Market Analysis with Dan Hueber

It was the heat and the humidity this week that blasted crops over several states, leaving a void of limited moisture to finish off a crop in the field, and in the trade. For the week, the nearby wheat contract lost 17 cents, while December corn subtracted a nickel. The soybean complex pressed higher on heat and export purchases with some technical assistance thrown in. The November contract added 35 cents on the week and December meal put on $26 per ton. December cotton expanded by $3.69 per hundredweight. Over in the dairy parlor, September Class Three milk futures strengthened 39 cents. The livestock market was mixed. October cattle improved $2.35. October feeders gained $3.28. And the October lean hog contract sold off $2.30. In the currency markets, the US dollar index rose 74 ticks. October crude oil declined 62 cents per barrel. COMEX gold expanded $22.90 per ounce. And the Goldman Sachs Commodity Index increased almost 6 points to settle at 583.20.

Yeager: Joining us now is Market Analyst Dan Hueber. Good to see you, Dan.

Hueber: Good to see you. Thanks for having me.

Yeager: Wheat has been troublesome. We've got a couple of questions that don't like the outlook of it. Do you?

Hueber: I think for the time being at least we've probably seen enough punishment to the downside. Granted, it doesn't have a lot of good news on its side either. There's no real issues around the world. At this point in time production wise we don't know what Australia or Argentina is going to look like here over the fall and winter months. But that said, there's not much of a friendly story and corn is really not far behind. Corn just does not have a good demand structure right now. So, the two work side by side.

Yeager: All right, I'm in domestic wheat production and I'm hearing what you just said. What do I do?

Hueber: Well, I think there's no reason to panic at this point in time. I think all of the markets -- granted, commodities tend to move in tandem with each other, not that we don't separate from time to time. Beans especially look like they have a little potential to rally here right now. Again, we don't know what these yield numbers are going to come in. But boy, if you end up trimming a half a bushel off of the nationwide bean yield right now it would put some life under the bean market. And I think that is going to support corn, which in turn is probably going to support wheat, runaway rallies certainly not, but at least better opportunities to sell than we have today.

Yeager: So, wheat needs friends.

Hueber: Wheat definitely needs friends.

Yeager: Corn this week had a lot of heat. But there is a concern that maybe this crop was ahead, this heat didn't matter. The market kind of maybe agreed with that sentiment. Do you?

Hueber: I think to a large extent, yeah. And again, heat was primarily from Iowa west, or I should say Illinois west, we had heat for three or four days in Illinois. But, far enough along probably not significant damage. Granted, it looks a little tougher here in Iowa than it does in Illinois. But then you go east, Indiana, Ohio, Michigan, Wisconsin, really the crops look beautiful there. Yes, Iowa is certainly the big one and Minnesota according to Pro Farmer at least is going to struggle this year. But that said, not enough to -- when you're talking about a 2.2, 2.3 billion bushel carryout, you can lose a couple hundred million bushels and it's not going to change the picture all that dramatically, particularly when demand is not there to begin with.

Yeager: USDA is calling for a yield, a bushel to acre of 175, the Crop Tour today number was 172. So, as you plan ahead, we look at maybe harvest lows that may enter into the picture in late August, September. Do you believe a low is in, in corn, in December?

Hueber: I believe a temporary low, yes. I think we have a base, you've taken December corn down to this $4.80 level when it has really floated around here for the last two to three weeks. That's pretty typical action for corn too when you're at a low ebb of trade. Granted, we still need a stimulus. Maybe that stimulus is a little better bean trade, maybe we see some export business. Mexico has been active, not unusually active, but active in our market here as of late. Again, are we talking anything more than a 10%, maybe a 20% rally? Probably not.

Yeager: What do you like about beans? You kind of tipped your hand a little bit there.

Hueber: Well, I don't know if I want to say I necessarily like what's going on in the bean market per se. But, that said, I think there is -- a bushel or two in corn doesn't really make a huge change within that supply and demand balance. A bushel in beans makes a huge difference. And I say, I think there's just enough concern about what happened on these last two to three weeks when they really should have been filling pods. Some of the farmers I've talked to in Illinois even say, the plants look phenomenal, they're tall, they're bushy, but there are just not the pods there. So, unless we saw some really late fill you're probably looking at average bean yields even for some of the best bean fields out there.

Yeager: Again, Pro Farmer numbers, they predict 49.7 after their research this week. USDA is still at 50.9. So, there is your half a bushel difference, a little more than that. So, if I'm looking at we're already flipping into next year for that deferred contract or if I'm looking ahead to harvest this year, what is a strategy for me right now given there's still a possibility of a bump?

Hueber: I would tend to say that farmers do tend, at least in my experience, that if we look at respectable prices at harvest time they'll tend to move beans off the combine more so than corn. There is more carry in the corn market to begin with, so if it's a question of how do I allocate space for storage it's probably going to go more so to the corn and with deferred sales. But, I think from where we stand anything higher I think you're going to see beans move off of the combine. And I think in both cases we have to keep in perspective that over the next 30 to 45 days we're going to have the largest supply we're going to have all year long. So, there's still going to be an ample amount of supply out there right now, which should really temper any kind of a runaway market.

