Market Analysis with Sean O'Leary and Ross Baldwin

Paul Yeager:  China's agreement to purchase US grain, along with a stoppage of shipment in the Black Sea, balanced the trade. For the week, the nearby wheat contract lost $0.11 while December corn cut $0.15. China canceled a buy of Brazilian soybeans while harvests progressed under favorable weather in the soybean complex. The January contract was flat and December meal improved by $18.50 per ton.

Paul Yeager:  December cotton expanded by a $1.98 per hundredweight. Over in the dairy parlor, November Class three Milk futures decreased $0.65. The livestock market was mixed as December cattle lost $2.40. January feeders cut $7.35 and the December lean hog contract put on $4.48. In the currency markets, the US dollar index added 35 ticks. December crude oil sold off 3.08 per barrel.

Paul Yeager:  COMEX gold expanded $24.80 per ounce and the Goldman Sachs Commodity Index fell almost eight points to settle at 592.80. Joining us now, double analysis today, Sean O'Leary and Ross Baldwin. Ross, we'll get to hear from you in a minute. Good to hear, Sean, for a few. Is that all right?

Ross Baldwin:  Okay.

Paul Yeager:  All right. So, Sean, this week. Good to see you. But there's an asterisk with this Kansas City wheat. What? Why does that contract continue to be such a drag on the complex?

Sean O'Leary:  You know, I think that wheat complex price wise, kind of has a $5 corn problem, you might say. You know, Chicago. Chicago just can't seem to get above $6 and stay there. And you know that the Kansas City contract isn't isn't any help or for any of it. We saw a decent rally in in I wouldn't say it was a decent rally in the week, but it was a rally.

Sean O'Leary:  Kind of hard to find one period. But you look at the corn market as well, you know, trades above $5 for what seems like 10 minutes, you know, just fades.

Paul Yeager:  When you look at wheat as a whole. And we just showed the chart where it has really kind of leveled out any volatility. Do you anticipate that continuing in that type of trading pattern for the foreseeable future?

Sean O'Leary:  I do. And, you know, both the corn and wheat historically, if you take some of the bigger news items out of the market and there's not really anything, there's a catalyst to move, it can spend six, eight, nine, ten months, you know, in a range, you know, and it might be a little bit of a a wider range.

Sean O'Leary:  But if you look at some of the put and call put and call premiums in both corn and wheat, those are cheap options. And I'm not saying they're necessarily good buy cheap options typically get cheaper, but that kind of gives you an idea of a lack of volatility in those markets.

Paul Yeager:  We just had a global story there about the world food price and we also have global events. But there's there was this this chatter that's been growing. We've lost interest as a market in what's going on with Ukraine and Russia and having any influence in the market. Do you buy stock in that statement?

Sean O'Leary:  Well, I I think that that's you know, you talk about the corridor being open right now. That has been kind of a back burner. Not much of a story there really, although it is a very, very important item. And, you know, it's it's unfortunate that those stories have kind of fallen to the wayside with some other things going on.

Paul Yeager:  But what's influencing corn them the most for you right now?

Sean O'Leary:  Well, it's not really anything out of South America weatherwise. You know, there's still some some drought issues in particular with Argentina, but, you know, not nothing really move in the market to to a great extent.

Paul Yeager:  Are we at a point right now where we've seen the harvest and it's a little higher than we anticipated and that's kept a lid on things?

Sean O'Leary:  I think so. You know, I've got customers that want to reown corn and it hasn't been walking away from anybody. Yeah, it's not like you have to be quick, quick on the draw with getting that done. And I think any rally for the time being is going to be kind of a shallow one. And, you know, if you see anything north of $5, I would say it looks like a good sale.

Paul Yeager:  Unless you're trying to feed some animals right now. Ross, do you see this as a buying opportunity for someone who's trying to feed some cattle.

Ross Baldwin:  For someone that needs to get coverage for corn needs? I think corn is at a good value down here. I think futures as Sean alluded to, I don't think we're really going anywhere in a hurry. But when you look at discarded futures around 4.80 if you can get your hands on it, which it's it's hard at this point in the harvest, the farmers are putting it in the bins and locking the doors.

Ross Baldwin:  But if you can get your hands on it, I think it's a it's a good value. When you think about $5 corn, just say it works. Your cost to gain works with $5 corn here. And I think the biggest thing that corn would have, say a month or two down the road from now is basis improvement that cattle feeders and users need to be thinking about with corn.

