a sudden you come in here maybe this week and maybe you do print a 184.5 like some people are talking. Is the corn market going to rally on that? Obviously, you could change demand around but that's a tough row to hoe. So, selling into a rally doesn't mean you're bearish, it just means you're willing to reward the rally with a little bit better price than what you could have gotten before.

Yeager: Ted, do you think producers missed their opportunity to reward the rally in corn and beans?

Seifried: We're not far off the highs. No, you have not missed an opportunity. And to kind of further answer that question, by selling bushels you're not killing the rally, or at least you haven't to this point. We've rallied into harvest, there have been bushels, I'd say not enough, but there have been bushels that have been getting sold and it's because the funds have been taking the other side of the market. Now, why were the funds buying? Well, they were covering their short positions because they were risk off. They had risky short positions, they wanted to move away from that, which means they had to buy, which caused a bit of a rally. Now that the funds are getting pretty close to being flat in a risk off environment, which means they probably aren't going to go long, you have to worry that there isn't that big entity to take the other side of the market, to take those bushels that are getting sold. So now you worry that we do get this down draft as we continue on with harvest and more bushels do come to town and there aren't funds that are buying to get out of under short positions. I don't think the funds had a fundamental reason to buy. Like you said, when we were down near our lows yeah, okay Brazil was a little dry, yes, we had a hotter drier finish to our growing season, but nothing really fundamentally changed in the grain markets. What was happening in the Middle East, what was happening in Russia, Ukraine and just the rest of the world. That is what spooked them out of their short positions. So now we're sitting with fundamentals that are pretty similar to what they were when we were down at our lows, you have to figure that there could be a pretty solid down draft below us at some point.

Bennett: And so, if you look at the cotton report last week, just to further what Ted is talking about, essentially the funds bought around 40,000 contracts of soybeans back. With corn it was a much smaller number. But the interesting thing, everybody says well the commercial is selling. But actually, it is the commercial selling, but it's because the farmer is selling. And whenever you look at how much the farmer has sold so far, it's a miniscule amount compared to what it should be. When you look at the commitment of traders report the commercials should be a lot shorter than what they currently are. So, the problem if the funds get even and they say we're not buying this thing, we just -- when did they want to get out, by the end of the quarter. They were making things look good. They wanted to make their books look good. Bottom line is if they're not on the other side of this thing, Paul, and you go ahead and you continue to see commercial selling, which you're going to see, I am concerned especially with regards to soybeans what price action might look like because I don't know who is going to be on the other side of that trade.

Yeager: Well, and listening to you both say, I guess I don't know this at all. Does this make us more vulnerable to volatility or much more of a very small margin of trade on any given day now?

Bennett: Either way the thing is clearly you could have a very volatile market. Like, for instance, let's just say right now this weekend, what's going to happen on Sunday night? This is going to be a massive weekend for soybean harvest, massive. I'm assuming the market is going to open lower on Sunday night. Why? Hedge pressure. I don't know how we're going to close Monday. I just feel pretty confident that you're going to come in Sunday night and there's going to be some pressure on the market because of the massive amount of beans that were sold to the elevator, commercial, whoever it might be. They have to offset those positions. That's how the market works. And so yes, that would create some volatility by all means.

Yeager: Okay.

Seifried: The other question though is that if the charts now go from a rally off the lows and we start breaking some key support points based on producer selling, do the funds say well, the water is safe again, let's get short and pile it on top of that? I think you've got a lot of pent-up selling pressure out there that is just waiting to be triggered by something technical. And when it happens everybody is going to be falling over each other. So, we have a saying, and I'm not big on adages, but escalator up, elevator down. It takes a long time to rally a market, but we can drop that price very, very quickly in a hurry because everybody runs for the doors at the same time. And unfortunately, we are set up for something like that. Now whether it happens or not, some of that depends on Brazilian weather because what if we come in Sunday night and all of that rain is out of the forecast and Brazil is never going to rain again and they're never going to plant their soybeans? Well, that's a different story. But unless something like that happens, there's a lot of would-be sellers waiting in the wings that this could snowball very quickly.

Yeager: Ted, I need to get to wheat for a minute. Speaking of weather, Black Sea has had issues, we've had dry conditions in Kansas. Is this the fuel for another rally here coming in wheat?

