Market Analysis with Mark Gold

The heat dome’s forecasted movement over the Grain Belt contributed to trade staying in a smaller range. For the week, the nearby wheat contract lost 14 cents, while September corn added a nickel. The soybean complex seemed more reactive to the pending heat. The September contract closed higher by 26 cents on the week and September meal shed $6.40 per ton. December cotton shrank by $4.27 per hundredweight. Over in the dairy parlor, September Class Three milk futures improved 52 cents. The livestock market was mixed. October cattle cut $2.50. September feeders dropped $2.92. And the October lean hog contract improved 80 cents. In the currency markets, the US dollar index rose 55 ticks. September crude oil declined $1.84 per barrel. COMEX gold shed $27.40 per ounce. And the Goldman Sachs Commodity Index cut almost 12 points to settle at 577.50.

Yeager: Joining us now is Market Analyst Mark Gold. Hey, Mark.

Gold: Hey, Paul. How are you?

Yeager: Good to see you.

Gold: Nice to be back.

Yeager: You just saw the story about Ukraine and Russia. I had somebody ask me at the Iowa State Fair this week, how serious should we believe Russia saying what their numbers are, what the Ukrainians numbers are? We're not paying attention to the story liked we used to. What is really happening there in your eyes influencing the wheat market?

Gold: Well, certainly Russia has got an awful lot of wheat to sell. Every time every month comes out the higher and higher estimate on the wheat. The Ukrainians aren't doing that bad considering the war conditions. So, when you've got cheap wheat, and the Ruble has taken a pretty good drop here in the last month making their wheat even cheaper to export. Now we've seen the deal with Egypt and now India making deals with the Russians. It's hard to compete with such cheap prices out there.

Yeager: Yeah, the Russia product is the cheapest. What about domestically? We talk about heat. It's going to get hot in those winter wheat acres, drought starting to creep back in into some of those spots. What's a domestic U.S. wheat producer supposed to do right now?

Gold: Well, just get the crop in, get the spring crop planted and then hope for the best that we get some rains. The heat is not going to be as much of an impact on the wheat right now as it will be on the beans and to some extent the corn. But it's an interesting situation with this heat. In the 50 years I've been in the business I've never seen a summer where August, the last two weeks of August, push back over 100 and no rains. We've never seen that. We've seen it maybe in the first two weeks and then we get rains in the last two weeks and we still make a crop. This is a bit different. We saw the crop ratings improve when we had rains in the first week in August. Now we're shutting it off, a blast furnace of heat coming in. I don't think the genetics will take this all that well and I think particularly the soybeans are going to have a problem. I don't think we've seen the end of the corn numbers going down in terms of the crop progress. So, I think there's a problem out there.

Yeager: We'll get to soybeans in a minute because I have a very specific question on what you're saying. Corn wise, you think the heat, there's a school of thought that says that crop is pretty much done, it's just a finishing off. You don't buy that?

Gold: I don't buy it, not with this kind of heat and no rain. You still need moisture to finish off a crop. We always talk about we like to see some good rains to finish off the crop. Well, not only aren't we getting good rains, we're putting the heat on this thing, 105, 107 degrees in Kansas, 102 in Nebraska, Arkansas, Missouri, all getting hit, southern Iowa. There's still growth left in the corn crop and I believe we're going to do some damage out here.

Yeager: So, do you see more of an impact then on that December contract? We've been flirting, kind of dancing here for a little while. Is that telling you that heat is baked into this price or has yet to be factored in?

Gold: I don't think it has been factored in. I think a lot of people saw the rains in August and said, okay, we've made a crop, next. And again, we've never seen this before. And my guess is the next two weeks of crop progress are going to show continuing deterioration in the corn and in the beans. And I think, like I said, we've got problems out here.

Yeager: We could have our lowest exports in 10 years. There's questions about the size of the crop. Demand seems to be an issue moving forward. Your weather story is bullish. What wins out here then?

Gold: I think in the short run next week if it's as hot and dry as they say we tack on another 30 or 40 cents in corn and maybe 75 cents or more in the beans. And I think at that point it's probably another marketing opportunity. It's another year where we've been up, we've been down, we've been back up again, back down, and now maybe up again. And you've got to take advantage of these opportunities for exactly what you say. The demand, particularly in corn or wheat isn't there. The demand in beans, particularly for soy oil, is there, no question about it.

Yeager: The beans, they develop a little later in some of these states. The heat bakes them is what you're saying. Is that why they were able to stabilize a little better than wheat and corn?

Gold: I think that's part of the reason. The soy oil demand is just huge. Right now, it's the cheapest veg oil in the world, so we should be seeing demand pick up there. And when I look at some of the reports I'm seeing about pod counts out there and the size and everything else, it tells me that not only is this heat affecting the market, affecting the growth in the soybeans, but the early heat and dryness that we saw affected it as well and yes, it was probably saved by those rains in August, but now with this heat again and these pod counts being low I think that is going to be the surprise on the crop tour next week when they see, geez, pods aren't out here.

