Market Analysis with Matt Bennett

Optimal weather for harvest and pollination pressured the trade. For the week, the nearby wheat contract fell 40 cents and the September corn contract lost 9 cents. China broke the seal on placing orders for new crop, but limited weather concerns cast the bigger shadow over the soy complex. The August soybean contract shed 61 cents while August meal decreased $18.40 per ton. December cotton expanded by 29 cents per hundredweight. Over in the dairy parlor, August Class Three milk futures weakened 40 cents. The livestock market was lower. August cattle shed $4.05. August feeders cut $2.83 cents. And the August lean hog contract lost 73 cents. In the currency markets, the US dollar index weakened 73 ticks. August crude oil contracted 79 cents per barrel. COMEX gold added $22.70 per ounce. And the Goldman Sachs Commodity Index was down almost 11 points, to settle at 577.65.

Yeager: Joining us now is regular Market Analyst Matthew Bennett. You've got a smile. I don't know how.

Bennett: The markets went up today.

Yeager: The markets went up today. Let's start with wheat, then we'll get into the report. Today's report is more of a, is it a confirmation of two weeks ago? Or is it a leader?

Bennett: Okay, if you want to talk wheat, essentially what the report told you is that yes, this is a big crop. As far as the total wheat crop size, 134 million bushels higher. And so, they toyed with demand just a little bit. But bottom line is you took carryout up 100 million, or 98. I will say this, Paul, if you look at the world balance sheet you continue to see some restriction or constriction of the world balance sheet to whereas we're still kind of drawing stocks down a little bit. Overall, you've got to think that that will keep you from an absolute plummet in the market over the long-term. And the wheat market has been beat up bad enough over the last several weeks anyway. I've got to think we'll find some footing. But boy, after the report we certainly dropped double digits.

Yeager: Speaking of big carryouts, how about that corn carryout?

Bennett: That was an interesting report to say the least. I will say this, Paul, whenever I first saw -- the first number I saw was new crop carryout at 209.7. Thank you, but what is this? And so, essentially what happened was with old crop, Paul, they took feed and residual usage up 75 million bushels, which is interesting considering the June quarterly stocks implied usage was 120 million bushel lower than what the trade had expected. And so, you would expect that usage would have gone down. Correct? But essentially you saw exports go up 75, which I can get on board with that, but exports the last two or three weeks concern me a little bit. We're still competitive in the world market. But as far as feed and residual usage, I was very surprised to see them raise that. It's a good thing for us, clearly, but I was not expecting that. And then feed and residual for next year is just out of this world.

Yeager: But is it a compensation for other reports or other sentiment?

Bennett: That's a really good question. But what I'm going off of is what were stocks June 1st? What were June 1st stocks? And they were more than we all thought that they were. So, it's very interesting to come in here and say, actually usage is a lot better than what we all thought, even though just a couple of weeks ago we told you usage is not as good as what we all thought. So maybe you're looking at last year's crop, maybe having to constrict that just a little bit. I will say basis levels, especially out here in the west are awfully good, even in my part of Illinois there's a lot of corn on the farm. USDA said 3 billion bushels. But basis levels are awfully strong. Why? Because people have been stubborn about selling corn and so they're kind of waiting around. Basis is trying to do the work but at a place like ADM-Decatur, which I'm close to, even basis included, from three weeks ago we're about 50 cents lower on the cash price.

Yeager: This is the most questions I've had in quite some time and they're pretty much everything you just said in that sentiment. But I have one I want to give you specifically here. This was Keith, came off of X. When will the producer cry uncle and move old crop grains and oil seeds in order to make room for new crop? Or will they leave it in storage and deliver new crop at harvest?

Bennett: That's a really good question. Essentially it has been very hard for the producer to take a look at, hey here's what my old crop is worth, here's what I had invested in that 2023 crop. Moreso, here's what my '24 crop cost me to put it in. Are they going to sell '24? Either one of them, Paul, if we're going to be clear about it, are going to be sold with the producer not making money on those bushels. It's not fun to talk about. But that's the bottom line. And so, it makes it so hard to make sales. I get it. But the problem, Paul, once you hold old crop bushels past pollination, if you're in a year, which was relatively speaking a very large carryout year, especially compared to the previous few years, it's typically not real good for price action. So, you've seen these folks trying to get a hold of bushels, you see basis narrowing up, bottom line is this, the producer has been tight-fisted. Once these bushels start moving, I am very concerned once you get into the month of August that you could really see basis go away from you very quickly because in the South, they're going to start harvesting fairly early. Any folks in my part of the world that started planting in April with a hot summer, when I get home from the Farm Progress Show I know where I'm going to be, I'm going to be in the seat of a combine.

Yeager: Well, I have a couple of other new crop questions we'll get to in Plus. But I need to get to soybeans for a minute because it's almost the same as wheat and corn here. It's like copy paste of still a large carryout, still a great crop, potential is out there. Let's start old crop. Again, are you going to have to sell something to make this market move?

