Market Analysis with Matt Bennett

 

Paul Yeager:  USDA Supply and Demand Report left wheat stocks basically unchanged, but added some to corn and soybeans on the domestic side of the equation. For the week, the nearby wheat contract added $0.29, while the March corn contract put on $0.03. Exports were bearish, carry out is projected tight, and meal had a wide range of price action in the soy complex.

Paul Yeager:  The March soybean contract improved $0.11, while the March meal contract expanded to 90 per ton. March cotton shrank by $0.03 per hundredweight. Over in the dairy parlor, March Class III milk futures gained $0.30. The livestock market was mixed as April cattle cut $0.18. March feeders put on $4.58 and the April Lean Hog contract sold off $3.15. In the currency markets, the US dollar index added 81 ticks.

Paul Yeager:  March crude oil surged $6.49 per barrel or almost 9% higher. COMEX gold improved $2.70 per ounce. And the Goldman Sachs Commodity Index finished almost 11 points higher at 597.40. Joining us now is regular market analyst Matthew Bennett, another one of those road weary people that has been everywhere. We’ll ask about your trip in a minute. You didn’t really get into too much wheat country, but let's start there.

Paul Yeager:  Why is there optimism in this market, specifically Kansas City? Because everything else seems to be screaming. There's no reason for this to be gaining.

Matthew Bennett:  You know, I think there's just a couple of things factoredin. Of course, you know, that crop went in the ground. The wheat crop went into dormancy in pretty rough shape. And we don't know what abandonment might look like. We may have more than what we think here in the U.S. And then, of course, you look at what's going on in the Black Sea region as we talk here on Friday, I'll tell you what, a lot of unrest and I think it kind of got the market a little bit fired up.

Matthew Bennett:  The gains that you see on the week entirely on Friday. But regardless, we had gains on the week. So it's nice to see. But I mean, the report didn't tell us anything. And quite frankly, with a pretty solid crop coming out of Australia apparently, I guess I'm hesitant to buy into too much of the hype, but as of right now most people would tell you that wheat looks about as strong as anything if you're looking for a rally in one of the big three.

Paul Yeager:  Okay. So you're dealing with weak export sales. It's a cheap product around the world. We're having better weather everywhere except Kansas, Oklahoma, Northwest Nebraska. Russia might do some more attacks on Ukraine. Nothing says positive still. I mean, I go back to that point. So long term, how do you fit into a strategy around those factors?

Matthew Bennett:  I think a couple of things. So if you're not getting a lot of wheat out of that region, which is the presumption you make on a day whenever there's a missile fired, of course, that certainly could hamper some of your supply, first of all. Second of all, a lot of folks are talking about feed wheat around the world entering rations.

Matthew Bennett:  And if that's the case, then you're going to gobble up a few more supplies. I mean, you look at the course of this wheat carry, not only domestically but over the globe, you see a continuing restriction over the course of time. We just, we used to be 50% globally and U.S. Now, you know, you're looking at 30 maybe.

Matthew Bennett:  I mean, as far as wheat goes, that's pretty tight.

Paul Yeager:  Looking at the chart we just put on the screen, it's still bouncing low. What's a range on that deferred contract right now?

Matthew Bennett:  Oh, boy. It's tough to say. But I mean, I just don't see you getting more than $0.50 on either side of it right now. I really don't look for a whole lot of price action. I think if you get if you move up 20 or 30 cents you're just going to pull right back. In fact, without fireworks on Sunday night, if you don't gap higher, if you will, you know, I think that you're going to be looking at rangebound trade still.

Paul Yeager:  Corn wise, we talked about what USDA said, a yawn, dud, uneventful, whatever adjective you want for that one. Nearby how much in your conversations with producers this week on the road, how many people still have corn left to price old crop?

