Market Analysis with Kristi Van Ahn-Kjeseth

The Black Sea Region talks were back to making waves in the grain trade while technicals came back into play. For the holiday-shortened trade week, the nearby wheat contract fell 2 cents, while September corn lost 4 cents. Some profit taking entered the fray left over from last week’s USDA report as the August soybean contract shed 14 cents, while August meal subtracted $11.10 per ton. December cotton expanded 80 cents per hundredweight. Over in the dairy parlor, August Class Three milk futures decreased 39 cents. The livestock market was mixed. August cattle cut 18 cents. August feeders shed $2.15. And the August lean hog contract improved $2.55. In the currency markets, the US dollar index lost 63 ticks. August crude oil gained $3.02 per barrel. COMEX gold expanded $4.80 per ounce. And the Goldman Sachs Commodity Index strengthened more than 9 points to settle at 550.35.

Yeager: Joining us now is a new face to the program, market analyst, Kristi Van Ahn-Kjeseth. Kristi, good to have you here.

Van Ahn-Kjeseth: It's awesome, it's great. Thank you.

Yeager: Let's start with wheat.

Van Ahn-Kjeseth: Yeah, great.

Yeager: Black Sea region, we hear about this discussion, it's on, it's off. At what point do we stop talking about that as the main story in the wheat complex?

Van Ahn-Kjeseth: Yeah, I think people still want to talk about it. You saw wheat up 50 at one point during the week and gave back those gains. When you look at kind of the dynamic of wheat right now it's a tight carryout. Domestically, worldwide we know that there's some issues there. And so, I think people want to still keep it part of the situation, but in the long run we need to, over in the U.S., see demand start to pop up.

Yeager: Well, like Mike just said in the story from Oklahoma, it rained in that area, but they're not planting wheat now, they're harvesting it. What is harvest telling you and harvest pressure? You mentioned a tight carryout. Is that part of the story?

Van Ahn-Kjeseth: Yeah, I think you can. You look at where we are, even stocks report here at the end of June we got a very tight number. That is going to be your final carryout number here for wheat for old crop. And so, we know that we're working with less wheat than we anticipated. And so, there is a tighter situation. You look at kind of spring wheat, when you look at where it was in North Dakota, there was a lot of people saying lack of moisture, the heat, it was causing it to form that extra head and come in here and you were worried about what you're going to have for yield. They got the rain and I think that might help them fill it out. But they're still looking at a crop that they aren't expecting to see a lot. Later in the month we'll get a quality crop tour. That will give us an idea where spring wheat is. But overall, we definitely have a much smaller crop than we've had and it continues to kind of get smaller and smaller. The issue is, it doesn't matter if we have a small crop if the demand is not around. And I think that is where you start to have those issues. Do you have the Black Sea deal or not? And if we do have it, we kind of just keep kicking the can down the road that okay, we have a tight carryout, but it doesn't matter because we have this deal.

Yeager: Well, demand has been the story of the corn market. It seems to be there's not that demand. And then you have the added extra weight of acres and last week the market fell out of bed. It still seems like it's on the floor. Is it the floor? Can this thing go lower in corn?

Van Ahn-Kjeseth: Yeah, everyone is going to hate me for this. I am not the biggest fan of corn setup right now when you look at it. I think that you can support corn from now until July 12th. July 12th is going to be a crop report that I feel like can either stabilize this market or really say we're done until we know what yields are. We know that we are dry in so many areas. Back where I'm from it's very, very dry. But we can't materialize what that did to yield quite yet. In the next three to four weeks we're going to start having a more physical idea of what that might have happened and as we progress we'll get more information. But right now, demand is one of those really thorn in corn's side, that any time we're going to have this yield decline I really feel like USDA has the room to take demand off of the table as well giving us net wash. And I felt comfortable with that before the report. But now that we have all those extra acres, it really does make it tight to give us a carryout level that is on the tight situation.

Yeager: Your part of Minnesota hasn't had a lot of rain. When you saw rain when you drove into our studio today you were like, what is this thing? You mentioned that we don't quite know yet. But the market is acting like that crop has all the moisture it needs.

Van Ahn-Kjeseth: Yeah, and I think so. And you look at kind of crop conditions and you look at where we're at, the crop conditions are extremely poor. And we have one year to compare it to and that's 2012. But now we have taken a very different turn than 2012. We're not as hot, we started to get the moisture, the extended forecast looks for more moisture and now we're in this no man's land that is saying, what can we really do with this situation? And we have to remember that we got a whole lot of extra acres and those extra acres, the bigger the acre number the harder it is to get to trendline yield. And so, we know that that should be supportive of yield decline as well along with poor conditions. But I also feel like you can just have that constant offset. When you look at kind of the demand structure between exports, we're just so dismal on exports right now, trying to get that. Our feed use is a very large number as well.

Yeager: Well, you mentioned exports. How about the Black Sea? We asked you about the story in wheat. But let's ask this question from Minda. She wanted to know via Twitter, presuming the grain corridor deal is mostly dead, is the impact on global corn supply material or is that old news?

Van Ahn-Kjeseth: Yeah, I think the biggest story with global corn production right now is coming out of Brazil. They have a very large crop coming. They're harvesting it right now. And we know that China has been very active buyers for soybeans out of Brazil and kind of coming and looking at their corn. And so, yes, you do have some issues that relate back to Russia and Ukraine and the Black Sea deal. But I really think on the bigger picture here when you look at production is the fact that Brazil has a very large crop coming and they are a lot cheaper than us.

Yeager: The story in soybeans is a little bit about Brazil. But, was this week mostly on technical on this correction?