Paul Yeager:  Do you have the sense that that was a factor in last week's cattle on feed report? The lower level of of of corn, the anticipation of being sub five for a while?

Ross Baldwin:  I think the biggest influence that corn has probably had on the fundamental aspect of cattle will be as you feed them a little bit longer versus what we had been when the cost of grain was running higher, when corn was say $5.50 to $6. But recently, no, I don't think that's been a huge influence on the market. But there's no question as corn gets cheaper, we will put more pounds on the cattle market.

Paul Yeager:  So we're going to hold them a little longer still because it pencils out.

Ross Baldwin:  Yep. And with what you what we've seen recently up until this this latest meltdown, I would call it in the the feeder market. It was cheaper here two months ago to keep cattle on feed that you had because your cost to gain was manageable than it was to sell them and then turn around and go buy high dollar feeder cattle.

Ross Baldwin: Now that that's changed here recently.

Paul Yeager: Things are moving and things are also moving for live cattle. But I want to I put Sean on the spot. I'm going to put you on the spot on your first time here. Let's go. Andy in Iowa, he has a question that he submitted. And Ross, it's looking forward into ‘24. What's the outlook on live cattle for late ’24?

Paul Yeager: Will we see them bounce back or hold steady.

Ross Baldwin: Late ‘24. My outlook is more favorable as you get out into ’24. This cattle on feed report that we saw the 106% placements, the bulk of those cattle hit the Feb/March timeframe that we did add that the market wasn't expecting. I think we will pull those numbers ahead. We're current today. We've seen that in the cash markets this week.

So I think we will pull those numbers forward. But as you work out into the ‘24, keep in mind when we started last year in ’23, we've got we've got one of the the smallest beef cattle herds on record. Those those numbers aren't increasing. We didn't magically just create more cattle last week in that cattle on feed report.

The other thing to keep in mind is the USDA today is forecasting beef production to drop 6.3% into ‘24 versus ’23. That takes 3.6 pounds per capita of beef out of the market. I think as we work through ‘24 out into Q2, Q3 and then even beyond, I think the market's got a much more favorable story than what we've been dealing with today.

But it's hard to be totally bearish and doom and gloom with cash doing what it's done.

Paul Yeager: Sean, do you with with your clients that aren't maybe still in cattle or listening to what what Ross is saying, how do you I'm not saying help, but how do you take advantage from your side of this situation knowing what the needs are in livestock areas?

Sean O'Leary: Well, if do you mean if you're a producer?

Paul Yeager: Yeah.

Sean O'Leary: And in the way of taking production.

Paul Yeager: Yes.

Sean O'Leary: Okay. I've got, I've got cattle producers that have done literally no hedging for some better than a couple of years. And I'm sure glad I wasn't the one pushing that on them. They've they've done really well too. You know, you're taking your chances, but that's the way that market's been. But, you know, nothing lasts forever, right? What goes up must come down.

And they had a fairly good recovery this week. So I think I think going forward, even though there are still some bullish numbers out there, it's going to be a little bit more of something that you might want to entertain the thought of. Put it that way. And if it's not an outright future sale, maybe a do something like covered short calls, you know.

Paul Yeager: And help me out here, Ross. I believe there's been some dramatic changes in both cash and futures here in livestock recently. Do you do you see any of that changing anytime soon?

Ross Baldwin: The quickest change that we could see, I think, over the near term would be futures recovering. The cash market this week, we had some early panic selling per se in the week and rightfully so. When we were down the daily limit on Monday with February. There was some early 183, some 184, but today we were trading 185 in the South and some 186 out in western Nebraska, which is right at last week's values.

So I, I personally think cash is we're on good footing. It shows how tight the market is, how current the market is. There's cattle being sold in the north that are going south for grading reasons. The cash market, I don't see that falling out of bed. It would have did it early this week if it was going to.

I think futures would be the thing that could maybe have the most movement. And hopefully it's a recovery. Mm hmm.

Paul Yeager: All right, Sean, let's go back to grains for a moment. Get back to some more livestock here I to talk soybeans. That's an interesting market because just seemed like a couple of weeks ago, the story was completely different. What's changed?

Sean O'Leary: Yeah, well, going back to South America, the you know, that we're going to be trading the weather down there, but there's really not much weather to trade right now. The last stocks report that we had that gave beans a pretty good bump. But going back to corn at $5 beans or $13 just can't seem to hold it. You know, they're they're probably probably going to trade closer to 12.50 before they would back to 13 or 13.50.

