Confirmation of a weather-impacted wheat crop coupled with concerns of an unfavorable forecast for pollination pushed the commodities higher. For the week the nearby wheat contract had its highest finish in almost 2 years as the September contract gained 9 cents and the nearby corn contract flirted with $4, up 12 cents. Soybeans also moved on weather as the August soybean contract broke through $10, up another 54 cents this week. August meal added a whopping $26.30 per ton. In the softs, December cotton was even. Over in the dairy parlor, August Class III milk futures declined a dime. Livestock gave back much of last week’s gains as the August cattle contract shed $1.52 and nearby feeders dropped $2.90. The August lean hog contract fell 52 cents. In the currency markets, the U.S. Dollar index gained 35 points. Crude oil moved lower $1.81 per barrel. COMEX Gold hit a 4-month low with a drop of $32.60 per ounce. And the Goldman Sachs Commodity Index contracted nearly 7 basis points to finish the week at 365.65. 

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. Really glad to be here.

Pearson: In case you want to go over things again, you can listen to our Market Analysis and Market Plus podcasts anytime online at iptv.org/mtom.

Pearson: Now, Mr. Hueber, watching this wheat market, Minneapolis wheat has been on a rocket ship of a ride. Has it come to an end? We saw it tumble pretty severely on Thursday, Friday backed off again. Are we done?

Hueber: To say we're at an end I think would be a little bit premature. It was a breather certainly. And when you have a market that really since the middle of April and of course the majority of it in the last four weeks has rallied over 50% off of its lows it's entitled to a little stop to catch its breath, kind of look around and make sure the assessment is correct. My bias right now would say no I don't think we're necessarily done. But could we back up a little bit and kind of retrace some steps? Certainly, that would be normal in any kind of an advancing market.

Pearson: So that is Minneapolis wheat. But we've been watching the Chicago wheat contract and of course those are the numbers we just showed in the wrap up. Chicago wheat has been pulled along as Minne wheat rallied. Given this break in Minneapolis wheat, given the fact that we still have it sounds as though ample stocks of the Chicago contract wheat, is Chicago going to begin to pull back more seriously?

Hueber: Well, you have a couple of elements of course at work. One, we came into 30 days ago the wheat market with a still extremely heavy short position by the funds so I think you've scared a lot of that money back out of there. Now will they really have incentive to come back into the short side? I think not as much. And as you see these moves unfold all of a sudden there's recognition that everything is not perfect around the world either. You've got a major drought happening in France probably extending into Germany, there's been talk now that the Australian crop is going to be starting to trim back. So little by little we're chipping away at what looked like these huge, huge burdensome stocks and here again you have to come back to that whole aspect that if you kind of exclude the inventories that are over in China the rest of the world does not have that big of a glut of wheat out there. So I think those small recognitions finally come about.

Pearson: There's still some room here for this to move a little higher.

Hueber: Right. And not that we're going to get in the late 2000 type of massive bull markets. Even when you look at this Minneapolis market pushing above $8 and you compare it to what it was in '06, '07 and '08, it dwarfs the move, but that was an outlier, those are just kind of those freaky moves you might see once in a lifetime. But this is just a good old fashioned bull market on weather related issues. And of course we've said all along this year it's going to have to be a weather event that's going to really spark things along and finally we've got a little spark of that.

Pearson: It has, it sparked things along and we've seen it in corn. As we look at the old crop corn contracts, both July and September touching up against some one year highs. How important is it for producers to get some of those old crop corn stocks moved on this rally? Or do we let it run another nickel?

Hueber: And I think as with any marketing plan you really have to set targets. Yes, we're at this $4 mark here, you need to move into it. Have your resting sell orders in place. We haven't changed the overall picture in the corn market that dramatically yet, not that the next two to three weeks, particularly with our crop being a little bit behind normal, that that can excite a few people and get them just a little bit anxious on having some inventory priced. But, I'm going to use December as the example, between $4 and $4.50, that has stopped the market for the last two years. Now, certainly could there be potential to move beyond that this year? The potential is always there if weather really turns critical. But statistics would say you need to have your sell orders in that place and take advantage of this rally. If you need o come back and replace it on paper you can always do that.

Pearson: That's exactly right. And at this point in the game would you, if you're making physical sales would you reown futures outright, either old or new crop? Or would you just spend the money on puts?

Hueber: I would probably, I think puts might be the better alternative at this point. One of the things that has been very interesting and works both good and bad, we have been so dead, so quiet up to this point, the volatility seasonally is exceptionally low. So you're not really paying those exorbitant premiums you normally would around the beginning of July. So it does make puts a little more attractive of a hedge this year. Of course the challenging aspect of that, usually when we look at buying puts we like to sell calls to kind of compensate for some of the premium, those calls have just not been, with the 12% or 13% volatility they just are not all that attractive.

Pearson: That volatility is a sword that cuts both ways, saves you money when you're buying, it doesn't generate you much more. Now, as you take a look with the new crop sales, we do have a question and you touched on it briefly. Matt in Amherst, Wisconsin on Facebook wants to know, is $4.50 corn a possibility? As we look at the setup of the spec funds in the corn market, how are they situated? They have been short. Has that changed?