Bennett: You know, I don't see as many stocks of old crop beans as what the trade told us as far as June 1st was concerned. A lot of the originators out there are like, where are the beans? We're having a hard time finding the beans? And so that is kind of an interesting dynamic that we're dealing with. But is the producer going to sell beans? If they've got them, I've got to think they'll go ahead and reward the market somewhere in here. It's very concerning to see, for instance, new crop beans fluttering around on both sides of $11. Any time we get above $11, which last we were above $11 and Paul, I talked about in my newsletter, hey we probably ought to be considering selling some of these beans. I had several people reach out and say, don't you think they have a shot at going to $12? No, I really don't.

Yeager: Do you think it has just as much of an opportunity to go to $12 as it does to $9?

Bennett: That's a really good question. I would say it's got as much opportunity to go to $12 as it does to $9, but a much greater opportunity to go to $10 as what it does to $12. I'm firmly confident and I don't take joy in saying this, but there's going to be a lot of cash beans sold with a 9 in front of them this fall. If they're sold across a scale, I've got to think -- and so if your needs, if you've got cash needs for fall let's stop and look right now at what you can get. What are your cash needs? Lock something in, lock in a worst-case scenario because I'm pretty concerned, especially when you look at that new crop world balance sheet. You're talking just a massive increase over the two-year period from 100 million tons of beans up to 128. That's just a massive increase over the two marketing years that the USDA gave us. And why is that? Well, Safras & Mercado said here this week that they see 171 million metric ton crop out of Brazil next year. That's a big crop. That would be the 19th year in a row they have planted more soybeans.

Yeager: And we have a question about Brazil and there's rumors in Brazil. So, what do I do if I read things on a global scale and I'm sitting here with new crop and it's hovering around $10.50 and you're telling me $9? You're telling me to book something.

Bennett: I am. I am. Here's the problem whether we're talking corn or beans, for a lot of folks, Paul, booking something right now does not mean that we're going to make money. It's not a fun topic to talk about. But here's the thing. What is the potential of the market? Is there still downside risk? Absolutely. And so, if there's downside risk and I'm in a position that I can go ahead and lock in something, whatever it is, whether it's a smaller loss than what I'm afraid of, go ahead and lock something in and then you use risk management just in case you get some sort of a recovery rally. But I would say the risk for the producer is still to the downside right now.

Yeager: Let's go to livestock. For the live cattle, all of a sudden there is a flashing technical sign that I think has some attention. What is it?

Bennett: Oh, as far as cattle are concerned, I want to go here first. As far as feeders went this week it was not a great week. But overall, you've got to ask yourself this, Paul. What is the cash market doing? I had guys asking me last night, I was in northwestern Iowa, should I be buying $3 feeders? And I said, well what do you think your price of your cost of gain is going to be? And the problem is, is that booking out is pretty tough to do because the bottom line is a lot of these cash prices, the disparity between the cash and front month futures is so large, but from a technical standpoint really when I look at live cattle you still have an uptrend in place, but I just, I'm getting a little bit concerned that the trader does not want to be 100% committed, for instance, to make a new all-time high. I thought that we could for a while this year. I think cattle on feed is going to be extremely bullish moving forward because the numbers were so high September through December last year. That means that you're probably going to have some pretty low looking numbers this year. I don't think the trader wants to get super bearish in front of those, but I think they're running out of, they're just running out of enthusiasm to stay long.

Yeager: But I have to look at that contrarily and think if they're short everything else on grains, why would they not continue to go long on live cattle because it has been a winner for them?

Bennett: It has been a winner for them, but at some point, whenever the cost of corn comes down many times you will see the price of proteins trend lower. Now, the producer can make a lot of money with cheap corn. Correct? But the bottom line is a lot of times historically you'll see cattle follow suit eventually. And so yes, the numbers are going to be tight, we know that. From a fundamental standpoint this is really the best thing that we've had to talk about for months. It has been the most bullish, most fun thing to discuss and I've enjoyed discussing this. But at the same time, I think it's getting long in the tooth as far as this market goes.

Yeager: Not been very fun to discuss the hog market though.

Bennett: No, it hasn't. The hog market, when we got into triple digits here just six, eight weeks ago I said I just can't imagine trying to buy triple digit hogs in here. What have we seen lately? We've seen sows going to market. We've seen production go up significantly. I don't look for any big Chinese demand coming up. I just am very concerned about hog prices. I think they could stabilize in here, especially with the cattle market staying fairly well supported. If the cattle market stays supported, I don't think hogs are just going to plummet. They've already done their plummet in my opinion. I think they find some support down here. But I'm still not bullish.

Yeager: Are you -- but do you see any opportunity to turn bullish in hogs before you see the bearishness set in, in cattle?

Bennett: Not necessarily, no. I think that if you would see cattle run up, let's say cattle run up with a really bullish cattle on feed report, which I think we get, if you saw them run up significantly then I think you could see hogs go up. If cattle go down, I don't see hogs going up.

Yeager: I hate to put you in a tough spot but I had to. Thanks, Matt, appreciate it.

Bennett: Absolutely, absolutely.

Yeager: Matt Bennett everyone. We are 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. YouTube is the first place this program appears. Stay in the loop by subscribing to our channel clicking on the bell to get notifications of new content and let the technology work for you. Find us at Market to Market on YouTube. Next week, honoring the tradition of cheesemaking. Thank you so much for watching. Have a great week.

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