Hot and dry forecasts sent the market dramatically up the hill early in the week, but an end of the week sell-off brought on by favorable rain and temperatures allowed gravity to take over and the commodity markets moved lower. For the week, the nearby wheat contract gave back 24 cents and the nearby corn contract dropped 4 percent or 16 cents. Soybean losses were less severe as the August contract was down 12 cents. August meal weakened $7 per ton. In the softs, December cotton fell $2.01 per hundred weight. Over in the dairy parlor, August Class III milk futures added 18 cents. Livestock was mostly higher as the August cattle contract improved $3.02 and nearby feeders jumped $9.25. The August lean hog contract shed $3.33. In the currency markets, the U.S. Dollar index nearly touched a 10-month low falling 86 points. Crude oil deteriorated $2.31 per barrel. COMEX Gold retraced some of last week’s losses to add $17.80 per ounce. And the Goldman Sachs Commodity Index expanded nearly 9 basis points to finish the week at 373.50. 

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

Pfitzenmaier: Thanks, Mike.

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, Tomm, we saw a big pull back following Wednesday's USDA WASDE report where yields were left unchanged on the June report. It seemed as if the trade really responded to that. Why was that so shocking?

Pfitzenmaier: I have no idea because basically all the USDA did was take the June 30th stocks and acreage numbers, plugged them in, made a little adjustment for demand on beans, it has been pretty good and I don't know what else anybody expected them to do. The crop condition ratings hadn't changed much so there was really -- and there's a real reluctance to change yield in that July report anyway.

Pearson: It's still early.

Pfitzenmaier: So, that was beyond me too that so many people were surprised by the thing. It was a bit negative for corn, no doubt about it. You increase acreage a million acres, stocks go up a little bit, the carryout jumped when I guess some people thought it was going to drop, so in that respect it was but if you shift over to weather, weather didn't necessarily improve all that much. So I guess I was a little surprised to see everybody run for cover like they did.

Pearson: Alright, now I want to talk about the wheat market. I was up in South Dakota this week, had the chance to talk to a couple of spring wheat producers and they're just baling. There's no production to speak of in their part of the world yet we saw wheat of all classes pretty aggressively sell off. Is that overdone? Is it done? Was it time? What are your thoughts on wheat?

Pfitzenmaier: The main driver in the bullishness in wheat has been the Durham wheat and the Minneapolis wheat contract and that is where the real excitement has been. On the other contracts you had the funds pretty heavily short Chicago wheat so they saw that going on and Minneapolis and everybody covers their shorts. The reality is there's still a lot of wheat in the world. Every month there's somebody harvesting a big chunk of wheat. And I understand that this year's wheat crop in the U.S. is not that great, but demand is also not that great, you have rallied wheat up to the point where you're going to start hurting the feed usage on that side for wheat. So we've had a nice pull back, the market got a little overbought, needed to correct and did. I don't know, you might see Chicago wheat pull back in that $4.80, $4.85 range, which is a little lower than what we closed on Friday, but I don't see from these levels that we're going to lose too much value. We're probably going to see more wheat acres planted again next year, so that on top of all the other wheat around. Now, there are some problems in Europe and in the Ukraine and in parts of Russia on their wheat crop and the market is kind of watching that too. But, again, that should be somewhat supportive on any time you break a little bit here.

Pearson: Okay, so we're a dollar higher than we were just two months ago. How aggressive do I need to be on making some sales both for wheat that is coming out of the combine today but also should I be looking ahead at '18?

Pfitzenmaier: Both. I think we kind of like to look at retracements, if you get a 50% retracement from the high down to where probably where we were Thursday night, Friday morning I think that's where you'd have to look at to start stepping in any maybe moving some product. As far as 2018 goes we like selling 2018 corn up there, wheat I guess I'd like to see a little more strength in that market before I got too frisky. But if you're going to plant a bunch more acres you certainly should be looking at that I think.

