Market Analysis with Ross Baldwin and Jeff French

Yeager: The livestock market has generated headlines of its own for months and commodities have been anything but quiet in recent trading. 

First the grains for the week.

The nearby wheat contract added 16 cents and the March corn contract fell a nickel. 

South American weather is both dry and wet causing different concerns in the soy complex.

The March soybean contract lost 14 cents while March meal declined $3.80 per ton.

March cotton shrank $1.80 per hundredweight. 

Over in the dairy parlor, March Class Three milk futures increased 23 cents.

The livestock market was mixed. April cattle declined 73 cents. March feeders cut 85 cents and the April lean hog contract put on $2.15. 

In the currency markets, the US dollar index added 101 ticks. 

March crude oil dropped $1.78 per barrel. 

COMEX gold expanded $25.50 per ounce, and the Goldman Sachs Commodity Index fell nine points to settle at 562 - even.

Joining us now are two of our regular market analysts Ross Baldwin and Jeff French. Welcome.

Ross Baldwin: Hey, Paul.

Jeff French: Paul, great to be here.

Paul Yeager: Ross. It kind of timed out. Okay. It was planned. Cattle inventory report today. Last week, you know, we had cattle on feed before. This one is a major report. Last year, this report said smallest herd since 1951. We're lower than that again this year. Why?

Ross Baldwin: The herd just continues to be reduced. I mean, we haven't hit, a rebuilding phase. And as everyone in the livestock markets knows, it takes three years from the time that you start expansion, that you start to see numbers pick back up. And we haven't started expansion yet. We've been doing the complete opposite. Prior to this report, the US cow herd has dropped 10% in the previous three years. And here, this number, we just had a quick glance at it. Every number or every bucket was 1% lower than last year. So these numbers continue to drop. And it was a bullish report.

Paul Yeager: I know it takes a long time to grow an animal and get the animal to market. But why has this market not responded to expanded herds or keeping back heifers or any of that?

Ross Baldwin: I would say one of the largest reasons that we haven't kept heifers back over the last year, even two years, is we've had feeder cattle at record high prices and with where feeders are, have been at, it's difficult. It's it's actually an easy decision for the rancher. But it's difficult to keep them heifers back when you have record high prices. And until we would see something change over the next year or two, it's going to be hard to continue to keep these heifers back. I mean, even feeder cattle prices stay. We continue to make new all time record high prices across the country. And that's just not indicative of expansion.

Paul Yeager: Are you hearing from people who are in that conundrum of, hey, I need to take advantage of this price, but I also think I could make money down the road.

Jeff French: Well, economically, I mean, it's just the prices are just too good. And you look at the age of the American rancher out there, I mean, you're pushing almost into the 70s. So they're looking at these prices saying, why do I want to battle this for the next 2 to 3 years when I know I can get, you know, $280 or $300, 100 for this heifer? To me, that's an easy decision. And that's what you see that these ranchers are making. just absolutely historic times. I mean, here on Wednesday this week, you could go out 15 months in the fat cattle and lock in 196. I mean, we've never seen prices like this. And with the reports that we saw here this week, you know, we might have a time where we can sustain some of these higher prices. The numbers are not going to be there for some time. So it's, historical, but, you know, like I said, I've been telling my clients buy some puts cheap, puts out of the money and let this thing rip higher.

Paul Yeager: I could show you my question sheet for the last year and a half. That is always asking. When is this top coming? But what is it that's going to happen short of a black swan event? Of course, that we cannot predict, but what is it going to take? Because the headline that's going to come real soon is all about grocery store prices. Beef is this or that? We all know that's not necessarily the full story, but what is it going to take?

Jeff French: I think you're going to have to see the consumer make some switches and we just haven't got to that price where the price of ground beef has made the consumer make a big switch. You know, you get ground beef up into $7, $8 a pound. I bought it this week at $6.99 a pound. That's high. So do we see the American consumer when it gets up that price? That's just something that we're gonna have to see.

Paul Yeager: Do you hear that?

Ross Baldwin: I totally agree with that. I think it's going to be more of a demand driven event that would slow the cattle market down, or some outside news event that none of us can predict or talking about today before it's going to be from the cattle fundamentals themselves. The cattle fundamentals they remain in this report shows that they remain tight for this year, and by all rights, they remain tight all the way through 2026. So it just going to be something where you have to essentially price yourself out and do some demand destruction. And we're just not there yet. Today we've seen beef demand. I mean, it's the strongest beef demand we've seen in the last 40 years.