Seifried: Wheat has really had a nice rally off of its lows as well. That has been fueled not only by dryness issues, just this week two of the Russian growing areas were declared a state of emergency due to drought. You have to imagine since they're right on the border with Ukraine that Ukraine growing areas are in trouble as well. But we also have global conflict and so that is a concern. And if Russia isn't exporting as much wheat, then okay, does that end up to our balance sheet? And unfortunately, I don't really think it does. The countries that do business with Russia, that buy Russian wheat, aren't necessarily countries that go, well maybe we should buy some from the U.S. They'll look elsewhere. I don't think our domestic balance sheet for wheat really changes, which is to say we're over an 800 million bushel carryover, it's the biggest we've seen in a few years. It has been a very nice rally in wheat. I don't really have a good reason why it's needs to continue to go on higher. I think you have to kind of disassociate the fundamentals of Russia versus the fundamentals of ours. We have to keep them a little bit separate, I think.

Yeager: All right. Matt, I need to move to livestock, live cattle. We'll let you get the wheat in Plus. I know you love to talk about wheat all the time. When we get to live cattle, we look at summer levels again this week. Resistance hit again. Is it going to break through moving forward next week?

Bennett: You have a long-term downtrend as far as fats are concerned. Now, did we visit the summer as far as feeders were concerned? No. Actually feeders have been a little more reluctant to go up whereas fats have. I look at the guy that wants to buy feeders right now in the cash market and they're still quite expensive. And then you look out and you say hey, are we going to have this really strong cash market that we've enjoyed for so long? Are you going to see over the market being paid in places? Nobody knows, right? And so, the feeder has been very reluctant, in my opinion, to step in here and just buy, buy, buy, buy, buy. With fats I feel like this is a pretty good place to hedge off some risk. We're about $10, $10, $12 off of the all-time highs. And so, we've been saying once you get into the mid-180s and above you’ve got to step in here and at least put a floor in if nothing else. If you want to be bullish here, good luck.

Yeager: What about in feeders? Do you agree with his sentiment on reluctance to get into the market, Ted?

Seifried: Yeah, and I just said I'm not big on adages, but I'm going to give you another one. When it comes to the cattle complex rally, we want to see the feeders be the leaders. And the fact that that has not been the case, that has to be a red flag for your fats.

Bennett: Absolutely.

Seifried: And so, what we've done from a technical standpoint is we've gone right back to the trendline that we were at before we broke it when we started August. It was a very key technical standpoint. And who has been the buyer recently? It's the funds. You've seen open interest increase by about 5,000 contracts just through this last week. That's speculative buying. So, speculators are a lot of times driven on technicals. We hit that technical target to the upside. I don't know what's going to keep us going higher at this point. So, I think this is a really good time for producers to be looking to do something to lock up downside prices.

Yeager: All right, Matt, final 60 on hogs. That is one that a little subjective -- tied a little bit to this port strike -- but what else?

Bennett: Well, I think so. And I think whenever you come in here at the end of the week and the strike is over you expected just major pressure. At least I did. Both cattle and hogs I thought you could see it, cattle didn't necessarily see it. But I think you've just got to have really good strong export sales. In my opinion, if the cattle market falls apart, I do think that you could be subsequent to a little bit of weakness over there in the hogs as well. I think mid-80s on hogs is plenty. I'm just not real bullish up here.

Yeager: All right, 30 seconds, Ted. Oil jumped 10% this week. Is this only geopolitical? And have we hit the top of this?

Seifried: Yeah, it's only geopolitical because you look at driving and gasoline consumption, that is actually down. I don't know. We keep seeing things that could potentially escalate to World War III in Russia and Ukraine but also in the Middle East and then it just kind of walks back a little bit. I think that the short covering rally was maybe a little bit more than it needed to be. I think crude oil can settle back down. I think OPEC is going to start producing more. So yeah, I don't know, uncertainty, short covering rally, but I don't think it was really fundamentally based.

Yeager: All right. Ted Seifried, good to see you, thank you so much.

Seifried: My pleasure.

Yeager: Matt Bennett, thank you as well.

Bennett: Yep.

Yeager: That goes fast. I appreciate your time there. We're going to pause the 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've put in a lot of screen time this week because we've been looking at your great images of harvest '24 and we have shared some of our favorites. Make sure that we see your best work by tagging @markettomarketshow. We'd also appreciate a follow to our account as well. Next week, the increasing cost to fight a decades old disease in the hog industry. Thank you so much for watching. Have a great week.

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

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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.

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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.