Market Analysis with Elaine Kub, Don Roose and Jeff French

Paul Yeager Coming up on Market to Market, the government reports less crop in the field, sending the market initially higher. So what's next? A panel discussion with Elaine Kub. Don Roose and Jeff French next.

Announcer 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 tomorrow.

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Announcer This is the Friday, October 13th edition of Market to Market, the weekly Journal of Rural America.

Paul Yeager Hello, I'm Paul Yeager. Tensions in the Middle East garnered much of the attention of the world this week. The global markets watched while other economic data was fed into the algorithms. The Producer Price Index moved higher by half a percent in September.

Paul Yeager The wholesale prices snapshot core reading ticked up 2/10 of a percent last month when food, energy and trade services were removed. The Consumer Price Index was up 4/10 of a percent, while the core reading increased by 3/10 of a percent. USDA also released a pair of reports that heavily influenced the commodity trade. On Thursday, we will discuss how long of a tail these reports will have and what's next.

Paul Yeager Our panel to dissect the crop production and the supply and demand reports includes Elaine Kub, author of Mastering the Grain Markets. Don Roose, founder and president of U.S. Commodities. And Jeff French, founder of AgHedgers.com.

Before we get their thoughts, let's take a look at the week that was in commodities. The nearby wheat contract rose $0.12 while December corn added a penny.

A harvest in full swing sales to destinations unknown and hot and dry conditions in South America served to help rally the soy complex. The November contract rallied $0.14 and December meal found 1790 per ton. December Cotton lost a 1.16 per hundred weight. Over in the dairy parlor. November class three milk futures increased $0.03. The livestock market was mixed.

December cattle, they were up $0.07. November feeders put on $0.70 and the December lean hog contract cut for oh eight. In the currency markets, the US dollar index added 67 ticks. November crude well it gained 455 per barrel. COMEX gold rocketed $96 per ounce higher and the Goldman Sachs Commodity Index added almost 24 points to settle at 598.15.

Paul Yeager Jeff and Don, hello to you. Elaine, I'll start with you. Your headline from Thursday from the reports was which commodity?

Elaine Kub I think I'm going to say corn, just because that's the one that everybody looks at. I mean, maybe just because it's the prettiest or certainly because it's the highest volume crop and it sort of serves as the proxy for the larger grain markets to develop what sort of direction they're going to go at. And the USDA cut the yield number down to 173.

So that that was a cut. I mean, I think that's what everyone expected or hoped to see. Let's say a market bull would certainly hope to see that after this drought summer. I think market bulls are going to say it should have been cut more, but the USDA is going to work in a conservative fashion. So to see that cut did allow some bullish response on Thursday.

I mean, in terms of actual one day market movement, I think you'd say probably soybeans obviously had the bigger one day movement. But note it was a one day movement. We've had things go back down again here on Friday.

Paul Yeager Don, did anybody call you yesterday and complain about USDA?

Don Roose Well, you know, well, you know, not this report, but, you know, and I know what Elaine is saying, but I really think the surprise in the report was all about the soybean market. You know, corn, we have over 2 billion bushel carryout. Going to be hard to change that. The soybeans, the government surprisingly, they're keeping the ending stocks at 220.

I think that's just because they believe that's the ending stocks. That's all that's the pipeline minimum. So I think the bottom line is the soybeans probably, in fact, all the grains probably have hit a seasonal low, and that's what the report indicated. And soybeans are the upside leader, along with soybean meal.

Paul Yeager I'm going to ask you about Lowe's in a minute. But Jeff, I want to ask you, given listening about stocks and Kerry, did that get lost yesterday? And we had confirmation of a lower crop in your eyes?

Jeff French No, I don't think you got lost. I mean, the trade knows when the USDA lowers the yield in September and then in October, it's very likely that they will do it again in November.