Jeff French: And then you add tariffs potentially on Canada, Mexico, feeder cattle. We bring in a lot of feeder cattle from both those countries. So, you team that up with the positive bullish report. you know, again, I wouldn't want to be selling futures at these prices.

Ross Baldwin: The tariffs are the wildcard for the beef industry.

Paul Yeager: Well Rodney and Wisconsin actually did have this question. He's had it two weeks in a row Rodney thank you for your patience and writing it twice. He's asking if the Mexican border opens to cattle again. So that's that's if we're on the other side of it. What will that do to the cattle prices for both fat and feeders?

Ross Baldwin: If you look back when the restrictions were put in place in late November, the feeder cattle board has rallied 25 to $30 since those restrictions were put in place. So we have exploded higher, I would say largely due to the those restrictions that are put in place. So if the border would get reopened and it's been a rumor for the last couple of weeks that it was going to reopen this week, they were saying it was going to reopen. And there still has not been a definitive answer that it has. But if that border reopens, then you could start to see some pressure on the feeder cattle market. And I think you'll see it reflected first in the sales across the country, especially down the South. You'll see it reflected in the feeder cattle index. But right now we're not seeing any indication of that. And now we got all this tariff talk that's going on right now. If there's no clear line in the sand on what's being tariff, but let's just say there was tariffs put on feeder cattle. And you know, we import, it's roughly 100, 125,000 head of feeders a month from Mexico. We import a lot of feeder cattle from Canada also. So you're going to have to see what happens and what comes out with these, these tariffs. But it could have a big impact.

Paul Yeager: If, if, if is the key word in this Jeff. But this seems like we've seen how this plays a little bit. We've already seen this administration, maybe, bark, but the bite isn't as sharp this time. Is that how you're reading things?

Jeff French: No, I'm not reading things like that. I mean, I think, you know, President Trump, when he speaks, that's exactly what he's going to do. I mean, we saw Friday, there was a report that the tariffs we're going to be pushed back until March 1st. Then the press secretary had a news conference say, no, the tariffs will begin on February 1st, which is, you know, this coming Saturday. So what do the responding countries, are there retaliatory tariffs? Do these countries cave quickly? We've seen a country like Colombia last Sunday cave within, you know, 45 minutes. So it's going to be an active weekend.

Ross Baldwin: There could be exemptions on certain products. So that's another one to pay attention to.

Paul Yeager: Let's talk about another product that Mexico buys. Corn. Yeah. That is there any influence in the corn market in your eyes in the movement of that commodity?

Jeff French: You know, a little bit maybe in the late week action? you know, we did gap lower, Thursday night into Friday and we did keep that gap open. but we did hold the key support. I mean, right now I'm looking at $4.77 in March. That's my key number. That was this week's low. If we take that out, I think you could see, you know, the funds, which are long, probably 350,000 contracts. I could, you could see them turning into more sellers, but it's going to see what develops here with Mexico. Do they put a retaliatory tariffs on us or do they say, hey, let's work this out? I mean, the tariff is a action per se tariff. I mean, how are like, you know, testified in front of Congress here this week. He wants to see the border closed and the flow of fentanyl stopped. And then those 25% tariffs will come down. They're talking about other tariffs beginning down in April. But that's for the, you know, the trade tariffs. So action can happen quickly. And this weekend's going to be a big deal

Paul Yeager: Aaron in Iowa's question is very similar to what you just said, Jeff. But I want to make sure we tie it all up because he's asking now that we're back to halfway between major technical support and resistance turning points for corn. What do you think we will more likely break first, the $4.77 area or new highs?

Jeff French: You know, I think it's going to be what happens here over the weekend with Mexico particularly. I mean, they are our biggest corn buyer, you know, so we'll see what develops. But we've come a long way. You know, we are $0.90 off of the, contract lows, set back there in August, and these prices work for a lot of producers. So we've been aggressive on selling some cash here this week and then protecting some downside. You know, putting the risk on paper here.

Paul Yeager: Ross, you're in an area. It's pretty good corn growing area of Iowa. And are you hearing anybody that's swapping one set of acres to maybe write off and put the word corn?

Ross Baldwin: We're hearing a fair amount of that where you're hearing guys switching beans to more corn this next year. So I think we're going to see quite a bit of that occur here.

Paul Yeager: Do you think it is reflective on what Jeff is saying for price and taking advantage or beans just don't look good?

Ross Baldwin: I think both. I mean the bean economics of beans here. They've been difficult and it's just more favorable when you look at the what the potential for corn is and where the prices have been at.