Matthew Bennett:  More than what want to admit, you know, and I think that Illinois, for instance, there's a lot of corn that's moved. And so a lot of this corn towards the end of harvest, in that November timeframe, you know, there's a lot of shuttle loaders getting booked to go west of the Mississippi into Kansas, for instance, feeding cattle. You know, I think that basis levels for Illinois for a 214 state yield looked pretty decent.

Matthew Bennett:  And so you saw a fair amount of corn get booked early. I think the thought process is that everyone signal later on. We're going to be extremely tight. I want to hold on for that. But I think that a lot of needs are met, at least for the time being. I don't think that you're going to see a lot of action, if you will, or hot basis levels, at least for the next, you know, 8 to 10 weeks.

Matthew Bennett:  I think on the backside of that, maybe you see a little bit more.

Paul Yeager:  Well, what happens if exports all of a sudden pick up? It's been pretty poor. Is that why someone's holding on for 20% to 60% of their crop yet?

Matthew Bennett:  For sure, that is the main thing that we have to see happen. I mean, sales and inspections, shipments, they just haven't been worth a darn. And so if we don't want to see a further reduction this week, we've got to saw another 25 million bushel reduction. I don't think anybody would have said much, you know, which would have only boosted your carry to a level where you're still nine and a half percent stocks to use.

Matthew Bennett:  You're still tight, don't get me wrong. But there's still a little bit of air to come out of those sails if we don't see some serious action soon whenever it comes to sales and shipments. This is the time to shine. We know the bean shipments are going to slow down. Here on Friday we actually heard of about a few bean cargoes that were purchased by China, 3 to 4.

Matthew Bennett:  But the bottom line is that's not going to be the case moving forward. They're going to move toward South America.

Paul Yeager:  All right. Let's get to the new crop story, because it's fascinating to me, given a couple of the points that we mentioned earlier in this program. When you have high inputs, a high inflation, high this, high that, not a lot of export possibility, the way it sounds from what I'm hearing you say, is the producer in a mindset that they think they can overproduce and produce their way out of a lot of expenses on that balance sheet?

Matthew Bennett:  I think that a lot of folks feel that way, first of all. I think second of all, Paul, it's really hard to get our brains wrapped around the fact that we made so much money in ‘21 and ’22. And all of a sudden you're looking at, you know, like the U of I put something out where $350 to $400 an acre statewide on a good, productive farm ground. That's what corn returns looked like. The projection for them for this year is 75 bucks an acre. So, you know, you start looking that well, I don't know if I want a 25%, you know, 75% haircut from what I had last year. You know, a lot of folks don't like that. And so I think that it's hard to wrap your brain around.

Matthew Bennett:  This is a different ball game that we're playing here this year because demand is lower, demand is lower here in the U.S., demand is lower in the world. You look at the world numbers on this report, we're losing about 65 million metric tons of world production year on year, whereas carry outs only going down 11 million tons. And so obviously, demand has taken a big hit, which it’s supposed to when you have high prices.

Paul Yeager:  Well, you kind of answered a little bit of the question that we had. It's kind of going to tie these two commodities together. This is from Josiah in Illinois. Wants to know aren't we due statistically and cyclically for corn and soy to be looking to get back to big carries? Thinking ahead into ‘24 and ’25 some have called 2023 the Great Reset.

Paul Yeager:  What do you think of -- are we due?

Matthew Bennett:  I think that we're due, first of all. Second of all, when you start and look at, you know, like, for instance, January report, February report, we've lost 210 million bushels of demand as far as corn is concerned on this balance sheet. And they're also predicting that you've got a $6.70 average cash price for this year. So what's that tell you?

Matthew Bennett:  High priced have curbed demand. If we stay at $6.70, can you make the assumption that demand gets better? I think that's a tough hill to climb. And so, yeah, what you're probably going to see is if you have 90 million plus acres, which I think is pretty much a certainty in my opinion at this point and you use the same demand calculations, it doesn't take much for crop to get above 2 billion bushels.

Matthew Bennett:  And there's certainly going to be a carry in the market with a 2 billion bushel carry.