And if you look at soybeans, particularly the condition which the USDA does base awful lot, you would I would argue that you could see probably another half bushel reduction, if not a full bushel reduction going into November on that soybean crop. So the trade knows that, Yes, we had a big move. We we stalled out up there at $13, but we came in to that report on a dollar 50 slide.

So we're going to see here the pipeline supply is going to be tight in these beans and the supply is going to be tightening off all eyes on South America here.

Paul Yeager Don, there was a little conventional wisdom on that going into today. If corn could close over five, that might mean the low is in. And if we could have closed over 585, the low as in neither happened on Friday. So do we have a low yet? And what will be the indicator of one?

Don Roose Well, I mean, I think the seasonally we have I mean, the basis levels are starting firm and end users are starting to scramble a bit. Basis levels have started to firm corn market the ethanol people, the end users also starting to try and recover at these price levels can't do it. You know, it's amazing. Since the beginning of August, we basically have been in a fight for 72 $5 trading range.

But, you know, I think let's see, we get over five. There's a five, 25 and a half target gap on December. CORN That's probably the upside with a 2.1 billion carryover yet.

Paul Yeager All right, Elaine, you get the first answer. Do you agree with that sentiment?

Elaine Kub No. I want to kind of play devil's advocate and I agree with you globally and long term. And I'm going to say may be past January once we finally get a grain stocks report that confirms my belief. And I think maybe all farmers believe that the crop just isn't there and the supply just isn't there. But I think between now and then, you've got a whole global market full of people who trade off of these these numbers and are going to continue to do so.

And so while you have, let's say, the dollar moving higher or sort of outside market doldrums, I believe it's possible for it to continue to linger or dwindle even lower. I mean, I do think it's possible for it to move lower. And we saw that on Friday, that it is possible for it to move more, at least on a day to day basis.

Jeff French Oh, yeah. I mean, you saw it this week. I mean, we weren't able to take out those big resistance levels, But from a from a seasonal standpoint, I agree that, you know, seasonally harvest lows are in here. The low in corn hits September 19th. You know, you look back in years past that's ideal for us for harvest low and then beans 1250 yesterday so even in a non-ideal year.

Well I mean we'll have to see. But I just think that harvest lows have been scored here.

Don Roose You know, I think the big thing you have to look at is that the big competitor is South America. I mean, between Brazil and Argentina, they're going to raise about double the size of the crop we are here. So in order for the market to significantly move higher, South America is going to have to have some weather problems.

And by the way, it's an El Nino year after three La Nina years. So that means that we're supposed to be dry in northern Brazil, which it kind of is.

Paul Yeager I think you've all been on the show when we were supposed to be in El Nino years here, and it doesn't look like we've had it here yet. So do you still put stock in El Nino being a factor right now?

Elaine Kub Yeah, fundamentally, sure. But, you know, it just it takes, I think, time sometimes for these markets to recognize reality. Right. We like to believe in efficient markets where we're all of the traders are coming in with their opinions and they react instantly to to an or to a forecast. But I don't know. We just haven't seen it this year.

I think it's going to be we're going to have to wait.

Paul Yeager All right, Jeff, let's finish up corn here. Let's look out a little bit. And I want to look out with a question that came in. Let's see. This one came up via Facebook. This is from Tim. And I want you to answer this with corn in mind. Is there anything that points to A to storing grain for a rally in corn?

Jeff French Oh, I absolutely does. I mean, we're actually in a carry market in corn and and beans. First time that we've seen that here in a while. So, you know, we got about 70% sold. We're actually using this break that we've seen here off the summer highs to re own some of those bushels because we are looking for a postseason rally.

Paul Yeager But absolutely, we're looking for prices to move higher here. I'll let either of you answer it with another commodity in mind. Would you store any wheat or soybeans? Go ahead.

Elaine Kub I'll just say yeah. I mean, I would store with with a bullish outlook. I mean, it's a speculation, but I would but I'll just make one comment that we are in a higher interest rate environment. And so now all of a sudden, storing and actually deferring that income matters in a way that it didn't matter a year ago.