Paul Yeager: You liked my line. I think of wet and dry. And that's been two stories. Brazil is wet, which is delaying the harvest. And it's dry or it's wet in Argentina or it's dry in Argentina. I'll get it right, but they're both impacting us. Why?

Jeff French: Well, I because it's the story. and that's something to talk about in, in person. I think the northern wet Brazil is kind of overplayed. You know, we see market analysts overplay the wetness or, you know, late planting scenario up here in the States. you know, the bottom line is Brazil is going to, in the next six weeks, harvest more beans than they ever had in history. And we can discuss and argue, is it 170 million metric tons or 175 million metric tons? But they have a huge harvest coming on the world market. And you look at the other countries with Argentina, I mean, they're going to be producing down in South America anywhere from 8 to 8.5 billion bushels of beans here in the next three months. Where does it all go?

Paul Yeager: Well, in the United States, there's this talk of this 45 Z. There's talk of renewable efforts to eat up some of the soybean crop. Where do you see that playing in the marketplace right now?

Jeff French: Well, that's the uncertainty. I mean, we did, nominate and confirm a new EPA secretary this week. But I, again, I think you're probably months away, from the answers that we have on all those renewables.

Paul Yeager: Can we wait months?

Jeff French: We don't know. We haven't. Yeah, I don't think we have a choice right now.

Paul Yeager: But what happens in that time frame? I mean, do you find that there's concern on that uncertainty, that what opens the door to volatility. And some people don't necessarily like that?

Jeff French: Well, I just you know, I look at the numbers and with the supply of beans and with potential trade war 2.0 with China, I just think that beans have potential, multiple dollars of downside. If it all goes, the word would be bad. If it goes bad. so yeah, I just think, from a pure economics standpoint, these beans potentially have more downside here.

Paul Yeager: Do you have any more support for wheat?

Jeff French: You know, you look at the wheat market I mean we've been in this three month trading range. You know, we get down to $5.30 and then we bounce and then we just can't get through that $5.70 area. And wheat has been a function of we've had the corn rally and the beans rally. And the funds have been piling on the wrong side of the corn and beans, but they've used the wheat leg as selling the wheat against that. So they've been spreading the wheat. And, you know, that's been the loser in the scenario. Personally, I think we're carving out a low here. But for me to reown wheat, we got to get above that $5.70 area.

Paul Yeager: Do you have an anticipation that that story, the weather story's been overplayed in the United States or in Europe that's impacting wheat and, you know, supply?

Jeff French: I don't know if it's been overplayed, but we're not going to know if the damage is done until April or May. So I think we're kind of just, you know, waiting that out. but if you look at the wheat stocks around the world and we've talked about this here in the previous shows, I mean, if you look at it, I mean, we're at 8 to 10 year lows in the carryout. So if there's one thing that has more potential, the upside I think the wheat here. But you know, we're going to be dealing with a very strong U.S. dollar here for some time. I just it's going to be an uphill battle.

Paul Yeager: And just to forgive me on the dollar and the livestock market, because I don't fully always grasp how much of an impact is it.

Ross Baldwin: For a high dollar? It has an impact just on any exportable good. So while our exports have been going quite a bit lower over the last two years with the tight numbers that we have, it certainly can have an impact on our beef exports moving forward. If the dollar stays higher, goes higher. Right now, we haven't seen a huge impact to it. But there's no question I mean, exports have been trending lower, but most of that's just been due to the fundamental tightness of the U.S. beef market.

Paul Yeager: Listening to what Jeff has said about these three, which one from a livestock perspective? Now, granted, we're at prices, so I don't know if that heightens the attention you have to play or pay attention to the wheat, corn, soybeans. Which one of the three gives keeps you up at night the most?

Ross Baldwin: I mean, corn is the biggest one for the livestock market, right now. When you just take $5 is where the nearby corn futures have rallied up to now, basis has really softened up across the corn belt. So cash corn is not at five bucks but it's 4.80 cash corn it doesn't give a whole lot of heartburn across the cattle industry right now when you got $2 fat cattle obviously cash is 2.10 to 2.12 up here in the north, but with $2 for cattle, $5 corn, it's really a moot point. And a lot of our feed ingredients mean there's no shortage of hay across the Midwest. A lot of the feed has is quite a bit cheaper. I mean, cost of gains. I mean, if you bought your corn this last fall, that you put a pile of corn up for your cost of gain is around a dollar, maybe a little bit less. Even with the rally in corn here recently and interest where it is, you're looking at a dollar five type cost of gain. So the cost to gain, I mean it's very manageable with where fat cattle are.

