Market Analysis with Don Roose

Paul Yeager: Range-bound trade continued as early harvest returns added little doubt to the predicted bounty ahead.  For the week …

The nearby wheat contract lost 26 cents and the December corn contract shed 12 cents. 

China again returned as buyers as export sales helped the soybean complex.

The November soybean contract added six cents while October meal weakened a dollar per ton.

December cotton expanded $3.74 per hundredweight. 

Over in the dairy parlor, October Class Three milk futures sold off nine cents.

The livestock market was higher. October cattle expanded $4.83. October feeders put on $4.77 and the October lean hog contract improved by $3.78. 

In the currency markets, the US dollar index fell 28 ticks. 

October crude oil found $3.20 per barrel. 

COMEX gold added $32.10 per ounce, and the Goldman Sachs Commodity Index increased 10 points to settle at 532 – even.

Joining us now is one of our regular market analysts Don Roose…

Don Roose: Great to be back, Paul.

Paul Yeager: Thank you. We’re not sweating at the Iowa State Fair today. We’re in climate control here. Still hot over this time of year. Is this weather having any impact on maybe spring or winter wheat plantings or anything of that nature in this country?

Don Roose: Well, you know, I think he hit two of the issues for the weather standpoint. And I think 80% of the market is weather. But, you know, for the most part we’ll see how the yields come out. But the, it’s not the finish that you want from a producer standpoint, hot and dry. And then down in the hard red winter wheat area for the wheat plantings. They’re in dry dirt. Same thing in the Black Sea on wheat. So you’ve got two areas we’re watching pretty close. and we’re watching the weather here, the finish to the crop and also watching the weather in South America.

Paul Yeager: You’ve got a geopolitical issue, though, because Russia’s having a bigger crop. Ukraine is not. Ukraine’s in that drought area. What’s that going to do to some of the world dynamics? Is that a little more instability coming to wheat?

Don Roose: Well, you know, estimates on the corn, is about maybe Ukraine has a 50% corn crop. And, you know, really our competition on corn exports really comes down to Ukraine and Brazil. But, you know, the wheat in, you know, talk about the wheat. Russia just continues to keep a thumb on the price. They keep selling the wheat market. You know, down, clearing wheat, I guess is to pay for the war. But, you know, that’s the real issue with the wheat market.

Paul Yeager: With wheat having this, receding this week, this is an opportunity that you need to take advantage of for some sales.

Don Roose: Well, you know, I think when you look in the big picture things, I think you have to say, you know, at harvest time isn’t the best time to be trying to press and sell stocks. seasonally, the wheat market, the old market bottoms the first couple of weeks of September and it looks like, you know, that’s what’s going on at the present time. So, you know, we had a pullback this week. Let’s see if it finds support here. The technicals certainly were weak on Friday across the board.

Paul Yeager: You know we have a question that came in from a viewer. And I’m going to set it up this way. We always talk about government reports USDA reports. But it’s really the Fed that had an impact on agriculture and inflation. Here’s what, the question is, Jacob in Minnesota wants to know, Don, why haven’t commodity prices changed with inflation? It always hits everything else in AG.

Don Roose: Well, you know, the big thing that happened, you know, if you look at the, the whole policy, it was the interest rate when they started raising interest rates in 2022, that’s when the dollar, moved higher. That’s when our exports, slowed. And that’s when the fund sold. The market impressed it. You know, basically, for the last two years, two and a half years. So, you know, I think when you look at it from optimistic standpoint, just reverse it. you know, interest rates are going lower. Funds are gradually getting out of their short position. The dollar’s trying to go lower. And so the exports and the demand should pick up. Paul. So the interest rate cycle is changing. And maybe that’s a good thing for the grain market buyers.

Paul Yeager: So we had but we had really good S&P the Dow Jones, the Nasdaq all performed well initially in those first 36 hours after the Fed news. What about the outside money then influence it? It sounds like they’re not selling off in that sector yet to come in and commodities.

