Market Analysis with Don Roose

Massive selloffs dominated the early portion of the week as South American weather stayed on an ideal course for growing a large crop. For the week, the nearby wheat contract lost 19 cents and the March corn contract gained 4 cents. New contract lows were made in the soy complex with a bountiful crop growing in Brazil. The January soybean contract fell 14 cents while January meal added $8.30 per ton. March cotton contracted $1.21 per hundredweight. Over in the dairy parlor, January Class Three milk futures lost 29 cents. The livestock market was mixed. February cattle shed $3.63. January feeders cut $2.05. And the February lean hog contract put on 33 cents. In the currency markets, the US dollar index went up 70 ticks. January crude oil dropped $1.33 per barrel. COMEX gold shed $27.20 per ounce. And the Goldman Sachs Commodity Index moved almost 8 points lower to settle at 536.35.

[Yeager] Joining us now is one of our regular Market Analysts, Don Roose. Hi, Don.

[Roose] Glad to be back, Paul.

[Yeager] Merry Christmas to you.

[Roose] Merry Christmas to you.

[Yeager] You are in a festive mood but the unfortunate thing is these commodities don’t feel like cooperating with the celebration. The dollar has been at very, very high levels causing a lot of headwinds. Is wheat impacted the most by the strong dollar right now?

[Roose] Well, you’re exactly right, you bring up the dollar. November 22nd is the last time we were at these of ’22. So, it’s been a long time. But the wheat market just has its own problems and that is the fact that Russia first was selling wheat below the world market for dollars so they could fight the war. Then Argentina starts harvesting wheat and they were selling even lower. So, the wheat market ended the week in contract lows on Chicago. The U.S. market is very competitive but I think we’re trying to find a level where we can start to pick up the demand side before we get into Russia, which their ending stocks are down 25% versus a year ago.

[Yeager] Well, does that give you pause, not pause, cause for celebration almost because at some point, they’re going to run out and the U.S. is going to be the one on the market? Is that optimism?

[Roose] Well, I think at these prices that’s what you’re really looking at because Russia is the largest wheat producer single country, they’re the largest exporter and from February to June their export pace is going to be down 500 million bushels. They just don’t have the wheat. So that has been the real supportive thing in the future, Paul.

[Yeager] Are you hearing producers itching to sell right now or are they holding?

[Roose] No, I think the producers at these price levels, if they haven’t sold, they believe that maybe some optimism going forward You look at the war. I think the belief is that Russia, Ukraine was is going to come to an end sooner than later and that is going to add more production and more competition. But that is probably dialed into the market too, Paul.

[Yeager] Corn has been kind of been able to withstand a lot of the shots from other commodities but this week it did kind of respond a lot to that — soybeans impacted everything. But how is corn able to withstand some of these shots and at least not fall off the table?

[Roose] Well, corn is the best of the worst. The December ending stocks are a figure that we can out with was 200 million bushels less so stocks are getting smaller. We’re really the only game in town from an export standpoint until we get to Argentina, which they’re about 70% planted on their corn. They’ll harvest that in let’s just say April, May. So, I think it’s the fact that our producers are holding tight at these price levels, basis levels for spreads levels firm and we’re trying to reach a level that we see a pickup in sales here in the U.S. Our demand standpoint is very strong, export pace about 30% over a year ago.

[Yeager] The last four months $4.60 was the top. Do we get anywhere close to that on this nearby contract?

[Roose] Well, that’s the problem is you get up to this area, 52, 53, too much resistance, too much farmer selling. The farmers do want to move some grain. It’s just a matter of what price level and probably after the first of the year we see something pick up/ And we’ll see, this week Argentina is on the watch list because it did start to turn a little drier there in a weak La Nina year. So, let’s see if that is the start of anything and that would be positive.

[Yeager] Is this farmer selling that you speak of, is it the ’23 crop or is it some ’24 because there was always those stories that there was still a lot of ’23 still around. What are you hearing?

