A combination of weather, a stronger dollar and thinner supplies made for mixed markets. For the week, July wheat lost 21 cents, while the nearby corn contract moved almost 17 cents higher. Soybean processors searching for supply pushed the July contract higher with a weekly gain of 50 cents. Nearby meal prices followed suit with a weekly move of $18.30 per ton. In the softs, cotton lost last week’s gain and a bit more falling seven cents per hundredweight. In the dairy market, June Class III milk fell 36 cents while the July contract moved 14 cents lower. Over in livestock, the June cattle contract lost $1.05. August feeders were off $3.25. And the June lean hog contract gained just over a dollar. In the financials, the Euro lost 155 basis points against the dollar. Crude oil – after gaining almost 90 cents on Thursday -- finished relatively flat for the week losing 2 cents per barrel. Comex Gold declined by $72.10 per ounce. And the Goldman Sachs Commodity Index moved nearly 3 points higher to settle at 633.25.
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: We mentioned at the top there stronger dollar. We've seen the dollar getting up into relatively high areas recently. Can you give us a little bit of description of what's going on there with the dollar?
Martin: Well, I think part of it is, is that the economy is viewed in the U.S. as being better, that it's percolating along a little better. And investors, some of your analysts that are handling foreign money are viewing the U.S. as a good investment haven right now. And so we're seeing investment money coming in from overseas going into our stock market and also, of course, handing us dollars in doing so. And I think that is part of the reason the market keeps getting pushed up a little bit here at this time. The news here out of the U.S. seems to be good and we're viewed as the less of all evils.
Pearson: Certainly. Now after it is over 84, the dollar index is over 84, what does this tell us for the commodity market from that perspective?
Martin: Well, normally it would say that this kind of causes things to be more, commodities to be more expensive to the foreign buyer and so therefore it can kind of slow up demand a little bit. And we're kind of having a problem with demand right now anyway for various commodities. If you're looking at the grains, for example, and production of soy and corn and wheat, well, it appears that world stocks are going to grow over the next year and expectation that the global drought that we were in this past year may change and we’ll see good production in most countries this next coming season. And therefore that's going to make it tougher for us to sell our commodities because we have to be competitive.
Pearson: Now, specifically looking at overseas markets and U.S. producers who are getting close to wheat harvest and the wheat price, even though harvest isn't looking great here in America, the wheat price keeps slipping. What are your thoughts on nearby wheat?
Martin: Well, I'm very friendly wheat but it isn't gratifying me just yet. I think the market is in a little bit of denial. It may have gotten propped up a little bit long going into the quality wheat tour in Kansas and now we're kind of correcting back, we're on a little bit of a seasonal slip where we're heading towards harvest, especially even for soft wheat. And so I think what's happening is that when the USDA came out in their last supply and demand report and talked about the yield at 45 bushel to the acre, a little over 45, that seemed a little high and I think that with the quality wheat tour talking about a 42 yield, or actually it was 41.2 I think it was, it was just under the year before, that seemed even a little high at the time and it may still come down. What we're going to have to do is prove it and we're going to have to see combines start rolling and with the cold spring it certainly delayed growth. Now with the heat moving back in it's going to help us percolate along. But I think once we get in towards some, well, I think by the 10th of June and even actually before that I think we're going to have a low in place on this wheat and we’ll be heading back higher. I'm friendly to wheat and I think Chicago wheat has a chance of swinging $8.00.
Pearson: Just getting through harvest is the key, seeing what is coming off the combine --
Martin: Yeah, well, coming off the combine, realizing that the crop isn't there domestically, our stocks are going to be tight domestically. On the flip side everybody looks at the rest of the world and says, well, you know what, we might have more out there than what we need so therefore even though we're the largest exporter of wheat in the world we may have to do a little bit of price competition.
Pearson: Sure. Certainly. Well, let's look at corn. And, again, we've got the story between the old crop hampered by drought and the new crop still potentially looking at large acreage numbers there. Talk to us a little bit about what you see in old crop versus new crop corn.
