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Market Analysis: Sue Martin

posted on March 7, 2014

Market Analysis: Sue Martin

Pearson: Here now to lend us her insights on these and other trends is one of our regular market analysts Sue Martin. Sue welcome back.

Martin: Thank you Mike.

Pearson: It is a busy week in the grain markets.

Martin: It has been wild.

Pearson: Let's talk about the wheat market. That is where we have seen the most strength. Is that predominately coming out of the Ukrainian situation?

Martin: Well, it is a cluster of a lot of things. First of the Ukrainian situation is enhancing it because the Black Sea Region does compete very aggressively against U.S. exports. Russia is a very large exporter of wheat and so is the Ukraine, but the Ukrainian campaign on wheat exports is just about done. There might be - it is estimated between 4.7 to maybe 7 million metric tons of wheat left to get out the door. It was the corn that was to be started next and of course Ukrainian farmers are hanging onto that corn because the Ukrainian currency is falling through the floor and they look at their crops as something worth more than just the currency. So, they are hanging on and the uncertainty with the food. But beside all of that you have got the Middle East. There are countries like Syria, Lebanon, Iraq, Palestine, you have got countries that are looking at drought and have been the driest this winter over several decades and they are large wheat users and so it is going to be interesting. That is an area also of a lot of unrest. So, that is another situation starting to percolate. And then you have got Australia who is dealing with possible forming of an El Nino. They have already had a drought this past year and while their crop did come off ok, it is going to be this next season that is going to be of concern. The open interest in the wheat markets, the lowest that it has been since 2009 and usually when you have extremely low open interest in a market, it is pretty much done going down. Everybody is short that wants to be there and then everybody else has left that can't stand to be short. So, the market has one other direction to go and it is back up.

Pearson: So, wheat looks like a buying opportunity at this point?

Martin: I think so. All my technical indicators I use are very positive on the longer term, and I think that when I look at wheat, I think wheat has potential for maybe close to a dollar rally yet before it is done. It may take a little bit of time, and another thing we don't know that the condition of our U.S. wheat crop. You know wheat went into dormancy in very good crop conditions. Some of the best conditions we have seen in years. Now all of the sudden as it comes out we are thinking it might be in, you know all the sudden going back the other way. So, wheat has some story here.

Pearson: All right. It was a very deep freeze across much of wheat country.

Martin: Very much and another thing International Grain Council here about a week or so ago lowered global wheat production underneath the total of what usage is expected to be. That is bullish and then if you take the U.S., world's largest exporter of wheat and you take and maybe even if it is just a shy ten percent; well, I hate to say it but that is cramping into the style of production that needs to be a little bit more so we can stay in tandem with our usage.

Pearson: All right. Now as we look at that, a potentially shorter wheat crop this year, are we going to see a lot of spillover support into corn as we look at some of the deferred months?

Martin: Absolutely. Corn and rice both. You know Argentina is not exporting wheat either. They have kind of come off with about 500,000 metric tons of export licenses but not much, I don't think, gone out the door yet and they are not exporting corn. You know they are not exporting soybean meal and soybean oil and they are the world's largest exporters of that. So, corn does have a story underneath too. Here again a market that got too cheap you know tractors cost a lot, combines are a half a million dollars by the time you buy the heads, you know $5.00 corn, it is not overly priced. And in the meantime you have got farmers holding onto a lot of corn but some of that has been moving with these rallies and I suspect more is going to have to move as we warm up with the weather. Still, now with the lower forecast of acres this year and now the potential of a later planted spring, boy that is going to put some fear that we lose more acres yet before this is all said and done and that is kind of infusing a little bit of rally here in the corn market too. We had $5.00 corn on Friday and you know if fact we got over $5.00. July contract got to $5.06 and the December got up to $4.93. So, we are getting into areas that psychologically is pulling a few sales out by the farmer and that is a good thing but I don't think we are done yet.

Pearson: All right. So, would this be a good time to maybe make an increment of sales on the new crop looking at the Dec contract? Or would you hold off and try to catch five or a little higher?

Martin: I think new crop corn has got a chance to still move a little better. I don't think we are done yet. In fact the corn market might absolutely surprise us when it is all said and done. The one thing is the feed usage. I think feed usage has been way better than what was expected. Part of it is we have to remember in 2012 our harvest started on corn in late July and there was a lot of old crop corn that got comingled, I should say new crop corn comingled with old. Now in 2013 the opposite happened. We had the crop harvested extremely late and so we didn't comingle anything. I think the usage has been good. You have had an extremely cold winter. We are feeding the hogs heavier to compensate for the loss of pigs. We are feeding cattle heavier because they are trying to capture all the money they can at record prices. I think that we are looking at a market here; you know DDG has got extremely high, China had been buying aggressively and running the price up. Then they cancelled 10 to 15 thousand metric tons, prices fell a $100 a ton, they came right back in three weeks ago and started buying again. So, in the meantime you have got feedlots they would much rather feed corn even than DDGs if they can, if it is cheap enough and they have been doing that. So, I think the feed usage has been very good. In the meantime the processing for ethanol has been pretty aggressive but that said I am hearing a lot of ethanol plants are bought up through May. So, that could be a little adversity a little bit later on down the road.

Pearson: All right. Now let's talk about soybeans. You mentioned China cancelling some orders of DDGs a little while ago, the exact opposite in the soybean markets. I don't believe we have seen a cancellation yet, have we?

