Grain prices declined this week on fiscal cliff jitters and a stronger dollar. For the week, March wheat lost 13 cents, while the nearby corn contract moved 8 cents lower. Soybeans followed the coarse grains south as the March contract lost 11 cents. Nearby meal followed suit giving up $6.60 per ton. In the softs, cotton gave back all of last week's gains and then some as the March contract lost $1.52 per hundred weight. In the dairy market, January Class III milk lost 3 cents, while the deferred contract moved 29 cents lower. Over in livestock, February cattle gained 17 cents, nearby feeders were off 18 cents and the February lean hog contract declined by 50 cents. In the financials, the Euro gained 44 basis points against the dollar. Crude oil advanced by $2.14 per barrel. Comex Gold declined by more than $4 per ounce. And the Goldman Sachs Commodity Index gained more than 5 points to settle at 643.75.
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's been a busy week. There's been a lot of talk about the fiscal cliff. I'd like to just dive right in with you and talk about grains. Can we talk wheat? We saw big export numbers in wheat. How is that going to move the market in this next week?
Martin: Well, I think that wheat is now becoming, U.S. wheat is now becoming very well priced and competitive in the world so our exports should start picking up. That is a positive. We know that crop conditions as the crop went into dormancy for the hard red winter wheat was at the worst ever in history I think, or in record. And so we have to wait for the crop to come out of dormancy. But that said, Chicago wheat got down to a price level that we had talked about to our subscribers on our website that they may want to watch and possibly look at a buying opportunity if they were needing to sell cash and wanted to now replace it back. This level of $7.67 to $7.57 should be a supportive area. In the meantime, you look at the wheat versus the corn, March to March, and it appears like the wheat is making a low here, a double bottom on that spread and that could be, we need a little more proof, but that could be another clue that the wheat market is going to do a little better than corn for now.
Pearson: And as we look at the wheat exports picking up and international demand growing does that kind of tell us that there might be a ceiling on this market at that international buying level?
Martin: Well, I think that what we have going on is everything is so competitive as we kind of dance around but there's not large supplies of wheat really around either, world supplies are pretty tight. And so that makes our wheat, which is very good quality, probably the better bargain in the world at this time. So I think the wheat producer is probably looking at a better chance not to mention the spread between corn and wheat March to March is around 78, 79 cents. That's pretty narrow. The last time we were here was back in early fall and so I think that coming back down into this, I think that spread is going to entice maybe some wheat feeding over corn if it gets too cheap and you've got to be able to, you have to pay premiums, basis down in some of the cattle country. They're paying some pretty good premiums over the futures market. So that is going to entice some demand for wheat as well. So I like the wheat market. I think it has potential. I think wheat is one of the markets this next year that has some wonderful potential to still try to turn itself higher.
Pearson: All right. Let's talk corn. You mentioned the spreads getting closer there with wheat. How is that going to affect the futures market in corn as we move forward?
Martin: Well, for corn if that spread works the way I think it's going to put the demand over to wheat because of narrowing and, of course, as it narrows demand for feeding switches over to the wheat instead of corn, that pulls demand away from corn, kind of softens it up a little bit. The one thing that has been sort of impressive for the corn market is the fact that when you look at all the problems on the Mississippi River and you look at the fact that the Pacific Northwest has had some problems as well with dock workers and strikes, now they're talking in the Gulf of Mexico and also up in the northeast that there's going to be some issues of talking possibly of strikes as well. We don't need our exports slowed any more and I think that's part of the problem too for corn, not to mention that we had the earliest harvest almost on record for corn and we don't know yet just how much really went into taking care of getting us through the year of 2011-2012 with corn exports. And where is that corn at? We know it's gone. So that takes some of that limelight of having to have exports right now, maybe it has already been done, maybe we don't have the corn there to be able to do. Everybody is really focused on the January reports. I think underneath they're a little concerned that there would be bearish reports and January reports tend to be very volatile in market price. So when you get past the turn of the year I look for traders to be very apprehensive in the corn market. The one thing that has really surprised me in the March corn is that with all the negative rhetoric that they've tried to give to corn here, it hasn't been able to fill the Fourth of July gap. It has came down, filled within 3 cents of it and kind of moved up away from it. And I'm thinking, why isn't it just going right on through and filling it? And it seems very tenuous and I'm surprised at that.
Pearson: Well, let's talk soybeans. You've been bullish long on soybeans. Do you see that continuing as we get through this low point here at the end of the year?