Martin: Well, the old crop right now, you're right, it's like two different markets. We have a big inverse that continues to grow. Today we've seen where there was a processors out of Council Bluffs, out of Omaha I should say, that was offering 88 cents over July if you could deliver it by Monday for corn. And the rest of the month may be 83 cents over. So if a producer has corn in his bins and he is near ethanol plants, processors or whatever he needs to be keeping an eye on this basis. Farmers are not selling corn, they're not even thinking about selling corn right now because of the fact that they're just busy getting their crops in and it is later than normal. And so they're a little concerned about that and they want to see that once the crop is in and get it all up then start to take a look at what is going on weather wise and maybe then they'll start to part with it if we actually indeed have the crop out here. I think there's corn in the farmer's hands. I'm not so sure it's as aggressive as what the USDA thinks. The key is how much did we really move from the new crop into old crop in 2012 that we maybe have the USDA overestimating our crop? We won't know that until we get more into June and possibly even into early July. The problem is with a producer waiting until July thinking he's going to cut a fat hog with a $2.00 basis or something over the board it's going to be over December futures because they'll roll out. And so he's going to see a little slippage. So we've been telling producers, take a look at this basis, if you're in an area where you've got tremendously good basis like that take a look at it because you can garner $7.40, $7.35 on your cash. That is not bad.
Pearson: Take advantage of it if it's nearby. Well, let's look at soybeans real quick. Again, we've got that same spread, old crop versus new crop. What are your thoughts there?
Martin: Well, I think that on the beans, first off, on both beans and corn I'm still friendly on those markets. I've always been of the opinion that June was going to be a better time of the year to make these sales for old and new. Now the new crops are kind of giving me a little grief right in here but it's not over with yet and we may even slide into early July before we totally peak. But what I'm looking at is, is that the old crop is in very much tight supply in the U.S. and the USDA has kept our carryouts the same for the past two months. But in the meantime we're seeing exports percolate right along, we're just right under, I think we're around 99% of what the USDA, 99.2% of what the USDA had us targeted for and we still have a lot of time to go. Now, the thought is that yes, Brazil will be getting their act together and getting exports moving but China is taking 70% of their exports. So therefore the rest of the world has to come to the U.S. for beans. And even today we've seen export sales, I should say an announcement for beans that were old crop beans, about 18,000 metric tons out of 138,000 metric ton crop sale to unknown destination but 18,000 of it was old crop. And then China was also in for a large amount too of new crop. So our sales are still percolating along and when I look at beans I think that we're still, I'm still on deck for looking at June, possibly early July, but we want to be watching real closely because they're already starting to roll from July into November. The November contract, I don't think I'd sell that with wooden nickels just yet. I'm very friendly the new crop contract of beans.
Pearson: Alright, be patient and it'll pay off.
Martin: Well, I think so.
Pearson: Excellent. Well let's talk, let's move over to cattle real quick. We had the cattle on feed report out today. What are your thoughts there? How is that going to impact the market come Monday?
Martin: Well, the cattle market has had such a hard down day on Friday and it has also been kind of funky for the whole past week. You have the choice select cutout near all-time highs and then you have the cash market which did come in about $1.00 lower this week at $125 but here we've got futures around $119 something. You know, we're just, there's a pretty good spread there. And normally June is seen as a soft month and our demand seems to be percolating again pretty good finally now that we're entering into a grilling season. It's been very late this year and that has been part of our problem. The other part of our problem is, is that we continue to have to compete with the consumer's tax, disposable income against beef versus pork and poultry. And we have a good supply, increased supply of pork this year and an increased supply of poultry and therefore the cattle markets really had to struggle and until we get the western Corn Belt, areas where our pastures are in better shape, you know, who is to say we're done because our cow slaughter has been increasing a little bit.
Pearson: That's right. Now let's talk a little bit about the hog market. We did see a sell off today. What are your thoughts there? How is that going to impact the market come Monday?
Martin: Well, the hog market, I'm kind of leery of the hog market. For one thing let's look at China, you know, everybody has been thinking that our exports would really pick up and we'd be exporting and China has increased their production pretty aggressively to where their prices are falling and doing so at a time when the Avian Bird Flu has created demand to step away by the consumer, you would think well they'll go and they'll switch to pork but it doesn't matter, it hasn't held the price up so they have overproduced their demand. The government has set up a second round of reserve buying for their reserves, building up more reserves just trying to support their prices. So obviously they aren't going to be importing pork. Europe was thought to be, in the last half of this year, to be lower in production and yet the USDA came out and showed world supplies for this year to be higher than what we were thinking. Now, this is kind of interesting because not only has U.S. markets been high the past year for corn and feed but so has Europe and other parts of the world. And yet the producer didn't cut back his production, he stayed in there and even increased a little bit. Abnormal, very abnormal and so this speaks to us that the prices are still going to wane here and probably move lower. We're about seasonally ready to peak I think.
Pearson: Alright, thank you so much, Sue.
Martin: Thank you.
Pearson: 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 again next week when we'll examine further debate on the farm bill. So until next time, thanks for watching. I'm Mike Pearson. Have a great week.