Yeager: Yeah, I didn't hear anything about a harvest low there settling in for beans.

Hueber: Well, we might have seen that already. Maybe it was a summer low.

Yeager: Well, let's ask, you left out one word maybe because you knew this question was coming. James in Oklahoma asked us this week, he said, how much will a slipping Chinese economy affect grain prices? A billion plus people still have to eat, Dan.

Hueber: Certainly. The Chinese consumer just as a whole seems to be spending less and when you talk about deflation already in China, how can you have deflation when we've seen prices escalate for everything from fuel to housing or whatever the case may be? But I think you have a nation there not only are they spending less, demographically that country is truly a mess. It's an aging, aging population. Speaking from experience when you get older you tend to spend less, you tend to eat a little less, so your priorities shift along that same area. And that population is aging dramatically. Again, if you don't have the young people, the people truly with the appetite for everything, not just food but for goods and clothing and you name it, it tends to be pretty harmful to the economy.

Yeager: Moving to livestock, live cattle. Weather related market or packer back in control slowing down the line market?

Hueber: Well, it may be a combination of both. But certainly, the hot weather over the last week has slowed down gains. So, maybe we're having a little less tonnage potentially over the market here in the next few weeks. That said, what a phenomenal year in the cattle market. But we have just reached that point where I think the consumer, particularly as you move into the fall when we tend to cook outside less, a little less appetite for some hamburger there and we look at the price discrepancy between beef against pork against poultry you can see this demand really start to wane pretty rapidly in the beef market even with the lower numbers.

Yeager: Well, and prices if they do get out of control again, if we have this inflation train that Powell thinks that we're going to have, beef is usually one of those places where it shows up.

Hueber: Sure, sure. And again, I think we've been fortunate in the respect that as many issues as we've had within the economy and the worries about inflation, the employment has kind of been the balancing act there. And of course, that has been a major objective of the Fed is to slow down the growth in employment and if that's the case and you start seeing fewer people hired or people start to lose their positions you're going to tend to back away from the expensive treats at the grocery store as well.

Yeager: Talk about an aging population, that is part of that factor too that we haven't had in a while. Let's go to feeders then because there is a word, I wrote it down when you were talking about China, you talk about deflation, there could be the recession, but the word now in feeders is stagnation. Is that what you hear?

Hueber: Well, I think it certainly makes sense. If you're starting to see the fat market level off, peak out, even with lower feed grains it's going to be pretty difficult to sustain any higher prices on that feeder market right now. So yeah, I think when you look at the beef trade as a whole, the beef industry as a whole it's probably not a time to be a real bull.

Yeager: Is it time to cover feed needs with feeders right now?

Hueber: Short-term probably okay. There is probably, when it comes to corn usage, certainly I would say for the next 30 days, 45 days, would not hurt to have some coverage on for the upside. If you're looking over at the meal side of it, I keep hearing, granted the meal market performed extremely well here this week, but you keep hearing stories that meal is actually backing up at the plants, the hot weather not only affects the appetite for the animals, hogs and cattle both, but it also messes around with the crush a little bit as well. So yeah, I guess I wouldn't be overly aggressive on the meal. But on the same token, it doesn't hurt to have the next 30-day coverage on anyway.

Yeager: That didn't seem to be impacting the hog market. Or did it? Because we were lower on the week there.

Hueber: Lower on the week but tried to bounce back kind of late week. But hogs have enjoyed a pretty substantial rally over the last four to six weeks, so I think we're more in a corrective phase here right now. I don't believe the bull market is over. But we need to just wash a few of those longs out of there for the time being.

Yeager: Do you think the bears though are in control?

Hueber: Of hogs?

Yeager: Yeah.

Hueber: I don't believe so. I don't believe so. I think right now it's more of a corrective phase than it is anything of a massive peak and collapse to the downside.

Yeager: Final 30 seconds I have to go back to cotton for a minute because we I think today added a sixth consecutive day of gains. Is that a trend?

Hueber: I think substantial in the respect that cotton really didn't react much off of the last supply and demand report and it was really the only commodity that had actual positive news. So, I think this is finally coming to fruition. This takes us right up to some very key resistance. If we extend any higher next week then you're into really a whole new market.

Yeager: Guess what we're into? The end of the show.

Hueber: Oh no.

Yeager: Again, good to see you. Thank you, Dan.

Hueber: Thank you.

Yeager: Dan Hueber, everybody. Thank you. That will do it for our Analysis. We're going to put a pin in it here, continue our discussion about these markets, we have questions about basis, in our Market Plus segment. You can find both Analysis and Plus on our website of MarketToMarket.org. All of the resources I just mentioned, they are free. YouTube connects you to our full program, Market Plus and the MtoM podcast. When you subscribe and turn on notifications by clicking that little 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 the pending return of Congress and the focus coming back on the Farm Bill. Thank you so much for watching. Have a great week.

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