Foreign buyers of U.S. grain helped keep the commodity market stable against head winds of a bountiful South American harvest. For the week, May wheat lost 4 cents and the nearby corn contract gained 3 cents. An oversold market plus pressure from meal demand crushed gains on the May soybean contract which dropped 7 cents. May meal held on for an increase of 20 cents per ton. In the softs, May cotton improved $1.07 per hundred weight. Over in the dairy parlor, April Class III milk futures gave back 35 cents. The livestock sector had another positive week as the April cattle contract expanded $1.73. April feeders increased nearly $5. And the April lean hog contract added 87 cents. In the currency markets, the U.S. Dollar index hit a 6-week low and lost 99 basis points. Crude oil sweetened 29 cents per barrel. COMEX Gold gained $28.80 per ounce. And the Goldman Sachs Commodity Index increased nearly 3 basis points to finish the week at 383 even.  

Pearson: Here now to lend us his insight on these and other trends is one of our regular market analysts, Dan Hueber. Dan, welcome back.   

Hueber: Thanks very much. Great to be here.

Pearson: We're excited to have you. Before we get started, you can listen to our market discussion anytime by downloading our Market Analysis podcast on our Web site, iptv.org/mtom.

Pearson: Now, Dan, let's jump into this wheat market. A little bit of stability, still down around value levels if we think about it in those terms. Is there some hope as you look out to the future?

Hueber: Again, I'm still one that believes this wheat market is a long-term basing pattern. Domestically when you look at the acreage out there, there's 46 million acres, there's certainly very little room for error and already a few questionable spots with the dryness in the south and southwest and of course some freezing temperatures unexpectedly in many areas in the last week here, not that we know if there is any significant damage done, but by no means are you getting off to a perfect start. So weighted on the other side, Russia was out in the last week talking about great crops, good inventories, now they're probably really going to step back into the export market in a little stronger fashion, they kind of balance each other out. But, again, I just don't think there's much room for error here in this wheat market, particularly in the domestic front and I by no means want to be on the bearish side but we still need a spark. We're going to need a little something to come along to really poke us to the upside. We thought maybe there was going to be a little bit more enthusiasm when Egypt canceled some purchases from the Black Sea region, haven't really seen that materialize here, our export sales were so-so this week. So we've still got to back it up with demand.

Pearson: Alright. Well, so we're not bearish but we don't have a reason to be bullish quite yet.

Hueber: Cautiously --

Pearson: Cautiously optimistic.

Hueber: There we go.

Pearson: Optimistically biased. Now let's talk about the corn market. We did see, again, continued stability. We saw a nice little 3 cent rise in the nearby. What does that tell you on old crop corn? How are we sitting as we look out into the first part of really springtime?

Hueber: Certainly interesting trade, when we go back a week to the supply and demand reports by the USDA and the market had rallied relatively well into those numbers, we really needed to have something a little more positive to kind of extend that out. We were at a technical standpoint, we're already a little overbought. That wasn't delivered so it was natural to see the markets break back down. But, again, it looks like we get into this value area, we started seeing end user pricing and probably as much as anything that came as a bit of a shocker was news that Russia was in, probably bought at least three cargos, I'm sorry, China bought at least three cargos of corn, possibly six and this is just a week after talking about how the inventories are going to start liquidating down, we're going to more of a free market, looking for alternative uses to eat up some domestic corn. So they never exactly state really what their intentions are. But if you look at their patterns in the past once they step into a market it's usually not just a one off event. They tend to be big players when they come in.

Pearson: So hopefully we'll see that continue. Looking at the new crop side we've got a question here from one of our followers on Twitter. We encourage all of you to follow us on Twitter and check us out on YouTube, Market to Market now has a YouTube channel. But Luke in Nebraska wants to know, how big of a farmer short position has been built up in December corn here in the last month?

Hueber: I'm going to tend to say it's very minor at this point in time. $4 corn, we didn't really quite make $4 corn, but $4 corn I think becomes an interesting area for some people but with all the growing risk in front of you is it place you really step in and really start locking in future production? I would say if it was 10% I would be shocked with that much. Soybeans are a different category.

Pearson: Well, let's talk about that. On the soybean side, we have seen prices really slip. We've been on this two week break in the bean market. Are we, for new crop beans, are we out of luck when it comes to locking in $10?

Hueber: Once again it's pretty difficult to say out of luck in the month of March. We have all of the whole production risk ahead of us this year yet. But that general sentiment right now is that we're probably going to see 3, maybe 4 million additional acres of soybeans out there. It does provide a bit of a buffer there. Now, recognize even with those numbers factored in from the reports that came out earlier in the month from the USDA, we still ended up with about an unchanged carryout, 420ish million bushels. So in essence they're saying we're going to need all of those acres even to stay. But that said, higher acreage, yeah there's going to be a little more of a defensive tone there. We certainly have recommended with people that in that $10 range if you're switching additional acres into soybeans you're doing it for an economic reason, take advantage of those economics and at least get those bushels priced.

Pearson: Now, we've been hearing a lot about South America's soybean harvest. It has been from all reports phenomenal. Are we going to see that push higher than 108 million metric tons in your mind?

Hueber: Certainly could be. There's been a few estimates out there, the 109, 109.6. I think 107, 108 range is probably pretty reasonable. Granted they should be well past the 50% mark. But you go back a year ago, a year ago that latter half of the harvest really got into some problems with weather issues, doesn't seem to be in the forecast right at this point in time but certainly the entire crop is not in the bin just yet. But overall just looks like a tremendous year down there once again.

