China's cancellation of a major soybean purchase this week pressured grain markets as well. For the week, March wheat lost 22 cents, while the nearby corn contract moved 29 cents lower. The worst losses, however, were in the soybean pits where the March contract lost a whopping 62 cents. Nearby meal followed suit giving up more than $22 per ton. In the softs, cotton continued its recent upward trend with the March contract gaining $1.09 per hundred weight. In the dairy market, January Class III milk lost a penny, while the deferred contract moved 15 cents higher. Over in the livestock sector, February cattle gained 80 cents. Nearby feeders were off about a dime. And the February lean hog contract advanced by $1.50. In the financials, the Euro gained 16 basis points against the dollar. Crude oil advanced by $1.40 per barrel. Comex Gold declined by nearly $37 per ounce. And the Goldman Sachs Commodity Index gained just over one point to settle at 638.50.
Pearson: Here now to lend us her insight on these and other trends is one of our regular market analysts, Sue Martin. Sue, welcome back.
Martin: Thank you, Mike.
Pearson: It was a busy week for gold. We saw a $37 move downward. What's driving that?
Martin: Well, I think it's the talk of a better economy or that the economy is starting to perculate a little bit and get better. And for a while we thought maybe we were going to get something done before Christmas on the fiscal cliff talks. That didn't happen. But in the meantime you've got talk of Europe's -- European economies and Chinese economy doing a little better. So at the moment it's like feeling like gold doesn't really have as much of a concern or, let's put it this way, the investment into gold in fear of global inflation or risk, that type of thing is just not a safe haven. So you're getting liquidation, probably year end liquidation more than anything. I still think gold is good on the long-term.
Pearson: Okay. All right. So we'll just, we'll see a little dip here and possibly a bounce back as we get through the New Year.
Martin: Well, if you look at long-term charts or weekly charts we are building a nice pinot and we're almost to the end of that and I think you'll break out to the top side of that.
Pearson: All right. Sue, you mentioned the fiscal cliff. What are your thoughts there? Do you think we're going to get anything passed by the New Year?
Martin: I'd like to think so. If we do I expect it at the very last minute. Otherwise I think we're going to go over the fiscal cliff. There's so much political positioning here in this. They say there isn't but there is. And I think that when we go over the fiscal cliff, how is it going to affect us? Some fear. It makes our economy weaken and soften a little bit because of the higher taxation. Bottom line is you go over the fiscal cliff, everybody's taxes are going up, it's not just a certain percentage of the American public, it's everybody. So we'll see. I hope we do get something settled before the end of the year just to lay it to rest. That's all we seem to hear. But it wouldn't shock me if we went over the end of the year.
Pearson: All right. Well, something to think about as we look towards the New Year.
Martin: The uncertainty.
Pearson: Yes. Let's talk the grain market. We saw a slide in wheat, corn and beans this week. What was driving it in wheat? We've seen exports pick up a little bit. Where is wheat headed?
Martin: Well, I think wheat was being dragged backwards more so with beans and corn. And before when beans were rallying they were buying beans, selling corn, buying beans, selling wheat. Then they unwound those spreads and so that put a little bit of support under the wheat and corn but it couldn't live long when corn started to cave in too. So I think the wheat market, we have to remember, yes, exports started to pick up, we're finally priced or, let's put it this way, other exporters have now their stocks have gotten tight enough that prices in the world have now come up to meet our prices. We have good quality wheat to sell. So we're going to be probably the place of choice, origin of choice to do some exporting. But still our crop, winter wheat, hard red winter wheat went in the ground, poorest conditions that we've had on record but we're in dormancy. And we didn't get I don't think enough snow out of this storm that tracked through to give us some good cover for like when we hit really cold temperatures. But in the meantime, we still have got a crop that is in dormancy, you don't really know what it's like until it comes out if it catches rain. If you don't have rains in March and April wheat is going to really skyrocket.
Pearson: So it's just a wait and see, watch the weather.