Pearson: Alright. Now we've got a question here from one of our followers on Twitter. This is from Josh in Minnesota @JoshDeal1. We encourage all of you to send in questions on Facebook and on Twitter, just search for Market to Market. Josh wants to know, after watching this collapse of the commodities, the grains, after Wednesday, will wheat have to drive the entire market up again or have we topped out? Did we put in our summer rally?

Pfitzenmaier: I think wheat's leadership is probably starting to wane. I think if you're going to have any leadership it's probably going to come in the corn and bean market and I'm not even sure corn can -- we've got the critical month of August coming up in beans and I would guess if I had to bet on a leader it would probably be on the bean side.

Pearson: Alright. Well let's come back and talk about corn. We saw $4 corn, we saw $4.10 December corn, now we have given that back as of the close on Friday, down under $3.90 again. Are we going to make another run at $4? Are we just waiting for more negative crop progress come Monday?

Pfitzenmaier: Yeah, I don't think anybody, there isn't anybody that doesn't believe the crop condition rating is going to drop another percent or two on Monday afternoon. I think that is probably cooked in the books already. Yeah, December corn hit $4.17 and a quarter, we thought $4.17 we had that as an objective so we kind of satisfied that. I think it's going to be very difficult to take that out unless something really extreme happens in the two weeks. Having said that, I wouldn't be a bit surprised to see us rechallenge that. You get up in that $4.05, $4.17 area I think you'd have to start making some sales. Now, a ton of people had sell orders up in the $4.20 to $4.50 area, got none of them filled and so everybody was a little nervous when this thing broke this week. I think if you start reaching back up to those highs you have to at least start getting started and get something sold.

Pearson: Now, after this break we still have a lot of producers sitting with a lot of old crop corn in their bins. How do you want to handle pricing that, getting that unloaded after this almost 30 cent break in the market?

Pfitzenmaier: Export sales in corn were terrible. We don't have an export market. The South Americans have got the export market really through harvest. So what are you going to do, how are you going to get that grain marketed in a good way? You've already seen a rally now that you've missed. You're sitting on this stuff. You're paying storage on it or it's sitting in your bin. You've got a somewhat decent crop coming on. I just think you have to use these rallies and move it. And I understand nobody likes the price they're going to get for it. But what are you going to do, put it in storage and then pay a bunch of money to store it and go backwards there? Maybe if you're desperate to own corn, maybe sell it and buy the futures. The basis is going to be terrible but it's not going to improve any. The end users know you're sitting on that stuff and there is no incentive for them to pay up for it.

Pearson: So just rip the Band-Aid off, start making some sales.

Pfitzenmaier: Yeah.

Pearson: Alright, new crop though let's just sit and wait, keep an eye on that crop progress, maybe hold out for a 4 in front yet again?

Pfitzenmaier: Yeah, on the futures. Yeah, I think, again, you get up in that $4.05 to $4.17 range I think you've got to start doing something.

Pearson: Okay. Now let's talk soybeans. The soybean crop, as you mentioned we did see some changes in the demand, the crush has been very strong domestically, not a lot of farmers have those old crop beans on hand anymore. As you look at new crop we're still hanging in there right around $10. How do we handle that? Just cross our fingers until August or start making some sales Monday?

Pfitzenmaier: I think one of the reasons beans were able to put a little more on than corn was because you didn't have the farmer so I think there was a fair amount of farmer movement on the corn market as went up but the farmer wasn't sitting on that many beans so you didn't have quite the lid on it plus you had the funds short over 100,000 contracts at the beginning of this thing and they weren't short near that much in corn. So that all magnified the move in soybeans. Again, they had a pretty good pull back. Who knows what weather in August is going to be and that's the critical thing for beans. But I'd certainly think if you get up in that $10.20 to $10.50 range again you better start moving some new crop and finish up on your old crop sales.

Pearson: Alright, keep an eye on those prices as you look out to the future. Now, Tomm, I did just want to get your thoughts real quick on the cotton market. We have continued to pull back down another $2. What's going on?