Pearson: So if you have an optimistic bias on the wheat market, do you have a pessimistic bias in beans? Or are we just not quite there yet?

Hueber: I think not quite there. Beans, yes, the entire complex, corn, beans and wheat are all a little bit defensive here this week. They all really seem to have kind of hit that point, $10 beans seems to be an area where you start finding value buyers in there again on the front side of the market at least. So I don't think we're going to get carried away to the upside but I certainly think we can bounce out of here. Again, not a runaway bull market but we really have to add some weather into here before we can get excitement going again. But at least I think we have a limited downside at this point in time.

Pearson: Well, speaking of getting excited, the cotton market, up $1.07 on the week. What happened? I wasn't paying all that close of attention.

Hueber: Here again too a little bit of positive news on the supply and demand reports. I think the growing concern about some of the weather down in those southern cotton growing regions, there has been discussion that we'll probably see a few additional acres out there, not that it's going to be huge, it's just such an investment to really swing back over to cotton. That said, this has been a nice rally in the cotton market. The incentive does seem to be there to do that. Now, granted, the rally back looked very impressive or sounds very impressive, up a cent for the week, we're really just kind of back to the same resistance we've been over the last two to three weeks.

Pearson: $80 is the line.

Hueber: It is the line in the sand that we need to cross.

Pearson: Let's talk about the cattle market. Both live cattle and feeder cattle substantially higher on the week, especially feeder cattle. Is this just packer demand flowing back through the system?

Hueber: I think a combination of packer demand, we know packers are making phenomenal money on killing cattle at this point in time. Good demand at the retail counter. And, granted, as we even discussed a little bit earlier, when you have 50 and 60 degree temperatures in the month of March those grills are going to get fired up a little earlier than normal so I think they're trying to get those coffers filled up right at this point in time. I tend to think it's going to be somewhat of a flash in the pan. Again, consumer demand has probably surprised everyone but here again too it's not that we have any kind of shortage of animals, they've been coming to market and been moving to the summer months, so I tend to think if you can take advantage of it you take advantage of it now.

Pearson: And how defensive do I want to be, how far out into the future do I want to be utilizing this rally given the tremendous discounts into the summer months?

Hueber: Granted, they're discounts, and maybe that's a little bit deceptive, yes you've got a $10 premium on the April over the June. That said, we're not dealing with technically storable commodities. You still have to look at that June, if you're making money at a $109 or $108 there's not an excuse why at least step up, look at doing some puts to kind of lock in that floor because we've seen enough red ink in the cattle market over the last couple of years that better safe than sorry right now.

Pearson: Yes indeed. Now as we take a look at the lean hog picture, again a little bit of strength, I guess I call it stability. Has consumer demand been as strong on the retail side for pork as it has been for beef?

Hueber: I don't think it has been quite as strong but certainly they coattail with each other and here these markets have kind of refused to break, not that they haven't pulled back some but here we bounced right back up against recent highs once again I think has got the short just a little bit uncomfortable. They're tending to maybe push a few of those people out, mostly on the cattle than the hogs, but I think you've seen the same thing in the hogs. But here again we've just moved back to what have been highs that we've witnessed for the last 30 days, we're going to need some kind of spark of either demand news or export news possibly.

Pearson: Has there been much on the export news side in the lean hog market?

Hueber: Not that I've seen. Granted, with Smithfield, companies like this, yes we are moving more pork into the Asian market than we used to. But here again nothing out of the ordinary at this point in time.

Pearson: Okay. As we look at finding export markets, the strength of the U.S. dollar has been a headwind. We did see, you touched on it earlier, the Federal Reserve did raise rates again for this quarter and yet the dollar is lower on the week. Buying the rumor, selling the news?

Hueber: It almost seemed like a perfect scenario for that. And again we have talked for so long about this hike in interest rates and I get a little bit of a kick out of some of the way it has really even responded to as far as the aggressive moves by the Fed to start pushing rates higher and aggressive move, this is the third rate hike really not just in the last 15 months, in the last ten years. We've been zero interest rate since or declining or zero interest rates really since 2006, 2007, hardly what you would call an aggressive rate. We already know the Fed is projected to do two more hikes here later this year. I think the market has certainly built a lot of that in. They maybe were expecting the Fed to maybe have a little more aggressive forward guidance like yes, we could possibly push it even higher on some of the future rises. That wasn't in the language at all and I think that was kind of a disappointment for the dollar.

Pearson: So the trade is still anticipating two more quarter point increases today.

Hueber: In 2017. Actually they have projected, in the forward guidance, three more in 2018.

Pearson: Oh, so we've got some coming in the future.

Hueber: Right, basically the Fed has said their targeted rate is 2 and 3/4 to 3% Fed fund rates by the end of 2018.

Pearson: Alright.

Hueber: So here again that is already factored in.

Pearson: We'll keep an eye on it. Dan Hueber, thanks so much for taking the time to join us.

Hueber: Absolutely.

Pearson: That wraps up the broadcast portion of Market to Market. But Dan and I will keep the conversation going including answering more of your questions during Market Plus which you can find on our website. Market to Market may be airing in different timeslots due to PBS fundraising activities. So, if you find value in our program, please consider making an investment in a service that provides you with the news and market analysis you’ve come to know and trust. And join us again next week when we look at how one-stop shopping is connecting growers and buyers. So until then, thanks for watching. I’m Mike Pearson. Have a great week!

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