[Roose] Probably if you had too much money you probably still have ’23, Paul. But other than that, I think people are pretty well cleared out and they’re selling the ’24 crop.

[Yeager] On the ’25 crop then, on that December contract when you look at it, is that an opportunity if we are indeed going to plant more corn and put more corn in the bins next year, do you take advantage of something right now in that December ’25 contract?

[Roose] Well, let’s just look at it this way, our ending stocks are very similar to what we had this last year on the ’24-’25 crop coming forward. Last year we went to $3.85 on corn with a dry drought condition in Brazil. So, if you go forward you say, well could December corn go to $3.65 to $3.75? If we get a crop in South America, if we get a crop here, probably. And the corn to bean ratio is the lowest level that it has been in a number of years. So, that means this acre battle is going to pick up soon. I think it probably already has a little bit.

[Yeager] Yeah, you were talking before we rolled about the ratio. So that means that we’re going to plant more corn than beans.

[Roose] Yeah, from a profitability standpoint. The old ratio where you planted beans and corn in that equal mix about 2.4, 2.5 soybeans over corn and it got down to 2.2.

[Yeager] Is that because corn is the best of the worst? Or is it because South America has such a large crop and we’re just not going to mess with that?

[Roose] I think it’s a combination. But South America’s crop, to put it in perspective, Brazil’s crop this year looks like it’s going to be somewhere 350 to 400 million bushels larger than their largest crop ever. Our carryout is 470 million. So, just big numbers coming at us and China has kind of backed away from a buying pattern for all the obvious trade reasons. So, you’ve got a supply problem anchoring us, a demand problem anchoring us. So, we need a weather problem to equal this thing out.

[Yeager] And it doesn’t sound like it’s coming any time soon for Brazil in beans

[Roose] Well, that’s right.

[Yeager] Because it’s almost too late now to have any impact on that crop, right?

[Roose] Yeah, Brazil. Northern Brazil they’re starting harvest the beginning of January. And like we were talking from the north Brazil down to Argentina south, Argentina is still planting their crops. They’ve got 80% beans planted, 70% corn. So that is the big watch. And of course, we know soybeans the last month things can change pretty fast but the weather has got to change. Two-week forecast looks fine in Brazil, a little shaky in Argentina.

[Yeager] So if I’m somebody holding beans or thinking of planting beans right now and I’m having the Christmas conversation around the table with my farmer relatives, what are we talking about with beans? Is there anything positive we have? I don’t hear anything positive yet, Don. Give me something.

[Roose] Well, probably the best thing is we’ve got all the negative news, a lot of negative news dialed in so all that negative news can flip on your pretty darn fast. Our demand can change fast. We had a carryout not that many years ago close to a billion bushels and that went away pretty fast down to 200 million. But it has to come from weather more than anything else or a big increase in biofuel demand. And that’s a slow go.

[Yeager] It’s like you read Phil in Ontario’s question because that’s exactly what he asked. He says, Don, I remember a few years ago soybean stocks were getting to a billion bushels. We’re not halfway there yet. But are we going there? What does this mean for soybean prices now and for new crop?

[Roose] Well, I think most definitely if things don’t change, we’re going to continue to build because the only way we started to reduce the supply was weather problems around the world. And I think biofuel is the big new demand and soy oil number one. And that soy oil is going to have to lead the market to the upside at the expense of soybean meal. But soybean meal had a key reversal to end the week and closed higher. So that is a positive sign but for soybean meal.

[Yeager] And there’s debate about what we’re going to see in a new administration that is going to be positive for say sustainable aviation fuel, for ethanol, and so is that uncertainty or is that just talking points?

[Roose] No, I think it’s very much uncertain, particularly when you talk about you look at the budget problems that we have and they’re saying everybody is going to participate in it, still working on a budget. So, there’s going to be a lot of, if we’re going to get serious about it there’s going to be a lot of cutting. And what does that mean for agriculture?