Don Roose Yeah, and I agree with Alan, it costs about $0.09 a month interest right now, $0.19 a bushel on interest to carry soybeans a month. I mean, so it's not like it was a year ago. So it's a big change, Paul.

Paul Yeager So it's a different thing to think about now.

Don Roose Time is money. Yeah.

Paul Yeager And that's I think I think that's only been starting. I think you all have started bringing that up here in the last, well, say 6 to 9 weeks and moving forward with interest rates. We don't know. CPI pie last week, PKI, there's a little hesitation. There's some thought the Fed might still raise interest rates higher. So does that change your answer at all?

Don Roose No, but I think what you're going to see is a producer pick up the selling pace on soybeans. But, you know, we're in a dangerous place right now as far as the soybeans, you know, believe in if it can move lower or higher. Typically, if you look at our market in the spring, it's hard to go lower because we have a lot of issues weather, this, that and the other thing.

And I think that's where we're at with South America. Argentina is in a drought. It's a precarious situation with demand way under the market in China buying softer and wheat here lately, that's a big deal. You know, along with soybeans.

Paul Yeager Well, Elaine, with with beans and the Chinese economy again this week, a couple of stories. It's still struggling. Chinese economy. What does that do for the person who just finished harvesting beans right now and what they should be doing?

Elaine Kub Yeah, being being careful. And, you know, the one thing that we haven't touched on is the need for cash. I mean, some folks are going to need to sell one way or another just to raise some cash. But I want to pick up on what Don said about the Chinese wheat purchase. That was a big wheat purchase and it is a reflection, again, that this is not just a North American market, certainly not wheat.

I mean, it's the Australian drought. It's the drought going on in South America. All of these things are going to be able to move these markets wheat wise.

Paul Yeager You want to you want to do anything more on beans before we go back to wheat.

Jeff French So I was going to just hit on wheat that, you know, it's not unheard of for China to buy U.S. wheat. I mean, they buy two or 300,000 metric tons per year. But now we've had purchases now three weeks in a row, and there there are triple normal amount of purchases right now.

So it is a good sign. I mean, we're down here at 3 to 4 year lows. So hopefully it keeps going.

Paul Yeager All right. That's the beauty of this panel. We can just go with anywhere except I have to think of the control room right now and get back on page. Let's go wheat. Elaine, for let's go. Let's start in order.

Wheat wise, you mentioned finally a game. Finally, the last couple of weeks we've put on some positive news. Is this a blip or a trend?

Elaine Kub It might be a trend. And I think that that echoed sort of the thought of the larger sector. And I'm sorry to frustrate you and the control room, but now now I want to talk about like corn and soybeans and wheat altogether. So if China's buying China's pretty good at doing this marketing thing, you know, if they're getting in there and seeing these prices as a buying opportunities, and if everybody here at this table kind of feels pretty bullish about things.

I mean, if you are in a situation where you are an end user or certainly a livestock feeder, you've got to think about these potential lows or the long term potential for for bullish activity in the next few months. And look at these as buying opportunities like China is okay.

Paul Yeager I could tell I couldn't tell if you were both putting your heads up and down. Are you thinking we're bullish right now? Jeff?

Jeff French I'm not going to say bullish, but I mean, I'm just done being bearish. The wheat. I mean, they've thrown everything that this market right now. So I I'm if I'm short I got make sure that I got calls up above but I'm not sure down here for sure.

Don Roose Well if you really look at these markets and that was the last report said it was a supply bullish market in a demand bearish market. So we need to reach a point to move higher. I mean, I think we've we've socked in low, you know, can we move how much higher is the question mark? And that's going to be dependent on the demand side of the market.

And that's work in progress poll as there always is.

Paul Yeager Demand is the story in you know Alan wants to talk about three commodities that's the story in all of them right now.

Elaine Kub Add in cotton to I think cotton the demand like that's where you start to see the global demand really starting to fall apart. And that's cotton's problem so far as yeah, global demand is struggling that.

