Market Analysis with Ted Seifried

Technical signals turning positive started to unfold in this holiday-shortened trading week. Then came Friday and several sell-offs. For the week, the nearby wheat contract added 16 cents and the December corn contract improved a nickel. Meal led the soy complex until pressure built on losses in soy oil and energies. The November soybean contract expanded 5 cents while October meal strengthened $10.70 per ton. December cotton shrank $2.07 per hundredweight. Over in the dairy parlor, October Class Three milk futures fell 3 cents. The livestock market was lower. October cattle lost $3.42. October feeders cut $6.80. And the October lean hog contract dropped by $2.73. In the currency markets, the US dollar index declined 82 ticks. October crude oil sold off $6.03 per barrel. COMEX gold lost $11.40 per ounce. And the Goldman Sachs Commodity Index fell almost 18 points to settle at 519.50.

Yeager: Joining us now is one of our regular market analysts, Ted Seifried. Hey, Ted.

Seifried: Hey, Paul. How's it going?

Yeager: It's going all right. We were good until Friday.

Seifried: I know.

Yeager: Wheat had one of those weeks -- wheat has been on a run. But then came Friday. What's the story there?

Seifried: Wheat wasn't the biggest loser on Friday. But I think you can look at wheat a little bit differently than the row crops. I think wheat had gotten a little bit undervalued, not necessarily based on our domestic balance sheet because our new crop domestic balance sheet over 800 million metric tons, I'm sorry, 800-million-bushel carryover, that's a very healthy carryover for wheat. But globally there's a little bit of tightness in the wheat and that is just kind of continuing over from all of the conflicts that we have. So yeah, wheat I think has upside potential, but it really kind of depends on the row crops. And I think wheat was allowed to go higher because we've had a halfway decent bounce in the row crops.

Yeager: We had seven, I think at one point this week, seven straight days of higher closes at the end. But then we look forward to global conflicts. Is this the commodity influenced the most by global activity right now?

Seifried: Global activity as a whole, not necessarily just conflicts. When we look at the U.S. dollar, the wheat is the one that we think is the most sensitive to things like that. Wheat is grown in so many places in the world and exported by so many places in the world that it's such a global market that currencies affect it, global economy affects it, trade like shipping rates, things like that, it's so many things that fluctuate the actual price of wheat rather than just the board.

Yeager: Corn was one of those that was above $4 for a lot of the week and then, again, came Friday. What changed?

Seifried: We stayed over $4. But interestingly, for the last two weeks, the holiday week that we had the previous week and then this week, there was just a lack of sellers and I think a lot of that has to do with the September contracts going into first notice day, a lot of contracts, cash contracts had to either be priced or rolled and once that happened you saw cash selling really dry up. So, there wasn't the American producer in there selling corn. The funds weren't selling corn. If anything at the end of August they were maybe taking some profits on their short positions because they had really good profits and they needed to make their realized P&L balance sheets look good. And then into the first week of September you had a lot of risk off going on and risk off in corn or really any of the grain markets right now means covering short positions for the money managers. So, both of those things combined I think gave corn upside potential. But it was just because there was a lack of sellers. Now, what we saw on Friday I think changes that game a bit.

Yeager: Well, that was kind of like the main talking point for a lot of folks -- going to be some profit taking, going to be some profit taking. Boy it sure looked like a lot of profits were taken.

Seifried: On Friday? Yeah. I think there was a lot of new sales happening on Friday. I think the profit taking was the bounce that we had. And then the sales on Friday started with I think producer sales. I think there was some profit taking on your short-term speculators. But really what happened was the sellers that had been waiting for the last eight trade sessions or so all kind of snowballed on top of each other. They were all looking for a signal and you started to get it about midday Friday and it really accelerated into the close.

Yeager: March corn $4.24 and a half, so $4.25. Are you selling right now?

Seifried: Yeah, I think so. I don't think the harvest lows are in, Paul. We've got a whole lot of cash corn that has to move. Some old crop is still out there. But there's a lot of -- new crop is just so underpriced and this is going to be a very big crop coming in. I still think we're going to make new lows. Now, longer term I am fairly friendly for corn because the balance sheet in corn, even since we saw the outlook forum numbers back in February has been getting, I'm going to call it less bearish. We haven't gotten to a point where I'm going to say it's bullish yet, but it has gotten less bearish, to the point where we basically need a 183 national average yield to stay above a 2-billion-bushel carryover. So, I think corn needs to fight for acres. I'm optimistic for corn once we put the harvest lows in, which I think might happen in October, but into the end of the calendar year, into January, February planting, I see some upside mobility potentially for corn. At the very least I see it gaining on the corn to bean ratio.

Yeager: I'll get back to your October low in a minute. I need to get to beans for a minute. The soy complex was complex this week. Here comes China booking some sales. More to come?

Seifried: Well, they need to. This is the time of year. I was on crop tour two weeks ago and I come to expect daily flash sales when I'm on crop tour four of the five days. And we had that this year and it's good to see. But they're not massive numbers. In fact, if you look at the weekly export sales that we had this week it was within the range of guesses, it was towards the higher end, but it was still a little over 300,000 metric tons below the same week last year. Now keep in mind last year was one of our worst export program years for soybeans that we've had in the last ten. We're currently roughly 5 million metric tons behind where we were this time last year on our new crop export sales. The USDA had the exports increasing by 150 million bushels. So that means we're about 9 million metric tons behind where we need to be to hit the USDA's number. So, we need to average about a million metric tons better than last year each week, so somewhere in the twos. And that's a growing concern for me. I think without a major problem in Brazil it's going to be a very big struggle to get to the USDA's target. And the USDA is already projecting well over 500-million-bushel carry -- a 560-million-bushel carryover. So, the soybean story, in my opinion, I think is getting more and more bearish while I just said the corn story is getting a little bit less bearish. But I'm really worried about what happens for soybeans here not only into harvest lows but also how the planting mix and the jockeying for acreage is going to go because I think soybeans should be the big loser.