Hueber: They have been reducing that short position. I haven't seen the numbers this evening, not that they've gone to the long side, but they have over the last two weeks now been slowly, kind of orderly reducing that short position. I guess I've kind of maintained all along that when you look over the last two years, and granted the acreage didn't come down quite as much as we thought on the report a week ago, but we're still 3 million acres down from a year ago, we're 6 million acres less than two years ago and in each of those two years we have punched up and hit a $4.50. And granted this low volatility has hurt us. But I think what you touched on initially is probably our ace in the hole. And I grew up in the philosophy, the market analysis philosophy believing that wheat had to be the leader. If you don’t have the wheat market moving you're never going to extend a rally in the corn market. And we've seen that picture change a bit here, maybe not 100%, but certainly you've got wheat leading the pack this time. So yes, I still think that $4.25, $4.50 range is very doable here between now and certainly no later than the end of August. But if we're going to have a weather issue it's going to be in these next 30, 45 days.

Pearson: Perfect. Now let's talk about soybeans. That has kind of been the story that has been left behind. But what an incredible rally. We're up what, $1 now on some of the nearby contracts? Holy cow! Where does this thing finish out?

Hueber: And of course the turnaround is the great story there. If you went back three weeks ago you would not be able to find anybody who would have had any kind of a friendly story at all to the soybean market. But that was the curious part about it all the way through is when you looked at it from the fundamental side, gosh how could you even think about being positive on the soybean market? But when you watched the chart patterns and what was happening there it never really reflected that. And I guess after this many years in the business I have tended to trust that technical picture because often times it will tell you something that is brewing below the surface that fundamentally we just don't know about yet, ultimately we all learn about it after the fact. So that has come to fruition. But here again too there is no one major element. Weather is a concern. Granted in travels here in the last week the one thing I can consistently say is how short this bean crop is and I've been through Illinois, across Missouri, now up into Iowa, a few weeks ago I was across North Dakota and Minnesota and consistently the bean crop just seems very small. That doesn’t assure a lighter than normal yield but here again too this crop has not gotten the great start it has over the last several years when we put out these big above trendline yields. So I think that's part of it. You did see the conditions deteriorate just a touch last week. But I think the major element once again is the demand, it just does not quit in the soybean market.

Pearson: Demand also hasn't seemed to have slowed down the live cattle market. We continue to see folks getting out there buying beef. We closed the week at $114, cash trade around $118. Have we found a secondary bottom here?

Hueber: Again, I think that's exactly what it looks like. We got the Chinese enthusiasm even though we haven't moved any beef over there up until the last few weeks. But these are futures markets, we're always looking ahead. And I think now over the last two weeks we seem to have found a little base, a little foundation again. So I think this cattle market looks like it's prepared to launch into the next level, at least go back and challenge the highs and maybe exceed those highs for a higher move yet.

Pearson: And feeder cattle probably going to follow right along as we continue to see profitability.

Hueber: Granted probably the biggest drawback on feeders if we do really get the grain marketing moving a bit psychologically that could work against feeders. But here again if it is just $4 to $4.50 corn a nice hedge opportunity for the corn possibly but probably not going to scare anybody out of the feeder market that drastically.

Pearson: Alright. Well now let's talk about the lean hog market because that's another one where demand has driven it. We saw cash hogs trading over $100 this last week. We do have concerns as we look out to the end of the third quarter into fourth quarter that we're going to be sweltering under massive supplies. What are your thoughts? Have we priced that into the market already?

Hueber: I think due to a large extent and I think the reaction after the hog and pig report probably reflected that. Here we came out 2%, 3%, I guess really a strong 3% higher in numbers all the way across and the market still reacted higher. So one of the great things I think that's happening in cattle and hogs both this year is we have seen even ex the Chinese business we've seen great export business. And I think with the dollar as strong as it has been and a lot of people just assumed that was not going to be the case so I think that has taken everyone by surprise which has really been that element that moved us up to these highs and still seems to support both those markets.

Pearson: You touched on the dollar. We have seen the dollar certainly looking to pull back. We're down around 95 on the dollar index. As you look around the globe, you look at Europe, you look at the situation in the UK, the Chinese government, where do you see the dollar trending? Are we still the best house in a bad neighborhood?

Hueber: We're still the best, of course a lot of the weakness, a week ago the dollar did push down to the lowest level since the election itself and part of that was probably more of a psychological rally than anything, the real substance that was happening economically. But with that said, the European Union, or the European Bank a week ago came out and really said we're going to aggressively try to stimulate the European economy. It does look like they were turning around just a bit anyway in that part of the world. So it's kind of strange, on a short-term basis the dollar looks a little bit oversold, like it could see some rebound, boy you look at some historical long-term charts that doesn't seem to be the case. I think we're, I would tend to think we're at as good a level as we're going to see and could easily deteriorate lower over the next twelve to eighteen months.

Pearson: And we’ll discuss that more in the Market Plus. Dan Hueber, thanks so much for taking the time to join us.

Hueber: My pleasure, thank you.

Pearson: That wraps up the broadcast portion of Market to Market. However, as I mentioned, Dan and I will keep the conversation going including answering more of your questions during Market Plus available in podcast and video form on our website. And while you're there, check out the Classroom. This virtual schoolroom allows you to explore the science, technology and business of agriculture. And join us again next week when we check on scientists exploring the use of genetically engineered insects. So until then, thanks for watching. I'm Mike Pearson. Have a great week.

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