Market Analysis with Jeff French

USDA reported higher numbers for domestic and world stocks of corn while wheat stocks were left unchanged as the world waits to see if Russia will extend the soon to expire Black Sea Grain Export Corridor Pact.

For the week, the nearby wheat contract dropped 30 cents, while the May corn contract lost 23 cents. A large Brazilian crop hangs over the soy complex as Argentina’s estimated crop size was lowered again. The May soybean contract was off 12 cents, while the May meal contract added $4.60 per ton. May cotton shed $5.99 per hundredweight. Over in the dairy parlor, April Class three milk futures added 13 cents. The livestock market was mixed as April cattle cut $1.15. April feeders put on $1.62. And the April lean hog contract improved $2.90. In the currency markets, the US dollar index lost 38 ticks. April crude oil declined $3.15 per barrel. COMEX gold went higher by $9.20 per ounce. And the Goldman Sachs Commodity Index fell nearly 14 points to settle at 572.60.

Yeager: Joining us now is regular market analyst, Jeff French. Hey Jeff.

French: Paul, great to be here.

Yeager: This wheat thing. We keep talking about Russia. They're not extending that pact. No talks to have it going on soon. That's the world story. Then we get moisture domestically here in the United States. Then you get rain in Europe. But are we still oversold?

French: We've been oversold. The wheat market has been down 16 out of the last 20 days. The momentum is definitely lower. Now, we did close pretty good there on Friday but most likely that is profit taking. All indications look like it's going to go lower. But wheat will be the hot topic next week with March 18th coming up next week.

Yeager: So, do you buy that -- are the dog days behind us then given what you're kind of indicating?

French: I'm going to wait until after those negotiations are done. But it would not surprise me if the funds sell this thing because they are short about 100,000 to 120,000 contracts. So they want it to go lower. That is their bet. It would not surprise me if they sell this thing right into the negotiations, get all this bearish material out of it, the deal is signed and then we're kind of done going down because if they don't get a deal done you're taking about 3 million metric tons of grain per month off the world market. So, the wheat market down here selling this thing into 10 year low open interest. This is a place where if you're short wheat there can be some big time rallies very quickly. So, the market can be thin down here. I'd be very cautious being short down here.

Yeager: Okay. Range wise on we'll say the July contract of wheat, new crop, what is a range on that thing given the parameters of what you just said? Do we have more room to go low?

French: Well, I mean, yes we do long-term. If you look at historically the price of wheat at $7.80 or $8 depending on which contract you're looking at, that is still a pretty decent price, especially with condition of the Chicago wheat, the soft red wheat conditions coming out of this winter, coming out of dormancy are very, very good. So, the prospects of having higher stocks there, improving hard wheat conditions. Oklahoma improved, Kansas, parts of Kansas have improved, North Kansas has improved, East Kansas has improved. And then you've got the Russian ag minister coming out here this week saying, we're going to have 30 million metric tons of carryover from exports last year that weren't able to get sold.

Yeager: All right, you mentioned open contracts. There is a story developing in corn, the converse, a bunch of people coming into the market. You asked it so I'm going to ask you the question. Are they smart or not so smart for entering this corn market right now?

French: I'd be very cautious. And what you're talking about is on the big down day on Thursday we were down nearly 20 cents. The open interest in corn gained 27,000 contracts. That was after already the corn had sold off 50 cents a bushel. So, to me that would signal probably that was kind of everybody throwing in the towel. The smart money sold at 50 cents a go before the break. So, as long as May can hold this $6.10, $6.00 mark I think we could be putting a bottom here new crop at $5.50. We can hold $5.50 for a couple of days. But I want to see how it acts here next week before I enter the long side on the corn.

Yeager: 37 questions about lower corn but we just picked one. Let's go with Ryan in Lenox here because, Jeff, he's top of mind with many. He's asking, what is actually pulling corn down a dollar? Is this drop short lived and a large jump in price coming in the near future? So you kind of say it's coming. So define for me near future.

French: Well, I think you have to look at what happened here this week. It wasn't mainly fundamentals. Some of it was because of the decrease in exports, which increased the corn carryout. But the stock market was down 1,400 points this week. There was bigger things going on. The second biggest bank failure ever in the history of the United States happened this week. So there were outside markets that were collapsing, big selloffs, I think it spilled over. But you look at the wheat, the wheat has been $1.30 in the last three weeks. That has definitely affected the corn price.

Yeager: Let's go to beans. We'll get to new crop in a minute. But we have the lowered size in Argentina, the Brazil crop hanging over this market. In the near-term for someone with beans waiting to go somewhere, did I miss my chance to make a good price, get a good price?