Don Roose: Well you know I think the real problem is the, you know, the confidence when the, last month, the, the budget deficit was 380 billion, you know, so there’s just too much government spending so far, Paul. So people are looking at alternatives to, from an inflation standpoint, a dollar standpoint. And so you’re right. I mean the Fed cutting, half a percent really kind of stoked the fire again. And so we’ll see. But in the futures market, you have another half a percent dialed in. You can trade the futures market on interest rates. another half a percent dialed into the end of the year. And from now until March of full another percent. So, you know, it’s a dicey situation going forward.

Paul Yeager: Those are big steps. Let’s talk corn, for a minute. combine starting to roll. Harvest pressure is here. The easy question is, are we low? But what does this early returns and harvest mean to the market?

Don Roose: Well, you know, I think the big thing is we had our harvest, probably are ready with old crop stocks moving pretty aggressively. Producer doesn’t want to sell corner soybeans at these prices. National average on corn, $3.74 producers interested in selling here at these levels. $9.50 on soybeans. So I think it’s just, maybe our seasonal lows are in at these prices fall that December.

Paul Yeager: Corn just hung on to that $4. And it was kind of in that $4 to $4.15 range for really most of the last 2 to 3 weeks on that deferred contract. If we look out on the road here, a little, little better opportunity ahead.

Don Roose: Well, you know, the, you know, we’re down to these little numbers in these pennies now in this market on merchandizing. Paul is not the big dollars that we were talking before, but from, December to July, corn, the producers, choices on marketing are probably, trying to get the carry in the market. The basis an improvement. You have a 36 cent carry from December corn to July. seven months out and eight months out of 57 cent carry in soybeans. So I think the producers going to do the best job he can to use as a storage and, try and get a better way to return.

Paul Yeager: You bullish long term corn, though.

Don Roose: You know, I think you have to say what’s fair market value on the market. And I think what we’ve really learned, lately is, you know, it’s a typical seasonal market. Put your high in the spring lows in the fall, and it appears at around $4 on corn, give or take, $0.10 or $0.20. Is fair market value in the same on soybeans. So, when you look at the demand side of the market, probably continues to improve, Paul, with all these biofuels. So long term, I think you have to be bullish on agriculture, be bullish on the grains, soybeans.

Paul Yeager: A little bit of help on that demand picture comes from China this week showing back up in the market, and is actually showing up in a couple of other figures. But we’re still stuck in a range.

Don Roose: We’re stuck in a range because it’s harvest time and we haven’t really sorted out with the producers going to be aggressive, sell or not. But you know, you’re right. The supporting the maker underneath the market China buying. And we’re in extreme drought in the northern central and northern Brazil. some of the driest areas in there in 40 years. So it’s something that needs to improve. And I think when South America raises twice as many soybeans as we do in the US, the weather is going to be the focal point going forward.

Paul Yeager: I don’t mean to be so prickly with you tonight, but it’s normally dry this time of year in Brazil. Why is this any different?

Don Roose: Well, you’re exactly right. I mean, because usually what you’re alluding to is the monsoons usually come at us. The first couple of weeks of October, they wait for the rains, then they start planting. So nothing yet. I think the other thing is maybe that does. Maybe that doesn’t happen, but it’s also a La Nina year, and the La Nina is gaining strength. And that means you flip around that north goes, normal in southern Brazil and Argentina go into the dry drought pattern. So I think it’s the fact that there’s a lot of unknowns in the weather.

Paul Yeager: You said he were bullish on agriculture in general. Does soybeans get to be included in your long term view of how you how you see soybeans?

Don Roose: Well, look at the soybean markets, not only us. It’s around the world. It’s the biodiesel. We’ve got three new plants coming on in the fourth quarter, crushing soybeans, big demand. there you’ve got, countries like, Indonesia on their palm oil. They’re looking to maybe use 50% of their gasoline, infused with or, diesel with biodiesel. So, you know, I think it’s the energy. and that’s the big one on corn. Look at corn. 40% of the corn roughly goes into ethanol.

Paul Yeager: Cotton real quick. There was a storm last week. Not this week. Is there something else at play besides weather here in the US in that market?

Don Roose: Well, if you look at the cotton charts, I mean, we’ve had a big rounded bottom on, on the, since mid-summer on cotton. So much like the grains we hit kind of a fair market by value. Got some buying in because of the rain and the bulls, you know, that were open in some issues. And the question mark, is China going to, pick up the demand as their economy continues to improve?

