Market Analysis with John Roach

We are taping this program early to allow our staff to observe Veterans Day. The nearby wheat contract lost 44 cents while the December corn contract cut 28 cents. USDA raised corn and bean yields with little change to stocks this week. The January soybean contract shed 39 cents. December meal sold off $16.30 per ton. December cotton decreased 55 cents per hundredweight. Over in the dairy parlor, December Class III milk futures rallied $1.17. The livestock market was higher. December cattle added $1.43. January feeders improved $2.07. And the December lean hog contract expanded by $1.90. In the currency markets, the U.S. Dollar index dropped 269 ticks. December crude oil lost $6.26 per barrel. COMEX Gold strengthened $75.30 per ounce. And the Goldman Sachs Commodity Index weakened more than 26 points to finish at 638.60.

Yeager: Joining us now to provide some insight, our senior market analyst Mr. John Roach. Hey, John.

Roach: Hi, Paul. How are you?

Yeager: I'm all right. The wheat contract though not all right. This has been a fall. Normally we have been looking at the dollar in comparison, the dollar falls but so does wheat. Are those two done being tied to each other?

Roach: Well, they certainly are tied to each other but they don't have to be tied immediately on that day. The other side of the issue is the wheat market has been under pressure here, we've had the Black Sea region, Ukraine with their grain corridor able to ship grain, shipping it at a faster pace than what was anticipated. And, as you can imagine, when you're holding an inventory in a war zone you're trying to move it as quickly as you can. And this week when that corridor opened back up we started to see the movements. There's 90 ships, there are almost 90 ships that are lined up ready to load and a lot of that will be wheat that is coming out. And you also have Russia with a very big crop and they're doing the same thing, they're moving it out quickly when they get the opportunities.

Yeager: And let's not maybe look too far past the rains falling in Argentina also contributing to the global stack. Is that part of it too?

Roach: Yeah, it certainly is. The biggest problem we have in Argentina is they really are struggling there to get enough rain. But they did get some rain and so the wheat market -- and we have some rain forecast into the southern part of our winter wheat belt and so we're getting a market that is coming under pressure. We actually have buy signals on wheat here the last, I think we're about three days into a buy signal. So what we're recommending to customers is now is the time, if you want to come back and reown wheat for any reason, now is the time to be a buyer of wheat. Utilize this selloff in order to pick up some inventory.

Yeager: We could go completely about what your buy signals mean. But I guess I want to ask what is the bottom range of this wheat contract? Because to me with your buy you think an end is in sight possibly for this fall?

Roach: I think so. I think we're not far from that bottom and my concern is look at your wheat rating here in the United States, we're well below the percentage of the crop rated good to excellent compared to normal. I think we're 21% or 22% in poor quality and we have a Black Sea region that although their crops are pretty good this year, the Russian crop particularly, the Black Sea region is going to struggle in order to raise this size of crop next year. It will be very hard for Ukrainian farmers in a war zone to be able to come up with the money and come up with everything they need in order to raise crops. So we think we're at the stage here where we're getting a lot of the bad news into the marketplace right now.

Yeager: You also have a buy signal in corn. Today we ended I think five straight days in a row of lower closes. How much more low do we have in this?

Roach: Well, we're right down on the support level and the market needs to hold right in here. We've been in a really broad trading range and we have expanded to the lower side of that trading range here this week. And it needs to hold or else we're going to run into some more technical selling. But same thing, we think that as you're wrapping up harvest in the United States, you're getting a push into the market, we also have the Mississippi River that is low and causing problems with shipments and you have export business that has been really, really slow. And we think we're looking at kind of all the bad news right now and we think the news can get better as we move on into the winter months.

Yeager: Well, we maybe did get a little bit of good news this week. The rail strike that was potential for November 19 has been pushed a couple of weeks later into December. Is that enough to start a little more positive news, John?

Roach: I think that helps and we've also seen some moisture and we've seen the barge rates relax a little bit on the Mississippi and until we have some opportunity here maybe to get some shipments increased a little bit. But you have to make a harvest low somewhere and we think that we're in the process of doing that.

Yeager: All right, well Shane in Bloomfield, Nebraska has a question for you, maybe not necessarily about the harvest low but just about the low in general. He's asking, $7 corn may as well be $3.50 corn with record inputs. And he's asking, should producers sell grain and buy the inputs like fertilizers and chemicals this fall or wait until spring for grain sales and input purchases? And he's saying all of this with attention to interest rates.