Martin: I think it is a wait and see. I like the KC wheat if it gets around $8.44. I think there's very good support around $8.44. Risk shouldn't be super large at that point. Maybe that offers us an opportunity.
Pearson: Things to keep an eye out for.
Pearson: Let's talk soybeans. That was the big mover this week. We saw a 62 cent week over week decline. Where are beans headed?
Martin: Well, I think the bean market longer term yet has potential to still go higher. I think it's going to take some time. We still have January to get through, those government reports, the supply demand report number, the final production numbers on January 11th and the quarterly stocks report at the end of January. So those usually are markets. The January markets are noted for sharply higher, sharply lower openings after the numbers come out. And so when I look at beans I do think in January the yield is going to increase. But on the same token demand has been awesome but we also had cancellations by China kind of at a time when you're in a December market, sort of took some wind out of our sails and yet I have been telling our subscribers that I felt that we would see an inside range month in the month of December because I did not think we could have enough oomph to take this market up through $15.71 which was your November high. So having got over the $15 mark and the March contract played about three, four days against the 38% retracement, January's didn't quite make it, it would have been $15.28, it didn't get quite there, it got to $15.08 and 3/4 or something like that so the market started to see some liquidation, got a little overbought, went in for a good healthy correction.
Martin: In the meantime, it also technically did do a parallel from the two highs that we have here in December down to the low, from a low of November. We hit that trendline on our lows on Thursday. So that may have been enough for this market to be able to now start another bounce. We had good short covering on Friday and that was probably because of the long, nice holiday weekend. Traders are leaving, they're Christmasing, they're in the mood for the holiday. So I think we've seen short covering. And then we'll see what happens here next week. There is a strong seasonal that beans do rally into Christmas and the day after Christmas. And we'll see. We're looking for a rally this next week.
Pearson: Any price points you're willing to put out there as to where that rally might go?
Martin: I think that when we come back up, $14.62 to $14.69, kind of a tough little area. If we were to come back up and be around -- what I want to see at the end of the month is that we're over the $14.43, $14.46 area on a close. That would please me immensely. Even if we were to drop down some more and come back and close over that would be awfully good market action. And then we get into January and we see where our stocks are, I can't believe that exports and crush aren't going to be increased although after the Chinese cancellations that might slow us up on the export side of it but the crush is awesome. And the exports of soybean meal is very, very good, 75%, 76%, maybe 77% of what the USDA has us targeted for. You look at soybean oil, they had a slight cancellation, 5800 tons of soybean oil cancelled. But still, all in all, extremely good exports on soybean oil. The crush is very strong and it may be, maybe we slow up on products but we send -- or I mean beans -- but we send products out the door.
Pearson: All right. Let's talk corn, corn we saw another drop again this week. Are we through the support points that you keep track of? What's the hope for corn?
Martin: Well, corn has been a market that has really bothered me. I haven't had trust for it. Although I think it's possible we see higher highs next year it's going to take some work. The corn market to me just looked like, one, our exports were down, way down from what the USDA has us targeted for. But maybe the corn isn't there to export. And we know that the river system hasn't been the best. So maybe that is part o the situation. And we also have to remember we had the earliest harvest, I don't know if it's in history, but we had a very early harvest, one of them is a record, I mean it may be a record. And that means there is a fair amount of corn that had to go into old crop supplies. So that corn may be already gone and we just won't know until we get these quarterly stocks reports out at the end of January. Will it show that we had more feeding of corn than we thought through the first quarter of the New Year? If we do have any of that all of a sudden -- and then not to mention harvested acres -- but all of a sudden we're going to start to have this feel like, oh my goodness, we're tighter than we think. Will the USDA tighten our carry below $6.47? I doubt it. I think they have a line in the sand and they aren’t going to go under that too far. If they do the market will just spring out of here like letting air out of a balloon I guess, it'll just move.