Paul Yeager:  Let’s get t beans quick. Heavy on corn. Sorry about that. There's a lot of factors churning around in here right now. What's going to win out at the end of the day?

Matthew Bennett:  You know, the thing is for beans, I think we overcomplicate it sometimes. We're at awfully high price levels. Okay. So when you're about $15 beans and you're sitting here trying to figure out what I want to do as far as cash is concerned, sometimes I just run the math. You look at what your net income is, your net returns per acre.

Matthew Bennett:  It's pretty hard for me to hold on to much more than gambling bushels, but new crops where it gets a little more complicated. But at the same time, Paul, you know, a lot of folks have told me lately, I've missed the boat on $14 beans, you know. Well, how many times have we sold $13.70 beans before we planted them?

Matthew Bennett:  And we haven't, We haven't had those opportunities in the past. And so, yeah, input prices are high, but we're not as beholden to input prices as far as soybeans are concerned as what we are with corn. So I kind of like stepping forward at least locking in some worst case scenarios.

Paul Yeager:  Okay, good advice. Livestock, live cattle demand still there?

Matthew Bennett:  Demand is still there. Okay. But it seems like we're kind of hitting up on some resistance. You know, whenever we look at fat cattle, I guess for the present time, I look for us to maybe take a bit of a breather. I don't think that we're going to fall back. Long-term I'm still pretty friendly. I mean, when you look at the fact that, you know, this is the smallest beef herd we've had in the cow herds down, what, 60 years is the last time that we saw levels this low cattle on feed report a couple of weeks ago, you know, in Texas, 79% of a year ago.

Matthew Bennett:  I mean, these numbers are the types of numbers that we haven't seen all come together at the same time. Fundamentally speaking, this is an extremely dynamic story. Now, if you would get your pastures to heal up and you get people retaining heifers, watch out for this fat cattle market. You could see significantly higher prices into the third and fourth quarter and first quarter next year.

Paul Yeager:  What about on the feeder side of that equation?

Matthew Bennett:  Feeders -- they're not giving away still. And I don't think they're going to because most folks agree with a lot of what I just said. Okay. So the feeder market is going to still stay very strong in my opinion. It's going to be very interesting. Once again, if people retain heifers, the mad dash to get a hold of whatever feeders you can get a hold of, they've been a little easier whenever everyone's feeding heifers because they don't have anything to put them out on pasture for.

Matthew Bennett:  But feeder market, I don't see taking any sort of a haircut any time soon. I think feeders will stay pretty strong and even if you see a little bit of a dip in the board, good luck finding a bargain as far as cash trade goes.

Paul Yeager:  We talked about exports of grain. Is that the story in hogs?

Matthew Bennett:  Pretty much. Hogs can't get a friend right now. They're just rough. I mean, you're having a tough time. If you could see exports pick up significantly, I think maybe you could get a little bit of life back in this hog market. But for right now, it looks pretty rough.

Paul Yeager:  Do you have a reason to hold any or do you got to make a sale right now if you're in hogs before it goes lower?

Matthew Bennett:  I mean, in all honesty, I don't know that I'm in a huge hurry. You know, I don't know that you're going to go drastically lower. We've already taken a pretty good hit, but at the same time, there's still folks making some money in here. I know it’s pretty, pretty lean for your independent hog producers, but there's not a ton of them out there, you know, and so it's a little bit different subject.

Paul Yeager:  We'll have a ton of time in Market Plus. How about that?

Matthew Bennett:  Absolutely.

Paul Yeager:  Thanks, Matt. Appreciate it. Matthew Bennett, everybody. We’re going to put a pause on this analysis, continue our discussion about these markets and your questions in our Market Plus segment. Find that on our website of markettomarket.org. Yes, we want to hear from you. You have an open invitation to drop us an email any time markettomarket@iowapbs.org.

Paul Yeager:  Next week we look at a homegrown industry that's at the crossroads of commerce and conservation. Thank you so much for watching and have a great week.

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