Market Analysis: Matt Bennett

The wheat crop tour and stubborn weather patterns helped push the direction of the trade. For the week, the nearby wheat contract fell 9 cents, while July corn lost 3 cents. More acres may switch back to soybeans as planting delays play out in northern regions. The nearby contract improved 59 cents. July meal added $20.60 per ton. July cotton decreased $2.93 per hundredweight. Over in the dairy parlor, June Class III milk futures gained by 31 cents. The livestock sector was mixed. June cattle cut 50 cents. August feeders shed $4.10. And the June lean hog contract expanded by $8.13. In the currency markets, the U.S. Dollar index declined by 146 ticks. June crude oil strengthened $2.35 per barrel. COMEX Gold increased $34.70 per ounce. And the Goldman Sachs Commodity Index went up more than six points to finish at 765.85.

Yeager: Joining us now to provide some insight is Matthew Bennett. Welcome back, Matt. I got distracted reading those numbers because I was thinking about the dollar and the dollar weakened. The crop tour said we're going to have a decent wheat crop. It rained but then it didn't rain. There was a whole lot of stuff going on in that wheat market. What is the biggest factor in your eyes?

Bennett: The interesting thing, the wheat market going into Wednesday's trade we were up over $2 for the month and then all of a sudden we kind of ran into a brick wall and head back the other way. In my opinion, the wheat numbers came in a little better than what some folks thought that they might. I think the verdict is still out though. We're certainly going to need good weather from this point on forward because you hear a lot of folks out there saying hey, no amount of rain is going to help us at this point. That's not everybody and we certainly hope that they see a decent wheat crop. But at the same time I'm not totally sold on it just yet, first of all. The dollar, the interesting thing about the dollar is a lot of folks are saying hey, when the dollar dropped back big time this week why didn't commodities rally? But if we remember, while the dollar was rallying, everything else was rallying along with it which isn't common. And so it's a very interesting dynamic that we've seen. So we can't just say just because the dollar breaks all commodities are going to rally, although I've got to think that will happen. There's no givens in this market right now.

Yeager: When you look at the different contracts of wheat, you look at the spring wheat versus the winter and again that stark contrast of things. Is there anything that one can glean from looking at the overall picture in trying to make a position? Let's talk about a deferred contract here.

Bennett: Well, I think whenever I look at for instance Minneapolis wheat, what is going to happen there in my opinion is there's some folks that might step in and plant more wheat. We're hearing that over the last couple of days that actually there's a lot of talk of well people are going to plant more soybeans in the Upper Midwest and I understand that but with the last couple of days I've heard some people say actually hold on, maybe there's going to be some spring wheat that is going to come back into the mix, maybe we're going to plant all the spring wheat we thought we were going to originally. Obviously the price has tried to incur that.

Yeager: So are you saying that in the Minneapolis wheat areas where they might switch?

Bennett: We've heard that in North Dakota and into Minnesota as well. So the bottom line for me is that I don't think that it's a conclusion yet that that spring wheat is going to be way down on acreage. I don't think that's going to be the case if what we're hearing over the last couple three days is correct.

Yeager: All right, so in corn, I don't know how many pictures you've seen on Twitter of someone who hasn't turned a wheel this spring. The institution of higher learning not too terribly far from you, University of Illinois, has done some more research saying yeah, we're flipping off of corn. Is that the reason for a rally or a selloff this week?

Bennett: The corn market, first of all, as far as plantings are concerned we know that we got off to a late start but then once we got in the field here over the last week to two weeks I think planters have been rolling big guns, it's a big reason why this corn market has started to pump their brakes just a little bit. So what the university is putting out is really good information, there's no question that you get into May 20th and after, you get into the 1st of June and after, there's no doubt that historically you see a yield drag. Now, we are planting better genetics every year. That's no secret. 2019 though I think we severely overestimated what that crop was, a lot of folks said these genetics will be able to handle it. This is going to be an interesting year this year. But I do think, Paul, whenever you come in on Monday you're going to see good progress once again. Again, I think that is a big reason why this corn market has just kind of chopping right now and I think you'll see a little more chop to come. But I certainly don't think that it's going to drop to a large fashion. I think if you get Dec corn down in that $7 level I've got to think there’s a fair amount of folks that are going to be stepping in and buying it with both hands.

Yeager: We were over $8 -- I kind of skipped over the July contract, I'm sorry -- if you saw anything less did you miss your window to sell since we were over $8 earlier in the week?

Bennett: That's a very interesting question. We actually saw some $8.50 cash corn this week. I talked to a couple three producers, they could have delivered it direct into one of the big terminals, said well we're busy doing something right now, my dad was one of those, and so he said if I get a little bit less than this it's not the end of the world, it's still an awfully good price. And so there's still a lot of folks doing stuff. I think that's part of the reason why the cash market was so strong. Interestingly, you take the corn market down 20 cents and then all of a sudden the basis pops. And then here just yesterday a couple of these larger processors once again opened up June contracts. So don't tell me that they're not looking for corn. If we drop still more, it's always a possibility, I've got to think basis is going to stay fairly strong. Origination for corn, there's a lot of folks that are very concerned at this point and I've got to think that cash corn is still going to be a pretty good commodity. But I'm not so sure it's going to be as hot as what cash beans are going to be.

Yeager: Well, beans, okay they've been so tied to each other, a lot of the same factors at this time of year. Now, take out the word large processors, insert the word China is who kind of changed the market in soybeans later in the week, right?