French: $15 beans, I'll never tell anybody not to sell $15 beans. That is a very good price. But you look at the last three months, the beans have been a very tradeable market. The low side support $14.80, the high side where it is resistance $15.40 to $15.50 because every time we get a big rally the Brazilians come in and start selling. They are only about 35% sold. They are estimated at the end of this week 60% harvested. So, they have a big crop coming. They have plenty of beans left to sell. That is why you see when we go up to $15.50 we fail. But then all of a sudden we get back down to $14.80, the selling dries up and we kind of come back. What I want to see is when we break out of that support or the resistance where we go from there.

Yeager: So yeah, you're giving me a $15.50 to $14.80 range of sorts and that is where something goes either way --

French: Goes below there, sell it. If it goes above there, buy it.

Yeager: All right, fair enough. Let's talk about that new crop. We're still $1.30 higher than we were on that July low. There's this hesitancy and there's ben these big discrepancies I should say between new and old crop. What is that still holding in beans to be true?

French: Well, we just touched on it with the big Brazilian crop. But the new crop beans has to hold in there to gain acres and keep their acres. It was kind of a heavier year up here in the I states for beans last year, so normal rotation is going to be maybe a little bit heavier corn, corn probably right now economically favors a little bit more acres. So, I just look at we're kind of in this trading range, if we get below $13.30 in November you probably make some sales. But with your basis you're probably still selling $13 beans off the combine. Don't get carried away but that's a money maker and if it's a money maker I have no problem selling it.

Yeager: Can't lose money taking a profit is the old term. Livestock wise, buy signal on for these folks who are feeding cattle or still have some fats?

French: If you look at the feeder cattle they are the exact opposite of the wheat. They have been up 16 out of the last 20 days, essentially the last month. They are overbought. It's overdone. The funds have just piled into the --

Yeager: In feeders you're saying?

French: Yes, in feeders. But we had the big break in corn and feeders took off with that, which is natural. So we'll see what happens here. The fat cattle, I'm as bullish as everyone out there on the fat cattle except for the fact of what is going to happen here with the economy. So, you have the April of '24, 2024 contract, making new all-time highs here this week at the Board of Trade up above $174. So you're looking at over a year of protection. You can buy $170 puts for $4.50 a hundred. You can lock in $170 fat cattle for over a year. I'd take advantage of that.

Yeager: Yeah, you're saying that sounds like a good idea.

French: Well, you keep your upside open while locking in the downside to the board at $170 for the next year and three months. So, yeah, it's a good deal.

Yeager: So, this would be more of a Market Plus type question, but I guess I'll ask. Anything other than live cattle on '24 that you're interested in exploring right now? Corn? Wheat? Soybeans?

French: It has been brought up a lot on the corn, but the corn is not nearly as high priced as the '23. I don't really like selling too much out there. But if you want to sell 10%. But it's not on my radar right now.

Yeager: On any of the grains?

French: Yeah, not right now.

Yeager: Okay. Hog wise, do you see that demand story picking up? Is there another story that is picking up any steam to this market as we kind of wallow around here the last couple of months?

French: Demand has been very good. I think the hogs, I think we closed at a three week high here on Friday. It looks like we could run this thing another $3 or $4 pretty easily. The hogs have benefited from all-time high cattle prices. They can't get too far away from those cattle prices. The hog numbers are very similar to last year. I'm not too terribly bullish or bearish either way. Europe I am watching the African swine fever. That is there, keeps rearing its head. They eat a lot of pork. So, if that continues we could maybe pick up some export business there. China's sow herd is still out of whack, too many sows. But pretty neutral to hogs here right now.

Yeager: Do you see any comparison, it is always beef that gets talked about with inflationary issues, economic issues. At what point does the hog enter that discussion and get talked about on the same way?

French: I thought it would have happened already truly with the high prices of beef. But you see what the consumer is doing. They're not balking at these prices. Beef demand is still off the charts.

Yeager: Everybody likes beef, although box was maybe lower this week I think.

French: Yeah, historically seasonally March is your weakest demand month for beef. So, a little pullback there is not necessarily too surprising.

Yeager: Like I said, we answered one corn question. I have 36 more to go in Market Plus. We'll get them to you then. Thanks, Jeff.

French: Thank you, Paul.

Yeager: All right, that's Jeff French. And we're going to put a pause on this analysis, continue our discussion about these markets in our Market Plus segment. You can find both of them on our website of markettomarket.org. For those of you watching us over traditional television or via the web, this is the final week of our annual pledge drive. If you believe in this service that you have trusted for nearly five decades, consider investing in your local public television stations to keep programs like this one in production. We continue to thank you for your support. Next week, we are going to look at how oyster farmers are making a profit while cleaning up the environment. Thank you so much for watching. Have a great week.

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