Yeager: You said October low in corn. October low for beans?

Seifried: I think beans could follow. But again, corn really needs to narrow that corn and soybean ratio. I think corn is the bigger winner going into the end of the calendar year, going into planting. Corn I think can still buy some acres. It really I think needs to. And $4.20 corn, $4.30, $4.40 corn doesn't really get us all excited because interest rates are high, although it could be coming down. Inputs are still high. So, what does corn have to do to really get the acres that it needs? And so, I, again, am optimistic for corn. But to some extent I think the soybeans, while rising tide may lift all ships, soybeans, in my opinion, really should lag behind unless there is a major problem in Brazil.

Yeager: Well, now here comes the March contract at $10.36 and a half. Are you selling at this price?

Seifried: Yeah, again, I don't think the lows are in quite yet. I think there's another few weeks here of downside and then whether we get long or not really depends on Brazil. It is dry in Brazil. There's not a lot of rain in the forecast for the first half of September. So, there could be some planting delays that could extend our export window a little bit further and close that 9 million metric ton gap that I just talked about. But if those rains do return in the second half of September that window won't be extended far enough, in my opinion, to really get us caught up. So, yeah, we'll start watching the weather in Brazil. There is going to be a transition from our weather market to the Brazilian weather market and that really starts with soybeans because corn is more of a second season concern.

Yeager: This is probably more applicable to corn, but I do need to ask this question. Derek in Kansas wanted to know, Ted, who wins? Harvest basis firming in the West Plains or harvest basis softening in the Eastern Corn Belt? Is there any positive there?

Seifried: Yeah, you know Paul, almost every year we have one half of the Corn Belt doing something a little different than the other half of the Corn Belt. And really the determining factor is more often than not the river. That's our export business and it's so visible that it really kind of mediates between the two. I do think that there will be some areas on the Western Belt that will have some rather strong basis here this year. Go to Southern Minnesota and those are some of the worst looking crops that I've seen out on tour in the ten years I've been doing it for that area. But then you also have some pretty good corn in Nebraska. So that might offset to some extent. And then the east is just really good.

Yeager: Yeah. Let's talk about livestock for a moment. Cattle selloff on Friday, stick with the theme. But that's also because we also had the stock market go pretty lower. Again, they always seem to be tied to each other. Is this just the stock market? Is this an inflation worry? Is this an economic worry?

Seifried: I think there's a lot of economic worries, which is sort of atypical of an election year. Usually, we're used to things staying strong into the election. Now there's a lot of major concerns. And we are talking about the Fed cutting rates. As you said earlier in your monologue, by how much? But if you go back and do a lot of studies on when the Fed has cut rates it doesn't necessarily correlate with strength in the stock market. A lot of times the stock market actually breaks after that. And you look at just the chart on the stock market. We had the deeper correction. We recovered. We didn't make new highs and now it looks like we're rolling over. So, this double dip potential in the stock market is probably one of the more scary things that we've seen since the onset of the COVID pandemic and that does not bode well longer term for demand for things like beef. It might actually bode well for pork. I think pork is becoming a Wall Street investor's sneaky recessionary play. I think that is part of the reason why on a day like Friday when the cattle complex is under a ton of pressure, relatively speaking the lean hogs did fairly well.

Yeager: So lean hogs, is that the discussion that everybody had who trades on their Labor Day weekend and they said hey, I've got a tip for you, it's the hog market? I mean, that happens. I'm not making anything up here.

Seifried: Oh no, it happens. Conversations around the pool, right? No, I think everybody is really concerned about the stock market and what's happening there. That was the question I got the most. And also, if somebody asks me what I think about everything, again, I'll go back to soybeans, I think that we are and have been -- I've been on the show for about a year talking about a potential train wreck in soybeans and how China is not using as much because they're changing their feed rations and their economy is not doing well and that's just a double negative and our exports versus Brazil have been slipping in a market share and so many different things. And when you have lower prices it's easier to plant soybeans because they don't cost as much. But for so many reasons I just don't think we fully realized the issue that we have in soybeans. I'm here to listen to the argument of sustainable aviation and how that's going to create a whole lot more domestic demand. And to that I say, good, because we needed that ten years ago before we started trade wars and things like that. But it also means that we're going to have to have infrastructure built upon that. And to get infrastructure built, you have to offer these guys really fantastic profit margins for a long period of time for them to feel comfortable that they're going to invest in something and not "cook their golden goose" by overproducing. So, the uncomfortable truth I think is that soybean prices have to be really low for a long period of time for sustainable aviation to really take off and then we have the policy, which is an issue. I know you want me to --

Yeager: And I'm going to lay on this discussion right here. Thanks, Ted, appreciate it.

Seifried: Yeah, of course, thanks, Paul.

Yeager: All right, we're going to continue this Analysis in a segment we call Market Plus. You can find both Analysis and Plus on our website of markettomarket.org. And a few of you have already signed up for our newest offering, the Market Insider Newsletter. Get in on the ground floor of being the first to know information on this program and what is head. Sign up at markettomarket.org. Next week, we'll look at the early impact of California's Prop 12 on the hog industry. Thank you so much for watching. Have a great week.

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