Pfitzenmaier: The cotton market, acreage pulled back a little bit and that didn't seem to have much effect, stocks were down quite a bit and I think that's part of the issue with the cotton market. That thing is hovering right on support, if we take out 66, 66.10, somewhere in that, if you take that out then there's nothing but dead air under the cotton market all the way down to 61.50. So I'm not saying make sales at 66 but you better keep a close eye on it and use any rallies to make sales because we're sitting at kind of a vulnerable point here on cotton.

Pearson: That's a $4 drop to the downside that you'd notice.

Pfitzenmaier: Yeah, you wouldn't want to participate in that if you didn't have to.

Pearson: Now, let's talk about livestock. We did have some good news in the cattle markets. We did see a little bit of strength return to that market. Does it look like we've put in at least a medium-term low in the live cattle futures?

Pfitzenmaier: I think so. I thought the cattle market, that limit day up we had there in the middle of the week was certainly positive. But once again, you continue to have the cash market higher than the futures, which is always positive, you've got the back months discounted so the producers are incentivized to continue to move product, the export sales are quite good in beef and have the prospects of maybe getting better here. Like you said, the dollar at 10 month lows, that's certainly helpful. So I guess I'm somewhat optimistic in beef. Having said that, I think if you get that fourth quarter December contract up in that $121, $122 range I think I'd want to be pulling the trigger on some of that fourth quarter production.

Pearson: Now as you look out at fourth quarter contract, December contract, would you be looking to sell futures directly? Or would it make more sense to buy a put option?

Pfitzenmaier: That really depends on whether you think we're going to go higher than $122. If you think $122 is it then the future, if you think well I'm going to make a sale at $122 but I really think it's going to $132 then you'd want to use the put. So it kind of depends on what you're comfortable with and what you think the market is capable of doing. We did have last spring numbers up that high so you can't say never. But I say it's unlikely. And a lot of people are uncomfortable selling the futures and they have been burned pretty badly in this past year so I can certainly understand why a lot of people would step in and buy puts just because it's a little, you can sleep a little better at night sometimes.

Pearson: You're not worrying about a call from the margin clerk. Now, let's talk about the feeder cattle market, up almost $10 on the week. Is this just indicative of those cattle feeders finally making some money and getting to the barn and making purchases?

Pfitzenmaier: Well, I think it's a combination of two things, like we just said the fat market is relatively strong. You had a big break in the corn market and the meal market so your feed costs have gone down which is always positive for the feeder market. Now, if we go back up and retest the highs I don't know if that's going to be sort of a headwind for the feeder market or not. I think we're up in that $155 range, I do think we have the capability of running feeders up in that $161, $162 range before they start to become way overbought so I guess I'd hold out for something maybe in that $158 to $162 range and start making some sales up there. But those are some pretty fancy prices for feeder calves I think.

Pearson: Yeah they are, for eight weight steers it's a pretty decent check. Now, let's talk about lean hogs. We broke that nearby back under $80. From a technical perspective, Tomm, what are you watching for?

Pfitzenmaier: That market doesn't look good. We had really poor exports, that's a whole export driven market and we didn't have very good export sales last week. Now, I understand it was a holiday, the 4th of July was in there and there's some of that in the mix. So I'm not sure you want to make too much out of that yet. But I think we really need to keep a close eye on that export market on pork. I just think the hog market is getting really toppy and I think if you get any recovery rallies on that technically it really does not look good at all. Again, it's on the verge of breaking out through the bottom side of some pretty important chart points on the pork charts. So I'd be pretty cautious there, be relatively aggressive especially on the December hogs up in that $66, $67 range.

Pearson: Alright. Well, Tomm Pfitzenmaier, thank you so much for taking the time to join us.

Pfitzenmaier: Thanks, Mike.

Pearson: That wraps up the broadcast portion of Market to Market. However, Tomm 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. Join us again next week when we look at how a plan set in motion decades ago is paying it forward to a new group of farmers. So until then, thanks for watching. I’m Mike Pearson. Have a great week!

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