Paul Yeager So you're.

Elaine Kub Saying more and more commodities.

Paul Yeager They're following along. Fantastic in there. It's so cotton. Are you saying cotton has a demand issue?

Elaine Kub Yeah, I think I mean, I mean clearly.

Paul Yeager Yeah. But do you think then the other three grains that you mentioned are having, is the demand story positive or negative? Right now?

Elaine Kub I'm with Don. I'm I don't know. I don't know. I think.

Paul Yeager Collingwood trends transitioning to we're not being so bearish I mean well.

Don Roose The other thing that's going on is people interest rates are higher so people are more value conscious than they were before. In other words, you're not buying ahead and stockpiling because time is money. So I think that's part of what's going on. But China is still going to buy, what, 100 billion metric tons of soybeans. They're not leaving.

It's a matter of who's going to fill that case. And that's going to be dependent on what happens in South America. Trust me.

Paul Yeager South America, I believe I'm going to get my regions wrong. One is wet, one is dry. Which commodity is impacted the most with South America move?

Don Roose Well, Argentina is in a drought right now and Australia is in a drought. So those two are wheat. Brazil is about 51% planted or 52% planted on the first corn crop and they're planting about 11% of the soybean crop right now. It's dry. You know, we work with some people there and they're saying it's not last year. Last year, they were getting timely rains.

This year they're getting enough to maybe germinate in the north and then the south is too darn wet. Paul So it's it's this weather. We've seen it in the US and around the world. It's hit and miss and goes fast.

Paul Yeager Okay. Jeff,

Jeff French all eyes on Brazil, 112 million acres that they're expected to plant here this winter. You know, that will be the biggest thing that I hear what our fundamentals look at. I mean, 220 million bushels is tight, but now with a big crop down in Brazil. So all eyes there.

Paul Yeager All right, let's wrap up with beans. Do you feel deferred?

Let's look next year, March, April, May and planting. Are you doing any sales for 24 yet?

Okay, Don, anything more on beans for you?

Don Roose Well, usually harvest isn't the best time to make new sales, Paul. Well, on the back to the soybeans in September, crop report were much tighter, yields probably going lower and we were the day of the September report, we were like 1342 for a low and 1372 for a high. So you can argue that we need to go up 70 to $0.80 just to get back to where we started.

Paul Yeager Yes. Lane Do you agree?

Elaine Kub Yeah. But I will also say, I mean, it's never wrong to sell if it's profitable. And actually these are still technically profitable levels for a lot of folks. But I'll say one thing. Like Jeff mentioned, these prices, it'd be easier for folks to sell or to look years and ahead and start selling. If the prices sounded better. I mean, we just have such an anchor of the last couple of years when things were so much better.

You know, if you had said five years ago, you'd have a chance to sell 1250 beans or $5 corn, you'd be like, Oh yeah, sounds pretty good. But after last year's prices, now we're anchored so much higher and nobody wants to do it. So just, just a cautionary tale, just behaviorally to think about, you know, what is actually profitable and not just what was available six months ago or a year ago.

Paul Yeager Anything else, Jeff? Beans, Corn.

Jeff French I just yes, I second that if it's profitable, I would never tell you to not sell grain, but I would definitely follow it up with, you know, some ownership on paper.

Paul Yeager Okay, Let's move to livestock a little bit. Are we good on that? Can I. I'll try to get consensus of the table here.

This is the most, I think, out of control I think I've ever had this one. This is incredible. I love it. Don. Let's look at cattle, because that seems to be a tiny bit out of control with with with things that aren't normally talked about in the cattle market. It almost looks like it's a technical movement. Now. Do you concur?

Don Roose Well, you know, we've got everybody's in the same camp. You know, Paul, it's a cyclical bull market. We haven't had that since 12, 13, 14. And so the trade wants to be bullish for another two years. I don't think it's that. I think it's back to the the demand side of the market. You know, like we always say, nothing's enough if nobody wants it.