[Yeager] Briefly on acres, cotton has had not a good week. But do you think that right now — if we do have a government shutdown that could disrupt that January 10, that’s more of a report on the harvest, but soon that all trickles down and we start talking acres and everybody starts speculating, the February Outlook Forum from the USDA. All of those things could be in jeopardy. What does any of the acreage battle mean specifically for cotton, beans, corn and wheat?

[Roose] Well, you’re right, I think if the budget shuts down everything gets pushed out. Our exports weekly we look at, so short-term it’s that, then it’s the January report. What does it mean for the outlook meeting just down the road on it? But when you talk about acres it is interesting because cotton profitability isn’t there. So, the feeling is cotton acres come down, soybean profitability is shaky so those acres come down. Well, where does it go to? Well, wheat is not exactly great. So, you’re searching around. So, corn is sitting there looking like oh boy, maybe we get more acres. So, it’s a long time to go yet, things can change. But right now, I would say most producers are going to tell you if they have a choice they would probably flex to corn. You can get extra corn yield easier than you can get the bean yield.

[Yeager] Right. Cattle on feed, speaking of yields. We’re not putting as many in the lots right now. On feed November, this came out just before we rolled today 100%, placed on feed 96%, fed cattle marketed 99%. Which number surprises you the most?

[Roose] Well, I think the one that sticks out is the placement figure. That is a 2016 low I believe. So, the numbers just aren’t there going forward. The marketing figure was pretty much close, the cattle on feed numbers. As we go forward the numbers aren’t going to be there and they’re probably not going to be there for another two years really, a year and a half or two. You just don’t, unless we have a lot of twins.

[Yeager] So that will impact the feeder market. What is it going to do to the cattle market then?

[Roose] Well, look at this week on cattle, we traded cattle higher at $195 to $196 in the Corn Belt and the market torpedoed lower. So, I think we’re building a lot of bull news into the market. When you’re at these levels, Paul, you’ve got to be careful of a black swan, you’ve got to be careful, you can have big losses if the wrong thing happens. So, I would say use proper risk management when you’re buying these expensive feeders.

[Yeager] Is there an opportunity for a longer term look in ’25 for cattle or for feeders that is positive for maybe a, somebody trying to enter or expand or did they miss their boat?

[Roose] Well, you’re on the wrong side of the cycle, number one. That is the real problem. So, I would say it’s harder to enter right now when you have these cows at this price and these feeders at this price. So, sometimes waiting is the best and it looks like to me I would look for a little better of a time before I got into the business.

[Yeager] What are you thinking about hogs right now?

[Roose] Well, we’ve got a hog and pig report coming out Monday. It looks like the numbers are going to be pretty close to what we had last year, at least the estimates look like. So, the big thing on the hogs is we’ve had huge disease problems. What is that going to mean from a farrowing standpoint? What is it going to mean for the pigs per litter? I think the hog market funds are record large and long in the hogs. There are big longs in the cattle market. So, the funds want to be long the meat market. They want to be long the corn market. They want to be short everything else.

[Yeager] So they want to hold for a long time in those three that you just mentioned is what you’re saying. But people want to hold for a long time.

[Roose] Yeah, they’re looking at it from a position standpoint. They’re positioned in the direction positive on the meat market, positive on the corn market and negative on the soybean market.

[Yeager] I’m going to ask you about bird flu in Market Plus because that does have a little bit of an impact on livestock. But I think that, Don, is going to be the end our time.

[Roose] Thank you, Paul.

[Yeager] Good to see you. Merry Christmas, Don.

[Roose] Merry Christmas to you and all your listeners.

[Yeager] I appreciate it. Don Roose, everyone. We’re going to pause our Analysis, continue our discussion about these markets in our Market Plus segment. You can find both Analysis and Plus on our website of markettomarket.org. Now here is a holiday treat for you that is the gift that keeps on giving the whole year, an email from Market to Market. Each Monday, the Market Insider newsletter is sent out with behind the scenes information on this program, how we put stories together and exclusive details about our 50th season celebrations. Sign up now at markettomarket.org. Next week, we look at the year-end economics with an eye to the future. Thank you so much for watching. Have a great week.

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