Martin: I think that when I look at the corn market though selling new crop, yes it has sold off with this break, no surprise there. If the old crop is going to fall it's going to drag the new crop a little bit. And I wouldn't be surprised if new crop corn, Dec gets under $6. Can I sell it? No. I can not bring myself to sell short that market yet. I think if anything end users should use it to be buying and locking up needs. There's a huge gap on the charts, weekly and daily. At some point that gap will be filled. Secondly, the RSI's, I looked at the RSI's on the December corn contract of next year, it is the lowest in 20 years. And then if you look at the weekly it is the lowest since 1999, I think July 10th of 1999. That tells me to be careful and not get too bearish here.
Pearson: All right. You mentioned using this opportunity for feeders out there to lock up their corn supply.
Pearson: We've seen a nice bounce the past couple of weeks in livestock. Is that feeding into this? Where do you see live cattle headed?
Martin: Well, I'm friendly both meats, cattle and hogs. I think, one, years ending in a 3 do tend to give you higher highs on cattle. Now, I think -- feeders can be a little schizophrenic in a year ending in a 3 -- I think the last year or so we've had feeder cattle leading the way. This year coming up I think it's going to be fats leading the way. We've got a problem out of Brazil, they have BSE and on top of it they have had issues before with hoof and mouth. So you go over into -- and Japan was the first one to cut them off and Japan is a pretty big buyer of their beef although Russia joined in and that is their largest customer and I think that's interesting because you have Russia who just probably three weeks ago banned imports of U.S. beef and pork and Canadian beef and pork. Well, now I think they are caught between a rock and a hard spot and I think they'll have to relinquish a little bit. I think the U.S. producer is going to be in flint, I think they are going to have a blessing here and this couldn't have been a better time for this to happen unfortunately for, at the expense of Brazil. But I do think that when I look at China, Russia, Egypt, Saudi Arabia and of course Japan those are a lot of buyers and a lot of markets that are certainly going to be able to be coming to the U.S. and we do have a decent supply. Granted we're going to get tight but I think our cattle prices are going higher and, of course, meat supplies, beef supplies are down nicely from what they were in October to the end of November. I think that is good. So I guess I see good things on the horizon for the cattle producer.
Pearson: Excellent. Hogs are bucking the trend. What is your thought on hogs? You're bullish on the meat?
Martin: Yeah, I'm bullish on hogs. In fact, I almost like hogs the best but I like fats too. I think that the hog market, you know, they've gone through a tough year and we may see some periods where they're going to get a chance to protect their feed costs in both soybean meal and in corn but I think I'd be doing that because I think we're in for a volatile year. But when I look at the hog market we have to realize hams in the inventory report, cold storage report showed that the amount of hams is down sharply from just, I think it's down like 35% from October to the end of November. And, of course, that has most likely gotten exported into Mexico. In the meantime, you look at pork in general and we're down 11% from October through the end of November. I think that even though we're still up 23% from a year ago the product is disappearing and as we go into this next year I think, remember Europe, they said in the last half they're looking at a pork shortage. Well, I think we're going to have the supply to be able to give to them. We won't be abundant but I certainly think we're going to have supplies to give to them. I think the livestock producer is in looking at a good year ahead. And, you know, the hog market has been very counter-seasonal since August and I believe that we're going to see higher highs yet even before the February expiration.
Pearson: We've got about 20 seconds left. Sue, where do you think hog prices are going as we look forward?
Martin: Well, I look at the Junes and I think your Junes will go to $104, $105, maybe higher. The Februarys I think will come back up over $92. They might make it to $95. We'll see. But I just don't think I want to be too bearish.
Pearson: All right. Keep a positive attitude there towards the livestock and fulfill your feed needs in this price break.
Martin: Absolutely. I would be.
Pearson: Excellent. Thank you so much, Sue, we appreciate you being here. That wraps up this edition of Market to Market. But if you'd like more information from Sue on where these markets just may be headed visit the Market Plus page at our website. You'll find expanded market analysis, audio podcasts and streaming video of our program as well as links to our Twitter feed and Facebook account, all free at the Market to Market website. Be sure to join us next week when we'll reflect on the year that was in rural America, 2012 in retrospect on the next Market to Market. Until then, thanks for watching. I'm Mike Pearson wishing you the best this holiday season.
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