Roach: I think that the purchase of fertilizer, the prices have come down some but we think that it can come down some more actually so we're slow in buying spring fertilizer needs. And we really don't like to sell corn this time of year. When I look at the calendar in November it's the wrong time of year to sell corn. We have to raise a crop in the Southern Hemisphere and right now we have Argentina with the dry conditions and they're only about 25% planted and when you look at the corn exports the combination of South American exports are bigger than United States exports. And so Argentina is an important supplier to the world and they've got a problem starting and we won't know about the Brazilian crop until, it's the second crop mostly, we won't know about that until the spring. So it's not time to go out and make sales out of fear, if you will, in my opinion. So we're actually on the other side. We're thinking if you're in the livestock business or if you want to reown corn that you sold earlier that you couldn't store this is the time to be doing that.

Yeager: In the bean market we have a USDA report that came out this week, they talked about there was a little change in yield production and ending stocks. But come Thursday when we recorded this, Thursday was a tough day. It doesn't seem to be fallout from USDA. What seems to be the fallout here in soybeans?

Roach: Well, interestingly enough today's decline took us out of the sell zone. We've been selling beans all week, started last week actually selling beans, cleaning up the beans you couldn't store and selling beans in order to make cash flow needs with an idea that the market has some pressure coming. The crop is going in, in pretty good shape in Brazil. It's a great big crop according to the current estimates if they get it all planted. There's liable to be some kind of weather worry at some point. But at least right now the Brazilian crop is in really good shape and so that is putting pressure on the market as we're wrapping up harvest in the United States, again with the problems of the river and the Argentine bean crop still has a long season to it yet. So it's really, although it is not getting planted as rapidly as normal, there's still plenty of time to get that done. It's a little more dicey with corn in Argentina.

Yeager: Did those who have bull party decorations, are they putting those away right now? You mentioned that we're not going to be selling as much now. What is a range here on beans? Is this bull event done?

Roach: Well, I think it is for a moment. Today's break took bean prices down below the 20 day moving average. By our way of thinking that puts it into an official downtrend. We're not down near the low of the trading range on soybeans. So we think that the market has some room to the downside and it could be 20 to maybe as much as 50 cents a bushel, although that's maybe a little bit, stretching it a little bit. But it certainly has that kind of possibility to it. Everything in the bean market over the period of the next 90 days is going to depend on what happens in Brazil and their crop.

Yeager: Okay. You kind of teased it a little bit, you knew we were going to talk livestock. You've done this show a time or two. Livestock up this week. People seem to be taking advantage of buying opportunities. You mentioned -- I asked you about the dollar and the direct correlation, lower grain doesn't always mean higher livestock, but December cattle this week did okay. Why?

Roach: We think that they deserve to be okay. This is a time of year when we tend to have a stronger cattle market. In fact, November is kind of our optimum time to be putting hedges on in the spring or for spring cattle. We're not doing that yet. We actually were buyers of cattle expecting higher prices. The exports have been good, although the USDA lowered their export forecast in the report on Wednesday that we've been running well ahead of what expectations were. The numbers are tight out forward we think and to give you an idea about what the market thinks, what we call the cattle crush, which is the results if you buy feeder cattle, buy corn and sell fat cattle, is running somewhere about 95% of the best that it has been in the last 10 years. So there's some optimism there in the marketplace and we think it's justifiable. We think the cattle market moves higher. One of the things in the livestock industry to remember is that protein supplies and prices there's comparisons here. And so we talked about the problem with bird flu and prices have moved up substantially. We think that cattle prices, although it doesn't really go straight across like that, it has more impact on pork prices, it still has impact on protein.

Yeager: Okay. What about the protein called hogs? Where do you see that? Because China keeps saying we're going to stick to this zero COVID policy. That doesn't sound like reopening to help the hog market.

Roach: When they come in and buy they buy quite a little bit and then they disappear for quite a while. They have been selling pork out of their inventory and yet the prices there are record high. And so we think that they'll be into our market. Demand has been a little bit sluggish for pork but we think it will come alive. We also noticed that the weights are down from last year which is unusual to have lighter weights this time of year as you're coming out of the summer and you put the fresh feed to hogs and normally we have a problem with weights and we're not having that. We're very current in the hog industry. The packer margins are a little bit tough in here but, again, we think we have increased demand out forward and less competition and so we're optimistic of the hog market.

Yeager: All right, thank you so much, John, appreciate the time.

Roach: Thank you, Paul.

Yeager: All right, we're going to put a pause on this analysis and we'll continue with John and answer more of your submitted questions in our Market Plus segment. You can find that on our website of MarketToMarket.org in podcast form and also on YouTube. And all of these resources, they are free. We also leave our email inbox open for you to write about your thoughts on the program, ideas for stories or just general correspondence. The address is markettomarket@iowapbs.org. Next week, we'll look at drones delivering an unusual package. Thanks for watching. Have a great week.

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