Paul Yeager: We think live cattle appeared to be through with their paws as they marched higher. Is that going to continue?

Don Roose: Well, the cattle market rally. You’re right. The futures rallied $8 to $10. You know, the big issue with the cattle market is the weights. The weights are sitting right at all time records, you know, cheap grain, cheap prices. So I think the bigger weights kind of an anchor here. But the government says 191 for a cash prize for all of next year, if you believe that too low out in the, in the distant months, hunting cattle pull.

Paul Yeager: Cattle on feed came out just before we rolled today. What was in that report?

Don Roose: Well, we went into it a big rally on the cattle like we just talked about, but, the total cattle on feeds slightly higher, slightly higher than the trade thought up. maybe a one half a percent, placements, you know, bigger than they thought in the marketing’s a little bit lower. I always say those numbers by on surface are a little bit negative, but a lot of it is probably dialed in. And I think it’s just the big pump that we got on the cash at the end of the week here. They gave us the strength.

Paul Yeager: The cash trade, not the cash from the government. Sorry. I just wanna make sure it’s like we’ve been talking a lot of those things. do you, I, I guess I’ll stick with the theme of the night optimism for cattle. I mean, we’ve been a really good levels here for cattle and for feeders. I ask this all the time. This can’t keep going, can it?

Don Roose: Well, the numbers aren’t there. I mean, the placement numbers are close to a five year low. you know, the government next year has had total production down 4.5%, hogs up 1 to 1.6%. But you know, you’re right. The issue with all these meat markets is cheaper grains mean cheaper livestock. Just because, like we said, you put more weights on, you go to work and have imports from Canada, from Mexico. You know, you bring more meat in from Uruguay. So you plug some of these areas, you know, some of our tight numbers with world supplies.

Paul Yeager: Hog market reversed and, and moves higher this week there’s been this story of exports. Is that what you think the story is?

Don Roose: Well I think if you look at it I mean China was the one that really started putting some real pressure on our hog market. And, you know what, China’s hogs are up over 40% this year, so that’s a big plus. It tells us our industry, but the futures market have pushed up here kind of at some tough levels. You know, seasonals are still positive on cattle and hogs. But, you know, I think when you look at the hog market overall, it probably is going to be one that, you know, summer months look like, you know, we’ve got some decent prices here. The weights are the issue there again, Paul. I mean, the weights account for about another 100,000 head of hogs, a week, you know, 20,000 head on cattle. So it’s the weights that are putting more tonnage in this meat market.

Paul Yeager: You’ve been talking to my doctor again about the weights. when? Let’s look at crude for a moment. And the dollar, crude puts on $3 this week. Plus the dollar weakens. There’s an election campaign. I mean, we got a lot of stuff on the outside markets influencing the commodities. What’s the one thing the producers should be looking at the most right now on some of those outside things?

Don Roose: Well, I think probably the biggest thing for the producer is what’s going to happen with the US dollar. And what’s going to happen with interest rates. Is the government really going to continue this interest rate, cycle that is much lower. Like we said, interest rates out into March are already dialed in. You know, a 3.25% interest rate, three and a half, versus where we were five and a quarter, five and a half before this cut. So interest rates a big factor for, for the producer and then the dollar from a demand standpoint, as we watch inflation, we know inflation’s just killed everybody.

Paul Yeager: It has and continues to be I guess pinned down in 10 seconds. Which one of those do you think is the biggest story we need to watch?

Don Roose: I think the biggest story is probably the interest rates, because that’s the thing that can affect the bottom line the most short-term.

Paul Yeager: All right. Don Roose, good to see you again. Thank you.

Don Roose: Thank you Paul.

Paul Yeager: All right. That’s Don Roose, everyone. Next week or first we’re going to pause the analysis, continue our discussion on these markets in our market. Plus you can find both analysis and plus on our website of market to market.org. As harvest 24 gets going be sure to tag us in any of your images on Instagram. You can also see what we are posting at Market to Market Show. Next week, we’ll look at the shrinking options for health care in rural America. Thank you so much for watching. Have a great week.

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