So at what price? You know, we were sputtering right here. Now, seasonally on cattle, you're supposed to buy cattle basically Friday until the first week of November. And it's just the opposite of the hogs, you know, supposed to sell them. So you're in a little seasonal up on cattle, down on hogs.

Paul Yeager Elaine, what do you think about technical fundamental movements in cattle market right now?

Elaine Kub I will defer to Don that, but I'll say that cash market this week was hot, hot, hot. I mean, it was up 2 to $3 this week to 92 dressed, 185 live. I mean, we're in a position now where record high beef prices at the retail grocery store level. And it's just a question of whether or not we can make record high actual cash prices for those Fed cattle.

Paul Yeager Are we to the point at the consumer is going to step away from beef?

Jeff French We're not there yet, but I think it's it's soon. I mean, you had the former CEO of Walmart come out this week and say in the first time in a decade, the consumer is starting to buckle. So the consumer is starting to tight their belt.

And obviously with beef prices where they are, there are much cheaper alternatives. So I think that will that will break the back. How far we go down from there, we'll have to see. But it has it's not happening yet, but I think it happens pretty smart pretty soon.

Paul Yeager What do you think about the feeder market then?

Jeff French Big correction, We've come down here to support, you know, rallying back with the corn going higher. You know, these are expensive, expensive feeder cattle. If you're filling up the pen, we're just advising that you make sure you have downside protection locked in because 25, $30 move in feeders is not too big at these prices.

Paul Yeager Let's ask the cattle feeder at the table. You fill in the pen.

Elaine Kub I don't I don't feed cattle, but I.

Paul Yeager You have to play along with the that talk.

Elaine Kub To Don.

Paul Yeager About I know he's got a few.

Elaine Kub but yeah no I mean I think we're looking at a fall run where again we're going to be setting maybe some record high prices which can, which can be possible. I mean, I think folks can make it work for quality level or certain, you know, for certain plays. But 250 feeder cattle, I mean, that's what we're going to see as as we start to see these calves come in.

Paul Yeager Well, and I was I was looking in back to lower levels. I think the chart doesn't quite go back far enough. But, Don, July lows, we were we were close to that this week. Right on on feeders that we've dipped back down. Do you think we're at a crossroads here?

Don Roose Well, you know, the thing about the feeder cattle, I mean, the numbers just aren't there, Paul. I think it was pretty impressive that the feeder cattle went up with the corn going up. So I think we have a floor there just from the numbers. And I don't think it's so much that I think is what happens to corn and then what happens with those defer hedge able opportunities and those are work in progress.

It's going to be tough for April cattle next year to go over 200. We tried and it's just a tough number, I think.

Paul Yeager What about in the hog market this week? You know, you look at a sell off again and again. It has just been up and down. Where are we headed?

Don Roose Well, the hog market's in huge liquidation. I mean, the Packers making about $32 a head, the vertical hog integrators losing about $20 a head. We've been in this massive liquidation and eventually, Paul, the liquidation should translate to higher prices next year. But the government says about 85 for all and next year we're substantially higher than that. But December hogs run in a $12 discount to the case.

Don Roose Right now it's normally on par so upfront little cheap.

Paul Yeager Elaine anything else on.

Elaine Kub Hogs just exactly that is seasonally that that the futures market is looking at heading down towards December probably bottoming out there at some point and then hopefully recovering. But yeah I think in the near term there's not a lot of hopeful signals from the market.

Paul Yeager I want to get to crude oil for a minute, Jeff, what's going on in Israel, in Iran, in Gaza, in this area? Initially, there was this call that we were going to have $150 oil didn't come to fruition yet. Then the week progressed. How do you navigate what's happening globally and understanding what that means for us on the farm?