Paul Yeager: Speaking of cost to gain, we've actually not been cold like we normally are in the winter. Does that have any impact? We're going to not go through as much.

Ross Baldwin: Absolutely. This has been some of the best cattle feeding conditions that we've seen in the North in a long time. Last year, it was kind of a tale of two stories out West. They had rougher feeding conditions where I'm at, ours weren't terrible. Now, this year it's been really good across most of the entire northern feeding region. And we're seeing that, I mean, cattle performance has been through. The roof weights have obviously been high. Weights are coming down here recently, the last couple weeks. Seasonally they should. But weights remain record large. And a lot of that's attributed number one days on feed. But then number two the favorable feeding conditions we've had.

Paul Yeager: What was your feed question you had for him before we started rolling? You had one about we talk about feeding wheat, but feeding something else. Are you sure? Are you hearing anything about that?

Ross Baldwin: You don't hear a lot about sorghum, but wheat. That is another good point. That wheat has, or bucket for wheat is that you're hearing of wheat working into feeding rations. With the rally that corn has had and where the prices of wheat spend. So that's something to keep on people's radars for what Jeff was talking about wheat having a supportive story here down at these levels.

Paul Yeager: Well, how supportive does that can it be? I mean, it can't move the needle that much right now can it?

Jeff French: Well, I mean, it's one of those things where how long do the funds want to pressure this thing down? It's specifically the wheat. And then you look at the other side of the coin is how long do they want to hold this corn long position? I mean, now they're long 330,000, 350,000 contracts. I mean, that's getting up there. The record long, I think, is 429,000 contracts. and we're dealing with, you know, mostly $4 corn. I mean, we haven't really moved the needle that far. When you look at past performances of the funds, I mean, they've been long corn at five and $6 levels before. So how far they push us up? We'll just have to see. But, you know, this weekend's going to be big with the tariffs, announcements and what comes out of DC.

Paul Yeager: Well, let's, I asked him about acres. I need to ask you kind of a question to Bradley in Nebraska. Wanted to know because he had heard this at a meeting this week.

Paul Yeager: How much more does cotton need to rally to steal acres from corn?

Jeff French: Quite a bit. I actually spoke with, three producers, two on the Delta and one out west, and, they all gave different answers. But, you know, cotton is just. It's a market searching for demand. I mean, that chart just goes lower and lower and lower. So you got new crop cotton down at $68 a pound. spoke with three producers, and they all gave three different answers down south. It was $0.75 to $0.80. out west, my Kansas client, he said $0.85 for me to switch corn acres or, excuse me, cotton acres into corn. So, it's got to raise quite a bit to buy back those corn acres.

Paul Yeager: Acres as a story, one other thing that we need to talk about is the hog market. that that is one that has had a it's been a little different than livestock. What's the story right now in hogs for you hogs.

Ross Baldwin: They rallied again this week. Hogs have they've had a good run the deferred hog contracts have been making contract highs here again this week hogs. The hog numbers have been tighter than what was originally forecast several months ago. And with high dollar beef it is going to support hogs though. You know, if you look back at 2014, the hogs had a different story back in 2014 when live cattle went up to $1.75, but hogs were well over $1.20 back them.

Now, I'm not saying they're going to go that high right now, but hogs got a story. As long when you have $2 fat cattle. And above that it's going to be supportive to where pork prices are now. The flip side is if something would cause cattle to maybe sell off at some point, it could be negative for hogs.

But I do think the biggest thing to watch for the hog market, it's the same thing we're talking about with everything with tariffs. Watch the tariffs with Mexico. Mexico is the number one buyer of U.S. pork by a long shot. It's not even close to where the number two buyer is. So tariffs and the pork in this tariffs to Mexico in regards to pork could have big implications if there was something to come out of that.

Paul Yeager: Jeff. Final 30 seconds, do you see anything other on your plate Saturday than watching what comes out of Washington?

Jeff French: Well, and you know how long it lasts, but, you know, you got to look at these markets. We've come a long ways, especially in this old crop, the corn and beans. These markets at these levels can go much lower. So offset some of that risk. And, you know, hopefully they can get a deal done. I mean, we have a business minded president and he knows how to negotiate. And we'll see what comes up here in the next couple of days.

Paul Yeager: Thank you. Good to see you. I got to say, Guy, goodbye. Thank you.

Ross Baldwin: Thanks. Paul

Yeager: 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 know social media is not the only way to communicate and if you want to write us an old-fashioned email, our inbox is always open. Drop a line to Market to Market at Iowa PBS dot org. Next week, hope for the decimated Florida citrus industry. Thank you so much for watching. Have a great week.

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