Market Analysis with Chris Robinson

The private industry crop tours dominated the social media headlines as a lack of fresh news kept the bulls on the hungry side. For the week, the nearby wheat contract lost 28 cents and the September corn contract fell 3 cents. China appeared to see value in the soy complex. The September soybean contract added 13 cents while September meal gained $2.90 per ton. December cotton expanded $3.54 per hundredweight. Over in the dairy parlor, September Class Three milk futures lost a dime. The livestock market was mixed. October cattle shed $2.60. September feeders cut 92 cents. And the October lean hog contract improved $5.47. In the currency markets, the US dollar index weakened 189 ticks. October crude oil fell 94 cents per barrel. COMEX gold gained $8.90 per ounce. And the Goldman Sachs Commodity Index dropped more than 9 points to settle at 531.95.

Yeager: Joining us now is one of our regular market analysts, Chris Robinson. Hi Chris.

Robinson: Yes, sir, good to be here.

Yeager: This wheat market has had a run. I think the last time you were here in July we were higher. We're not that now. There is a story about the EU having a better crop than thought. There's Russia wheat on the market. What is your headline dominator in wheat?

Robinson: Four-year lows and that rally that we had this summer. We had a $2 rally. It looked like we were going to get something really going. There was no follow through. We've seen that for really two years since we came off the pandemic highs. I think that has been the hardest thing for a lot of producers to go through. We had that rally from '20 to '22. We're like okay, this is something real, inflation is here to stay and really for the past year and a half, two years, we've seen every rally fail, even with lots of fundamental reasons for it to not fail. And the last USDA report we came out with we're plentiful, we have plentiful supplies. Now we have relatively low supplies if you go back and look. But if you look around the world every time there is a rally somebody sells it. I'm a big believer that Russia, the Ukraine they were sandbagging all along. Every time there is a bid, they hit the offer. And I would probably continue to see that. Now they had a bad harvest in France, they had a bad harvest in -- France had their worst harvest I think since 1980 -- it hasn't moved the needle. So, when a market gets friendly news and it doesn't move the needle and obviously how we finished this week tells you that, it's telling you that the market still wants to reprice and that's why we hedge because we don't know where the bottom is going to be.

Yeager: September wheat has lost 5%, December wheat has lost 4%. Do you cut your losses before this thing gets worse?

Robinson: Oh, I think that if you've done nothing all year, you're in a situation where you have to sell you have to sell, but I work with a lot of clients and I'm like, we can't go back in time and say woulda, coulda, shoulda. Those were opportunities that were there. If you missed them, we've got to look ahead. So, if you're selling them absolutely look for an opportunity to resell them. We are at four-year lows. Anybody that will honestly look you in the eye and tell you oh don't worry, it's going to rally, don't believe them. We may be going back to where we were in 2014 to 2020. We were in this sideways trading range with not a whole lot of opportunity. That's my fear for producers.

Yeager: Someone wrote in a newsletter this morning, roll, roll, roll your puts. Corn specifically is top of mind. But I've got to say, Chris, there has be some optimism this thing hasn't fallen further in the last couple of weeks, right? Or am I -- your roll your puts sounds like we're headed lower.

Robinson: Yeah, and talk about corn. We had that one last rally in May, we got up to I think it was $4.96. We didn't get the $5 print, everybody was waiting for the $5 print. Well, look where we are today at $3.92. You don't have to do the math. So, you didn't have a whole lot of opportunity. Most people when we were at $5 maybe they hedged $4.80 or $4.75 so those are the puts that I was talking about rolling down, rolling them down, we broke a dollar, if you can roll them down. Why do you want to roll down a put? Because at some point, we're going to come in and I don't know what the reason is but we're going to have a 30, 40 cent rally so you have very, very expensive puts which have helped you, you don't want to see those go worthless. You want to see cheap ones go worthless, ones that are worth 10, 12 cents. And if you look at the big picture, if you look at the historical picture of corn there's probably another 25 to 30 cents worth of risk if we go down to where we were, again, back in that 2014 to 2020 area. So, look at that risk right there, you don't want to have -- when the downside risk is 30 or 40 cents at this point where we've already broke a dollar you don't want to have very expensive puts on. I'm not saying, it doesn't mean no puts, it just means make sure they're very, very cheap.

Yeager: New crop is a story, we talked about the private estimates that were out there. There's another chatter that goes a 30 bushel to the acre difference in Iowa corn prediction. Do you believe any of those tours, surveys, snapshots?

Robinson: I believe that everybody on that tour is doing their best to report what they see and we've talked about this a little bit in the break. You can have the right information and still be wrong with your outcome. So now when we're at four-year lows everybody is saying where's the bottom, where's the bottom? The bottom line is it's a big crop and we've known that for a while, especially after that last USDA, the carryout, especially for soybeans, is burdensome. We've had a good growing season here in North America. And it's just one of those situations where it's -- what is that 20 bushels extra going to mean to us? And we'll have to wait and see. And I think the proof will be in the pudding in the January 5th end of year number. That's when we'll have to deal with those numbers.