Jeff French Yeah, we came in Sunday, we spiked higher. We actually traded crude oil, traded lower all four days until Friday. You saw short covering come in. Nobody wants to be short. Crude oil going into the weekend because of the absolute uncertainty. I would just tell my clients that, you know, you put some call options up above here. If this thing wants to run another 15, $20 higher, you know, that is a great hedge to stay in the game.

So it's certainly part of it is out of our control. But what we can and control is if it wants to move higher, that call option can appreciate in value.

Paul Yeager Elaine Do you see anything from what's happened this week globally that we need to be paying attention to in a market other than crude?

Elaine Kub No, and I think it's really interesting from the crude oil market. Exactly. Is, you know, I talked about an efficient market. If that market is really expressing the outlook of what is truly going to happen, it's been remarkably quiet and calm, which would suggest that it might, you know, the all the violence might be sort of contained in a certain region and not and not bring in everybody else.

But, of course, I don't know. We don't know. Nobody knows. But if the market knows, then so far we're okay. But yeah, you got to be you got to be aware and you got to keep your eye on it.

Paul Yeager Don, Is there one commodity that you were watching this week with the eye of what was happening?

Don Roose Well, I mean, I think if you look at it now, you've got issues in the Black Sea in the Middle East. And I think the problem with the livestock market in the grains on Friday was everybody just wanted to get back to home base. I mean, there's something's going to happen probably over the weekend, you know, in the Middle East.

And we'll see what it is. But very interesting situation. A lot of I've seen one like that in my years of trading. All right.

Paul Yeager Let's close with this. We have one question that I want to bring in. I want to look ahead. I want to look to Scott in Wisconsin's question that he submitted to us for your Facebook. This is looking to 24, Jeff. You already had one of those. So, Elaine, I'll start with you. What commodity do you see having the highest upside in 2024?

Elaine Kub Hmm. Great trick question. I you know any of them. But, but let's say corn even because I think there is so much potential for for the supply and demand under the understanding of that supply and demand picture to change. So from a percentage basis, I think a lot of the other commodities really haven't fallen apart in the way that our, you know, our core proxy corn has. And I think there is a lot of potential for that.

Paul Yeager John, what do you like in 24?

Don Roose I'd say soybeans have the upside potential in South America as a problem, but there's going to be a huge acre switch from soybeans to of corn into soybeans. In South America. Corn acres are production is going to be down about 700 million versus last year and beans up 200 million. So I think that's a prelude to what happens here in the U.S. But I'd keep my eye on soybeans just because it doesn't take them a lot to move the needle.

Paul Yeager Jeff, 24, what's your big,

Jeff French you know, corn and wheat down here at multi-year lows? You know, I'll go with corn, but at the same time, you got to look at what we did in 23. I mean, look how short we were on rainfall. And look at the yields that we are seeing. I mean, it's it's not a record crop.

It's, you know, eight bushels below trend line. But those timely rains have produced a very good corn crop. And while it was very hot here in the United States, so I'd be careful on betting up to the topside, but we'll go with corn here. Right now.

Paul Yeager The only thing, though, that could be is we had some rain last fall that helped set us up in 23. Not sure we'll get that. We'll see how that forecast works out. Jeff French, thank you so very much. Thank you, Don. Thank you. Thank you. Paul. I have to apologize to Elaine because I stuck her with that tough question right at the end. Sorry.

Elaine Kub I you know, we got we got there in the end. Paul, thank you.

Paul Yeager Appreciate it. Thank you, all three. Great job, as always. That is going to do it. But I do want you to hold it because we are going to pause this discussion. We have to keep going because we have to talk about the discussion of these markets in our market Plus segment. We got a whole bunch of questions here.

You can find analysis and plus on our website of market to market dot org and a reminder that our portability keeps you in the loop. This is how you do it. You subscribe to our YouTube channel. Thank you so very much for watching and have a great week.

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

Announcer 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 tomorrow.

Announcer For over 100 years, we've worked to help our customers be ready for tomorrow. Trust in tomorrow. Information is available from a Grinnell Mutual agent today.

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.