Van Ahn-Kjeseth: Yeah, I think so. I mean, any time you're getting rain during this season it's going to tamper a bull relationship. So, we're starting to get those rains in so many areas, you continue to forecast better chances of precipitation and I also think two weeks ago you were looking at beans and you were saying, man those beans look really rough, and now you're driving around and they're starting to look a lot better. And so, I think even that sentiment of saying hey, these beans are really coming together and I'm driving down here and our beans don't look great. It took them a long time to get out. We were so dry for so long. In fact, if you planted them in corn stubble it was like three weeks that they sat in there and didn't do anything. They're starting to come along. But as soon as I kind of crossed the Minnesota/Iowa border I'm looking around and I'm like, dang these beans look really good. And I think that plays into that role too. And so, when you start to have that sentiment and you come in and you bring it into a chart, you did have negative divergence on a chart. When you start to look at you made a higher high, but the momentum wasn't there. And I think those are the type of things that bring out those outside sellers. You also have a sentiment that's not all that friendly when it comes to China. And any time you start to talk about poor relationships with China, people want to sell beans.

Yeager: Well, and that's the story. Secretary Yellen is in China again, not talking about decoupling, they're parsing words, we saw Blinken there, the Secretary of State, recently. That is a fragile relationship. But back domestically here when you mention new crop, is there a target that we need to be watching before July 12th? Or is there a date? Put those two moving things together for me.

Van Ahn-Kjeseth: Yeah, when you look at the difference, obviously you have corn here and beans here and they're so different. And so, I think that the 12th is going to be an interesting report to see how can USDA pencil a decent carryout? They're going to have to really work the pencil and figure out a way to keep us at a decent carryout level. And so, you have this domestic story and you have the reason to believe that beans could be very supported for quite some time, especially if we start to see yield decline, which people are expecting us to come and see. We know that crush is very strong. So, you do have that export. We're at a fraction of what we should have booked right now for export sales for new crop. And so, we know all of those things, but I think when you look at beans there's enough friendly information on the table. I think also something that probably brought sellers out to this is the relationship between corn and beans is very, very wide. And any time you start to look at that from an investment perspective or a trend perspective, you might have people saying, I'm willing to step into this spread here and be a buyer of corn and a seller of soybeans for the time being to see if that spread itself corrects itself treating them together versus separately.

Yeager: It's not a correction yet in livestock, but live cattle have maybe, are they catching their breath? What are they doing?

Van Ahn-Kjeseth: Yeah, so one of the old sayings, I'm a fundamentalist at heart, that is what I like focusing on. But you have this big world of technical traders now and the old saying is that you should really look at a chart and then not know what you're looking at. And I think that's what you're looking at right now is that when you looked at a chart on live cattle it was a good sell on the technical side of things. So, I think you got that kind of rebound. Talking about spread trading between corn and soybeans, you can look at that trade between cattle and hogs and fixing that relationship to a degree. So, I really think when you look at that it was more technical than anything, fundamentally still very strong when you look at the numbers and the situations. And the you had that little bit of a pullback on cash and I think that justified your technical pullback too.

Yeager: Well, in feeders is that, has the lower corn been an opportunity? That's the fundamental side I'm guessing.

Van Ahn-Kjeseth: Right, yeah, and it really was that -- so you started to see feeder cattle have that little bit of a pullback and then corn just dropped obviously like a rock. And I think that gave feeder cattle that one big bounce back and now you're at these high levels that you're saying, hey, let's let it be and let's see if we get that pullback.

Yeager: What do you like for a range here? I was just looking at that chart. It looks like a technical wave 2 I guess is what you would say. Do you like that thing higher or lower right now?

Van Ahn-Kjeseth: Yeah, honestly I think now at this point feeder cattle is based off of corn and so this is going to be an interesting week coming forward with where we see USDA come and what we can do. Can we stabilize corn at this $4.85 low and see us get a little bit of a bounce back? And I think right now feeders are waiting to see how corn trades before it really decides which way it wants to go for the time being.

Yeager: We talked about China. Is that the story in the hog market? It's always an easy question for me because it usually is. Is that the story this week?

Van Ahn-Kjeseth: I think you look at hogs and you can see that numbers are down. I think you can see that cash has been supported. I think that when you look at it you know that the weights aren't there right now. And I think that you see how far cattle have rallied. And I think that is where you're seeing this big push into the hog market is those factors. I think that you can look at China, you can look at exports, exports are very, very strong. But at some point you're going to be looking at a consumer saying okay, I've always picked beef, but when there's that big of a difference am I going to start leaning towards a little bit more pork in my diet?

Yeager: So, you see the consumer becoming a bigger story in the hog market than the beef market right now?

Van Ahn-Kjeseth: Yeah, I think that the way everything is going I think they're going to be strong regardless. But I think that initially will start to play a role in things to see people choose pork a little bit more often. It's not so much that I think they're going to necessarily step completely away from beef. You don't see that happening right now. But I think you could see them start to come and pick that up and close the gap.

Yeager: You're done. You made it. You all right?

Van Ahn-Kjeseth: Yeah.

Yeager: First segment in. Thank you, Kristi. We'll learn a little bit more about you in Market Plus. You get to do this for another 10, 12 minutes. Are you ready for that?

Van Ahn-Kjeseth: Perfect, so ready.

Yeager: All right, thank you very much, Kristi. That is going to have us put a pause on our Analysis. We're going to continue our discussion, as I said, in our Market Plus segment. You can find both Analysis and Plus on our website, which is easy to find, it's MarketToMarket.org. All of these resources that I have just talked about, they are free. You know what also is? So is our YouTube page. It's the place to find our full program, Market Plus and the stories that we feature each week. Subscribe to our feed at youtube.com/MarketToMarket. Next week, we look at the one stop shopping for the overall health of your operation. Thank you so much for watching and have a great week.

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