Dec. 4, 2018
Over the weekend, two different versions of the G20 U.S.-
China meeting were announced — one given by President Trump and one given by the Chinese. President Trump said ag products were going to be exported immediately. China did not mention it.
Monday was a classic “buy the rumor, sell the news” day. We made our highs overnight and then basically failed the rest of the day. A broker texted me Saturday saying “happy days were here again.” We need to see if this is a one-day blip or we actually have some substance to it.
The basis on corn and beans broke significantly Monday afternoon. This tells me the farmer sold quite a bit of grain, and the buyers — who were elevators, ethanol plants, etc. — lowered their basis because they had secured enough grain to meet their immediate needs.
The markets are noted for volatility, but when they are affected by outside interference, volatility can really pick up. To make money in this environment, one has to think about what the spec trade would do rather than the individual who owns and produces commodities.
As producers, we often have the feeling the market should be going up. These feelings are based on our own positions of raising the crop, harvesting and marketing. We have a bias which always keeps us on the side that it should go higher, but we are not guaranteed that. The fundamentals are the practical side of the market. The technicals are the psychological part.
Cash cattle traded higher last week with a range of $116-$118.50 and $180-$185 hanging. So far this market has been pushing its way up, and the box meat has held relatively well.
Composite box meat movement came in which showed 22- day-and-up sales at 784 loads; NAFTA, 125; and overseas exports, 499 — this figure is below 700. We need to get these exports picked back up. Hopefully this is just slow holiday trade.
A lot of the feed yards in the Midwest are in poor shape. This has resulted in lower feeder cattle demand here and in other states. Talking to a client of mine from Indiana, some of these 5-weight steers and bulls he’s been buying will make money where the deferred board is currently setting.
As I look at the March feeder cattle chart today, we need to hold right at these levels or we will fall much lower. I think bounces in the feeder cattle market are going to be sold. I would be using those bounces to hedge feeder cattle. I think we are going to make money feeding cattle the next three years, but how you buy them is going to be the key. I currently feel that we do not have enough storm premium in the February cattle.
The hog market has had some huge movements back and forth. Everybody thinks China will buy some pork. The market has had huge fluctuations on rumors and innuendo. It has not straightened itself out, but if the economy can hold together (not necessarily the stock market), worldwide demand for meat protein should continue at a good pace. We need this to happen because we are moving into the next level of meat vs. plant protein. We need to keep the consumption moving higher because meat protein availability is increasing worldwide due to the number of animals being fed.
There are going to be a number of farmers who farmed this year that will not be farming next year. I had one client say he rented ground next to him for lower money, but if prices stay where they currently are, there is no way he can make money.
Everybody has to take a chance, but my argument is why pay for something that is pretty much a shot in the dark? I think we will have rallies in this grain market. I do not necessary think it will be because tariffs will be lifted, but possibly a pickup in demand and big short holdings by the funds, who may not be as aggressive on the short side of the market next year.
I am thinking around Dec. 18 may be a better time to take a shot at owning this grain market, but I also believe that rallies will continue to be sold.
We are sending a letter to our clients with our thoughts on the next 90 days. If you would like one, give us a call. Good luck and good marketing.
This weekly report is for informational purposes only and is not to be construed as an offer to sell or a solicitation to buy the commodities listed herein.