Bennett: Yeah, whenever they come in and buy beans there's no question. And then you see exports, we've got more export sales than what we needed to keep pace with the USDA goal. But we typically end up rolling anywhere from 50, 60, 70 million bushels of beans into the next marketing year, we understand that. But we're going to get ourselves in a situation where we're going to go above and beyond that as well it sure appears. And so there's no doubt that the Chinese COVID concerns and what not, all of a sudden they're still buying soybeans, to me it's a really good indication. Crush margins are good. I think it's going to be really hard to come up with old crop beans over the next three months. And I tell you what, I think this cash market could be on fire.

Yeager: So what do I do to prepare for that?

Bennett: Well, do you have any beans? You talk to people and there's not very many beans out there. That's what I'm getting at. So I've had a lot of folks call me and say, I've got a bin full of beans. I'm like, congratulations, the first thing I say. But second of all, you stop and think about it, I want to go ahead and kind of see how this thing plays out. Here's the thing, if the market drops $2 you've still got $15 beans. Go back to two years and we were selling them for $8. And so you've got to keep things in perspective here. I'm okay with you kind of waiting around to see what might happen here. I say get down to gambling bushels. But quite frankly up here I'm okay with you rolling the dice but know what your give up point is if the market does start into some sort of a freefall because there is certainly concern that if this economy would collapse, and a lot of folks have talked about that here lately, that the ramifications could be quite large over a large variety of markets.

Yeager: Well, one of the factors is a question that we want to get into from Glen in Ohio. He asked you on Twitter, Matt, he said, will projected higher interest rates and a strong dollar be the catalyst the establishes clear resistance and support levels on the charts for all commodities until final production numbers are established after the harvest?

Bennett: Well, there's a lot going on with that question, first of all, and it is projected higher interest rates and can we actually go up the way some of these folks have said the fed has indicated that they might go up. With the kind of debt that we have at this stage of the game I think it would be very hard to go up rapidly like we saw for instance in the 80s. But the other part of that question, it's after harvest. Once you figure out what the crop size is and unfortunately that's not always the case. That would be a beautiful thing if that's what we could bank on but quite frankly the market is a futures market and there's a lot of folks that are going to be out here trying to figure out where are we going to be later on. Now, let's say we plant 92 million acres of beans, Paul. If we do and the bean crop looks really good and I do think that some of the early ratings for both corn and beans are going to come out pretty strong. A lot of folks are saying hey, things actually look pretty good. We popped out of the ground just like that, right? So when that's the case most of your producers are going to tell you the same thing I'll tell you, I would much rather have my corn go in the ground a couple of weeks later and pop right out of the ground than wait for three weeks to see it come up. And so I do think your ratings will be good. If your ratings are good with 92 million acres of beans potentially then all of a sudden people are going to start saying, well maybe I need to back off just a little bit on my huge projections.

Yeager: We'll discuss your windshield tour in Market Plus, so stay tuned for that after this. Let’s flip to livestock. Cattle on feed came out this afternoon before we taped. You had a good word for the -- you can say it on television I think.

Bennett: I don't remember which one it was. It's a bad deal in my opinion. Obviously the thing about this cattle situation, we didn't need bad news today. It's been rough here. But the thing is that demand is still pretty strong and so some of these folks have been buying fats in the mid-140s, you don't see that on the board. You've been hearing about feeders being sold for $200 in some places and you don't see that on the board by any means. And so the cash market is still pretty strong but you've got to think that 99% placements are not going to be friendly to the market, at least to start the week. Are we going to find some sort of a bottom in here? My thought process is that we will. But I am more friendly when you get farther out into the year. Fourth quarter, especially into the first quarter of next year I do think that your numbers are going to be low enough because we pulled a lot of these cattle forward, I've got to think that you're going to see much higher prices for fats whenever you get six to nine months away from here.

Yeager: You mentioned 99% placed in April, marketed in April was 98 but the on-feed was 102%. where are they coming from?

Bennett: That's a really good question. The thing is I think that you're feeding a lot of animals, you're feeding some cows, there's a lot of folks that are trying to figure out how am I going to be able to get some of these off of feed here pretty soon because you're running out of corn that you've already had on hand, if you're going to be buying $8 corn I think you'll be okay marketing at $13.50 instead of pushing to 1500 with some of these guys. I know I heard about some folks selling some for 14 weight cattle this week and got $142 earlier in the week. That's a pretty good price yet. But they typically feed them to an even higher weight than that. So what are they going to do? I think that they're going to go ahead and get them off hand as quickly as they can just because the cost of feeding them is so high.

Yeager: Hog market up almost, more than $8 this week. Talk about a market with a bunch of lives.

Bennett: The hog market was sold off absolutely with reckless abandon. The funds dumped hogs. We went under all support levels and basically a V bottom come flying back out of it this week and then you run back up $108, $107, $109 levels. To me it's a pretty healthy rally. But are we going to get back to the $120 level? Personal opinion is no. Anything is possible and I would tell you that if I tried to make a living trading hogs I probably wouldn't do so hot. But bottom line for me is that when we were at $120 last time we were here I think a couple of us both agreed it's too rich and we didn't want to buy them at that level. I think you hang out here, maybe get into the low 1-teens, that's about as far as I would take this hog market right now.

Yeager: All right, Mr. Bennett, thank you sir, appreciate it.

Bennett: Absolutely.

Yeager: We will keep talking to Matt. We have a whole line of your questions that have come in via Facebook and Twitter. But that is going to do it right now for this installment of Market to Market. We're going to keep going in Market Plus so join us there. Find that free on our website of MarketToMarket.org. Podcasts make the perfect companion in the cab, vehicle or at chore time. Download and go with any of our three offerings including the M-to-M. Check where you get podcasts to also download our Market Analysis, which we just finished, or Market Plus, which we're just about to do. Next week, we look at the costs after the flood is gone. Thank you for watching. Have a great week.

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