Yeager: Soybeans is a story that seems to get worse, then all of a sudden China shows up. What is the headline that impacted the most do you feel on the old crop this week?

Robinson: Old crop is going to be moving kind of separate from new crop. I think the bigger risk now is because we're going to be harvesting soon, the Chinese have done this, they've folded their arms for a while, everybody is well aware of that. They've been coming in here, they came in and bought three times this week, which is good. We were hearing rumors about it last week but they were confirmed this week. But at the end of the day, it's like well why wouldn't they be when we're at four-year lows? Of course, they're going to become more aggressive when we're at four-year lows. And we had the big drop in the U.S. dollar today. We're almost to one-year lows in the U.S. dollar. So, I wouldn't be surprised to see them step in and open their checkbooks. The question is can they buy enough to really drive up price because the supply is burdensome?

Yeager: But another question for me though is, if they're buying does that indicate that maybe the low is here or close by?

Robinson: I would say we're probably nearer the bottom than where we were two weeks ago. But to play that game of okay we're going to stop here, it's kind of a little late. The horse is out of the barn. And is there more risk? Yeah. If $9.50 new crop beans fails, the next thing they're going to do is try and push it down to $9. So worst case scenario I'd be worried about soybeans with an 8 in front of it.

Yeager: Okay, well that kind of leads to my question. Ben in Iowa wanted to know, sent me an email, down, down, down go the grains for months on end. Is there a low price point where you would advise lifting hedges on December '24 corn and November '24 beans because the upside has potential?

Robinson: I'm a big believer after doing this for 30 years and watching people kind of blow themselves up being wrong in their opinion, you keep your protection on until you sell that grain. The day you sell the grain then you worry about getting out of those puts because we just witnessed that here with this big horrendous selloff we had in wheat. I work with clients who are like well it's broke so far, let's sell those puts. Okay, and then they would sell some wheat but then they would also, then it would break again. So, rather than speculate with your hedges, keep your hedges on, your risk is real and you use the tool to prevent your big ideas from hurting you. So, like I said, my biggest concern is that we're going back to where we were 2014, 2020, narrower ranges, not a whole lot of opportunity and it's going to be a grind and a fight.

Yeager: Cotton real quick, big rally, can that sustain itself?

Robinson: Big rally off of contract lows and after just getting hammered again earlier. So, I think that 70 cents is a big level, it's a big psychological level for a lot of producers. It has been a good recovery bounce. I don't know if it's going to have legs. I think that's a China trade as well. I'm still a seller of rallies in cotton.

Yeager: Cattle on feed came out right before we recorded. Numbers were I think you told me bearish. Here's why. On feed 101, placed 106, marketed 108. Which number frightens you the most?

Robinson: The placements. There's more out there and that is a bearish report. Now we've had a lot of bearish reports in the four years, pull up a chart of live cattle or feeder cattle and it looks like Nvidia. It has just gone straight up into the rate. So, we're overdue for correction. We're starting to get a little bit of a disconnect between the stock market and cattle. That was my big worry thing there because the stock market we had a correction, that has rallied back and you had continued pressure in the cattle, especially in the deferred months. It's not about what's really happening right now on the front months. I realize the cash market is strong, boxed beef is good. But if you look out in those deferred months, April, next year, they've all turned. And again, it's a futures market, it's not a right now market. If I'm a cattle producer and I've been kind of banging the pots and pans for the last month, not protecting cattle here, in my opinion, is like not protecting corn when we were at $7.50 or beans when we were at $16 because it's nice if it lasts but you're going to want your protection on for when and if it does have a bad correction. So, you're starting to get a little bit of turn and this cattle on feed is another one. We'll see how we trade on Monday but I'm more concerned about where we're going to be three months from now, four months from now than where we're going to be really maybe even two or three weeks.

Yeager: And where we're at in hogs is two weeks of gains. Is there a third on the horizon?

Robinson: I think part of that was a little bit of spreading between the cattle and the hogs as well. But again, if you look at big picture with the hogs, hogs had just had a pretty terrible selloff, 18 cents a hundred weight between the highs and the lows just recently. So, we're coming off those lows, we've had a nice almost a halfway back trade. If you read my letter, I talk about that, that's a very common thing. So, if we do get to that halfway back of that 17 cents a hundred weight that just lost it's an opportunity for producers to do some hedging. I think a big part of what happens with the price for lean hogs, if we start to get any real pressure in the cattle, which is what my concern is, it might bring the whole protein complex down. And again, I can't say that enough, the one commodity in the ags that has done well regardless for the past four years has been cattle and my concern is that it's going to turn and catch up with what everything else has done, which is come back down to where we were in 2022, 2021 prices.

Yeager: And we've come to the end of our discussion. Chris, good to see you.

Robinson: Good to be here, thank you.

Yeager: Thank you very much. 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. We've concluded our time at the Iowa State Fair but still have something to share with you as we enter our 50th season. We recorded two new episodes of the MtoM podcast there. Subscribe today to hear some of our history and the outlook for agriculture from two of our regular Market Analysts. Next week, we'll start our series of look backs at the first 50 years of this program. Thank you so very much for watching. Have a great week.

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