Martin: Well, we have but they haven't been big cancellations. China is slowing a little bit on their usage of crush or for the crush but is mainly because they are in the process right now while they have been slowing down with the Bird Flu and what have you, they are basically filled up. Their storage facilities are full and so they can't really get beans moved into the interior into where the crushing plants are and they are basically crushing and filling orders that they had from last year. In the meantime you have vessels sitting at ports that are sitting there full of beans and they are just basically using them as storage. So, I can see some maybe a few more cancellations. I don't think it is going to be anything major, you know? Basically China has been taking the beans from us as fast as they can go, but right now the price of beans is getting a little bit maybe rich for over there. So, we could see a little slow down but it isn't just China you know we are sending beans all over and then domestically our crush demand has been horrendously strong and that is because we have to thank Argentina for that. Their crushing capacity right now is running about 60 percent of normal and that is because farmers just aren't selling those beans. Export taxation is 32 percent versus 20 percent if it is crushed. So, they are hanging on to those beans just like the Ukrainian farmer holding onto corn.

Pearson: You bet. I had you against inflation on both those places.

Martin: Exactly and so that has shifted that demand to the U.S. and our crush has been good.

Pearson: Now we have seen a nice rally on new crop beans. Would this be a good time to get in there and make some sales or do you hold off or are you bullish on new crop beans?

Martin: I am very friendly new crop beans. I don't think our high is here and that is even in the face that I know we are going to pick up acres and of course if we have a late spring and it is cool and wet, well then we are going to pick up some more. But in years ending in a "4" since 1914, so the last ten of them, every one of them November beans made new highs for the year over the previous year. And if it is even just a contract high that is 13.33 on November beans. You know if you look at March for stocks and when all those stocks of Western Hemisphere stocks exceeds the previous year by 4.8 million metric tons or greater which it is then when I went back there is 14 of those years going back to 1976 and what was interesting was November beans mage higher highs those years with the exception of maybe four of them and those four you looked at the high of the previous year. So, I think $13.00 beans is fair game for new crop beans. Still today we have got up to $12 - right at $12.00/11.97, the market fell $.25 in a New York second. So, if a producer is concerned because you know there is a lot of money on the table maybe buy an $11.60 put and you will have about $11.04 locked in and then just walk away. I really highly recommend producers do not sell calls. Leave that top side open because this is an interesting year we are in.

Pearson: Could be an interesting summer.

Martin: Yes.

Pearson: Now let's take a look at the cattle market. Fat cattle we saw fall on the board this week down a little over a $1.50. Have we topped out on fat cattle do you think?

Martin: Well, I tell you 90 percent of the traders that, analysts in the cattle market that I think are worth a salt, all think so. They are looking at any bounce here to sell against that 45/50 to 145.50/46 area. I am not so sure. You know I have - I can see the huge reversal that we got. We started Lent interestingly the top came on the first day of Lent, Ash Wednesday, but on the same token our hot beef is back up towards 235 to 240. That is the all time high granted that we seen back in January that did cause kind of a back up by the consumer but that was also right in the very heart of bitterly cold winter weather and we are now moving towards spring and I think that maybe people have got so much cabin fever, you give them a little nice weather they are going to be going out to eat. They are going to buy that hamburger; they are just going to maybe make the hamburgers a little bit smaller. And they will buy the roast and they will stretch it but the consumer, you know if you look at our consumers, we have a large older population. They don't eat as much as they used and they will try to conserve their dollar but they - they don't eat as much. It is the younger generation that is kind of spoiled and likes what they - they are used to having what they want. They will find a way to have it and don't we all want something we can't have?

Pearson: Well now let's take a look at the feeder cattle market. We saw a little rise this week in spite of corn on a nice rally. Do you think that is going to continue?

Martin: Well, feeders are really high priced. I have to admit that and you look at the June cattle on out and they don't make it look real attractive but when I look at feeder cattle, I think right now I would say if there is going to be a nicer rally, I think it is going to end up being more so in the fats than it should be in the feeders. Feeders will come along. $181.50 is a wave five on the feeder cattle for May futures. Boy, I would be a little bit- you can see how the market is struggling trying to get there and you get up around that $175 and it has problems. So, I think it is a little bit concerning to be too bullish feeder cattle at this time and I certainly would be doing some hedges, certainly via puts and of course at some point we are going to have a huge break in this feeder market. You know -

Pearson: Pull back.

Martin: The traders never thought corn would rally and that is kind of surprising on what if it rallies more. You know that is going hamper demand, I think on feeder cattle but these fats wave four is 151.50 and we haven't quite gotten there yet and wouldn't you think you have the bullish campaign to do that?

Pearson: Yes. Now let's talk hogs real quick. Sue, up $6.00 this week. Do you see more upside in April hogs?

Martin: Well, Aprils are leading the way. You know it is interesting come Monday Russia is suppose to start taking U.S. pork, and I have just been holding my breath for fear that President Obama will put an embargo on that pork and keep it here but he hasn't done that. You know will he do it with food? I don't know think so. Food is a pretty major thing. But I tend to think the hog market is pretty lofty. We have already hit a wave four on the Junes.

Pearson: All right. Thank you so much Sue. That wraps up this edition of Market to Market. But you can find expanded market analysis as well as streaming video of our program -- free -- at our Web site.
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Tags: agriculture analysis cattle commodity prices corn cotton dollar economy feeders gold live cattle markets Mike Pearson soybeans Virgil Robinson Walt Hackney wheat