Martin: Well, I do. The one thing -- I had thought that December would be an inside range month for soybeans. In other words, we would not make a lower low than we did in November and we wouldn't take out the November highs because that would have been taking out $15.71 and a half on the January contract. Unfortunately instead of a higher monthly close or yearly close it appears to me we're going to get a higher yearly close but in the lower half of the range for the year unless we take those January bean contracts and close them on Monday over $14.44 and a half. So that is concerning making such a nice run -- we had a $7 move in beans last year, this past year and so to take half of that back away or more and then settle out in the lower half of the range says we've got some work to do. Taking out the October highs is going to be impressive. Now, there are some areas in Brazil that are starting to have pockets of dryness, they need some rain. Other areas have had a little too much and they need some dryness and places in Argentina as well. And the forecast over the next ten days sounds kind of more kinder, I guess, so we'll see. I think this fiscal cliff is also kind of holding us back. Interestingly, China cancelled 840,000 metric tons of soybeans and now have turned around and are buying them hand in foot, right and left back again. And I think that just shows it probably was a ploy on their part.
Pearson: And that was one of the concerns we had talked about last week is that what the Chinese were playing and it turns out that that is probably what they were up to.
Martin: Exactly. And the other thing that we need to keep an eye on is maybe they cancel the imports of beans but they really step up their imports of products and they do it that way. Regardless the beans are going out the door indirectly. And we had another 30,000 metric ton sale of soybean oil here on Friday. Those are big sales for soybean oil. And I think we also need to look at that St. Lawrence Seaway, the Great Lakes and see just how many containers of product is going out through that Seaway.
Pearson: Up through the northeast.
Pearson: Let's talk livestock. Last week we didn't have a chance to talk about it very much. Where do you see live cattle headed her in this upcoming year?
Martin: I'm bullish cattle, the fats especially. Feeders I think will lift on the back side of the fats. If we continue on with some dryness in the western Corn Belt that's going to be tough on the feeder market. We're hearing all sorts of talk about pasture land being tore up to go into irrigation corn. So I think that if you have any dryness the demand for feeders is going to back away. But the fat market being strong and we've had nine weeks of beautiful exports, this week I think we were like 76% higher than a week ago or a year ago and 11% higher than a week ago. So I think we've got a beautiful export demand going. We need to see that continue. The weights are a little hefty and we need to see that settle back a little bit. But all in all I think the cattle market is in pretty good shape. I think the February contract might see a $139, maybe we get Aprils up around $145.
Pearson: Do you have any thoughts on the price of feeders going forward?
Martin: Well, when we get up around that $163, $164 area I think feeders have got a problem and I may be wrong but that's the area that stopped us this last year. And I kind of thing, again, if I'm right that the fats are going to lead the way, feeders are second nature they might get back up there. But I'd take some protection if I was a producer of feeder cattle just because of this weather. It doesn't look like it's changing anything. The eastern Corn Belt, yeah, they have some moisture. But basically it's the western Corn Belt and up into Montana. Now, Montana has got some good pasture, they've caught some rain. But beyond Montana you go on south and I worry that we're going to have water restrictions by April in Nebraska. And if that is the case there's going to be some -- that could pull some demand away from these feeders. So we need to keep a very close eye.
Pearson: So keep an eye on it, watch the market and see how things trend out.
Pearson: Let's talk hogs a little bit. We had the report come out today. How is that affecting the market going forward?
Martin: Well, I thought the hog market, the report was kind of a surprise. To some it was a little bearish surprise because of the fact that they expected us to see a little bit of liquidation and less hogs being held for breeding purposes, that type of thing and it didn't. The hog report showed basically the same numbers as a year ago right around 100% to 100.3%. The only one that was down was 99 -- let me try that again, was the 50 pounds and under at 99.3%. So I think that that is a very good sign. Now, here's the bullish side. I tend to be an optimist. But for corn that tells me we maybe have not seen the demand rationing on corn at $7.50 for the hog producer otherwise we'd have seen that show up in this report I think.
Pearson: Sue, as we look forward, looking at those numbers what sort of price range do you see out there in the hog market?
Martin: Well, I've been a bull on the hogs for some time since August and I tend to think we have a good hog market this next year. Again, Europe in the last half is talking tight, tight numbers. They are big pork eaters. You've got -- on the beef side of things export bans, on imports I should say of Brazilian beef and Russia has turned around I think the largest or second largest importer of Brazilian beef and they have turned around and backed out on us on U.S. and Canadian and I think that just sort of rubs back into pork that they'll try to pick up more pork. So I guess I tend to be very friendly to hogs and I think we'll take these hogs over $105.
Pearson: Thank you so much, Sue. 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 examine the outlook for rural America in 2013. Until then, thanks for watching. I'm Mike Pearson wishing you the best this holiday season.
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