Paul Yeager: That 13 just kept lasting on the board longer and longer. So are beans in the teens here to stay for a while?

Sean O'Leary: I think so. I think I think the downside on those are are kind of limited for the time being. You know, we've we've got we've got Argentina that's still got areas where they really need rain. You're not really seeing a big rally in the market but it's it's plenty early and I think it's it's way too early to to assume that things are going to come off without a hitch down there.

Paul Yeager: The weather in South America. Yes. Is a big story. However, we also had I, I had written down that the corn was kind of squeezed between what was happening with wheat and what was happening with soybeans and what was happening with soybeans was it was China reneging on purchases in South America. So it wasn't a weather story at all.  So I guess we have two pins in South America controlling our destiny on futures.

Sean O'Leary: I would say that's fair. That's fair. You know, China can cancel, but they're they're going to be right back at it, you know, and it's always better for us, obviously, if we're competitive price wise with sales, South America, and sometimes that takes a little while to come into play. But I think I think we're there now. Pacific Northwest prices are are where they need to be.

Paul Yeager: Yeah, the PNW is always a discussion point. Also, that meal has had a life of its own. First it was oil, then it was meal. What's the hog producer? Was this a response to some input changes or we just had to bounce higher because it was pretty, pretty, pretty dramatic in soy and hogs. I'll get the right commodity here.

Ross Baldwin: Hogs have certainly been on a downward spiral. And it's really interesting if you look at the hog futures today on the close and you look at what live cattle have done, they both right now for the time being, going home this weekend look like maybe a V bottom is in place and very similar hog, just the aggressive sell off they've had.

They were due for a bounce. We have seen decent hog exports out of the country recently. So we've priced a lot of bearish news and for the hog producer and I do think I don't think hogs are out of the weeds yet, but as we start working out through ‘24, I do think hogs do have a much better story down the road.

Paul Yeager: How good of a story?

Ross Baldwin: I think the the interesting part for hogs is when you get into the back half of ‘24, I think hog, we will see a much better number with with tighter numbers hogs as we've been liquidating due to negative profit margins. There's just no question. So I think the hogs in the back half of ’24 really get interesting with cattle prices in the back half of ‘24, and that's where cattle really got to come down for hogs to drop much lower.

So I think the two of them can support each other as we start moving through ‘24.

Sean O'Leary: I think in the hog market you could see a $10 rally pretty easy.

Paul Yeager: You know, over what time frame.

Sean O'Leary: Oh, that can be accomplished in six or eight weeks, I would say. You know, they've had from I'm guessing here. But that December contract, if you go back to the highs from several months ago that that was probably worth probably $20 off them right now.

Paul Yeager: I made him answer a 2024 question. I got to make you do the same thing. I want to put a bow on some corn and beans contracts. As we look forward into ‘24. Let's talk with Jim in Illinois and what he had for a question. Sean, should we be selling 2024 for corn and beans right now?

Sean O'Leary: I would certainly entertain that thought. Yes. If you look at these rallies that have been shallow, I think those are the rallies you have to take advantage of, barring, you know, South American weather changing dramatically. For example, you know, there's just not enough of a catalyst to make you think that after you see a 30 cent rally in corn, that you're going to be leaving $0.30 on the table after that.

So I would, you know, reward that rally. And the same with beans. You know, if you can catch it a little bit over $13, that looks to me like an opportunity. You know, it it's something you kind of want to stick your toe in the water. You might want to hold off on anything overly aggressive, but I would entertain the thought of of making some sales. Yeah.

Paul Yeager:  All right. Well, guess what? We're going to step out of the pool for just a little bit. We're not going to put any toes or arm. We'll do that Back on Marketplace. All right, John O'Leary, thank you very much. Russ Balding, thank you. Not so bad, right?

Ross Baldwin:  Thanks, Paul.

Paul Yeager:  We'll get to know him more in Market Plus in a moment.

Paul Yeager:  Thank you very much, gentlemen. Hold on there, because we are going to pause the analysis and continue our discussion about these markets. And like I said, get to know Ross a little bit in our Market Plus segment. You can find both analysis and plus on our website of market to market dot org. We were producing in the Market Plus and the Market Analysis podcast before the concept was mainstream. Stick with us for those two offerings or explore season eight of the MTOM podcast.

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