Yeager: So, you allude to the Crop Tour, that historically sometimes goes a little under wheat USDA says the final crop is. But it does give us a little better snapshot. How much stock do you put in that?

Gold: I think it's a good trend to get an idea if we're missing something big. I don't think it's necessarily the most accurate forecasting tool for the final crop production. But I think it gives us a sense that if the rains did stave off a real problem in the beans but now we've got this pod issue, that is going to show up because they're counting the pods. And if it's as low as I think it can be, I think that is going to be a surprise to the market.

Yeager: I'm going to ask you a question back about corn but it does have bean implications as well because of the catastrophic size of things. Tony in Nevada, where he knows a little bit about heat, how many more catastrophic weather events does Mother Nature need to unleash on planet Earth before traders realize $5 corn is dirt cheap or you could also say $13 beans are cheap?

Gold: I don't disagree that beans and corn are cheap here. I would say that, how many more catastrophes can we throw at it? It looks like we can throw one or two more at it. They talk about climate warming but nobody has talked about what really caused this heat, which was this volcano, underground, underwater volcano off of Tonga, it's called the Honga-Tonga Honga volcano and it was one of the biggest volcano eruptions they've seen. Those water molecules in the air is really what heated up the atmosphere out here. So, when you see things like a hurricane about to hit California, the weather has changed, but it may not be because of what a lot of these people think it has been. It can be other things.

Yeager: Well, if you saw the local news this morning here in Iowa they're talking again about the smoke coming through. That has been a story all summer. Do you have any sense yet on smoke's impact on crop, improving this, disproving that, changing patterns?

Gold: You know, I think that's a hard nut to crack. We saw the smoke around the Chicago area and it was significant. Did it have any real lasting effects on the crops? Probably not because we had enough rain to take care of it. But, it's another issue in Canada. We've seen more bizarre weather events this year than I can remember. And what's the true source? I don't know if we know the true answer to that.

Yeager: We had a cattle on feed report, we'll get to that in a moment. Let's talk live cattle because they were a little more the headline maker. Are we setting into a little wave lower here? Have we hit that top part of the cattle market?

Gold: Well, what has been interesting about the cattle market is the box beef market just keeps jumping. We jump $5 yesterday, another $1.90 I think today, trading somewhere around $315ish. And the fat cattle haven't followed through really, except we did have a nice comeback today in the feeders and in the fats despite the corn being strong. What bothers me about the cattle market is the box beef and apparently the demand is still pretty strong, yet we can't make new highs out here. And that's always a bit of a red flag. So, I'm a little skeptical of this cattle market. As you mentioned, the cattle on feed I thought was friendly with the placements being as low as they were. But we really haven't reacted to these low placements. Partially what is I think happening in the cash market is guys are trying to get cattle out into the system before this heat comes. But that should translate eventually into some lower box beef prices out here.

Yeager: Cattle on feed numbers, on feed July 1, 98%, placed on feed 92%, fed cattle marketed 95%, all bullish numbers you say. Is there one that stands out?

Gold: Well, certainly the placement number, it's a good three points under what they were looking for. The marketings are just a little bit higher out there, which is good. So, it's a bullish number. Maybe that was kind of baked in a little bit in the last two hours in the cattle market on Friday. We'll see how it reacts. If we can open higher, stay higher, maybe make new highs off the numbers, then I'd say maybe there's another run coming in the cattle. We haven't seen that happen for a long time and I'm skeptical whether it will happen this time. But this cattle market, it's changing. We've seen some things in the pricing where now some guys are pricing cattle by the pen, which we haven't seen in probably 40 years. So, what is behind it? I think maybe the packers are trying to keep some real prices from showing up into the averages. But, who knows.

Yeager: Oh, I could say a lot of things, but I'm going to get us both in trouble. Hog market, it has been different. Like soybeans have been different in grains, hogs have been different lately in livestock. Why?

Gold: Well, the hog market, particularly the December, they just keep pounding it, except today it came back pretty good, two cents or more. I don't know why they're looking at the numbers and thinking December is so bearish, not when you've got problems around the world. Swine flu still hasn't been vanished, maybe this vaccine will help it. But I think hog prices are really too cheap out here, I really do. And when we've come from $110 or higher than that and now we're looking at $70 --

Yeager: Very good, appreciate your time, Mark. Thank you.

Gold: Thanks.

Yeager: Good to see you. That's Mark Gold, everybody. 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. All of these resources are free. YouTube connects you to our full program, Market Plus and the MtoM podcasts. When you subscribe and turn on the notifications by clicking that bell, you will know before anyone else our work here is ready for you. Follow along at YouTube.com/MarketToMarket. Next week, we look at incentivizing farmers to protect a natural resource. Thank you so much for watching. Have a great week.

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