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Market Analysis: Sue Martin

posted on May 9, 2014

Grain futures contracts posted modest gains this week as the trade pondered the latest numbers on supply and demand and the potential for spring planting to kick into high gear in the days ahead. For the week, July wheat gained 7 cents, while the nearby corn contract moved 8 cents higher. Tight supplies continued to be friendly to old crop soybeans as the July contract gained 16 cents. The nearby meal contract followed suit with a gain of nearly $7 per ton. In the softs, cotton broke its 3 week rally as the July contract declined by $1.96 per hundred weight. In the dairy market, May Class III milk lost a penny, while the deferred contract gave up 30 cents per hundred. Over in livestock, the June cattle contract was unchanged, while August feeders continued their record-breaking rally with a gain of more than a dollar. But the June lean hog contract lost over $2.00. In the financials, the Euro lost 12 basis points against the dollar, crude oil advanced by 23 cents per barrel, Comex Gold lost $15.30 per ounce and the Goldman Sachs Commodity Index declined by nearly 3 points to settle at 648.40.

Market Analysis: Sue Martin

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're excited to have you here. We're excited to have you here, of course, on the day USDA released its latest supply and demand reports. Let's take a look at the wheat market this week. What did we see old crop wheat?

Martin: Well, first off, the ending supply or carryout was lowered more than most traders thought. We've seen a reduction in soft, we've seen a reduction in the hard red and also in the spring wheat as well. So, I think that, when I look at the wheat market here's a market that started off as it went into dormancy under the best conditions that we had seen in years. And then all of a sudden, you know, it's like that saying, it's not over until the fat lady sings, well this one is just in that boat. We've seen a market, a crop that came out of dormancy and just continued to hit demise. We're looking at winter wheat this coming Monday probably showing the Kansas crop, again, with another 7-8% decline, had a 10%, I think 9-10% decline last week. And so some say, well but we've priced in where the wheat crop is for now. Well, if that's the case then we're only going to catch our breath for a moment because wheat has a bull flag on the charts, it has a double bottom on the weekly charts and it also had a head and shoulders bottom on the daily charts. So I look at this market and think it's going higher. And, you know, the one thing about the wheat market is it's about $3.00 over the price of corn. And when you look at wheat being so premium in the cash market over corn, that market, what it is, is it's kind of in a little world of its own. The commercials love to carry a supply or a reserve of wheat because they get the carrying charges out of it and they continue to have carrying charges in that market. So they like that. But, so the demand is good for the wheat in that respect. But exports are good as well. Wheat is carrying a very good percentage for -- of course, we're coming almost into the end of the year so because of that we're running ahead of normal. In fact, corn, soybeans and wheat are all running ahead of normal for what the USDA normally would predict at this time and where our pace would be percentage wise. But when you look at the wheat market and our stocks are tightening in the U.S., now Canada granted has a big crop. But you've got to ask yourself, what prices is it going to take to move wheat from Canada down to Kansas? Not going to happen unless we go sharply higher. Now, you've got, because the price has really gotten better over corn, you're going to have an increase in wheat plantings probably in Argentina. You look at the Ukraine, Ukrainian corn is probably going to decline this year but we've got to remember the Ukraine used to be, they've got some good ground over there but they also tend to be in a drier climate and that is why they always used to raise wheat. But when you had corn prices up around $7 to $8 it just sort of enhanced that program and they lucked out and had an awesome year last year. That's not going to happen this year. So, I think wheat has higher to go. Would I tell a producer to be selling it right now? Probably not. Soft red wheat, Chicago wheat did make a 6.81% retracement from its contract high to its contract low. So, it's natural you would hesitate here on that. You look at the KC wheat, we got within 7 cents I believe of the highs of a year ago. The May contract set new highs over a year ago. So, I think the program is in good shape, we're running counter seasonal, that keeps people trying to pick spots to sell, that has been good for the market, but I still think we've got higher to go on the KC wheat. I think KC wheat is going to $9.00 plus.

Pearson: Alright. A little bullish note there to end the wheat segment. Now, let's talk about corn. You did say that the Argentinians probably aren’t going to be seeing $7.00 corn. What do you see for Americans as we take a look, let's talk old crop corn first? We saw a reduction in stocks there on the USDA report. Is that going to have much of an impact on this market through the remainder of summer?

Martin: Well, I think so. The traders, you know, a lot of these analysts, I want to say, I shouldn't say this, but are stupid bearish. They just look at the face value, they don't dig into all the fundamentals and the reasons behind them, they just look at face value of what is out there in supply. They forget to talk about what is going to happen in usage. And in the meantime, you look at corn and they say, well, you know, feed usage is going to be up around the world globally. Well, you look at Europe, are they going to feed $8.00 plus wheat? I don't think so. They're going to feed corn. So they're going to import corn, feed corn and they're going to export wheat is what they're going to do. And so when you look at the old crop corn, we have, the USDA increased their export number to 1.9 billion bushels. Well, I think the USDA woke up. We have a huge export package or book on the exporters' hands and come June, July and August, those exporters are going to be busy exporting corn. They're going to compete against the ethanol plants who are making good money and are also after that corn. But I think this corn has got a home going and they're going to be bidding for that cash corn because they have to fulfill those orders. Now, the bears will say, but you've got I think 589,000 metric tons of corn yet to go to China that hasn't been shipped yet and you've got 4 million metric tons that hasn't shipped yet to unknown destinations so we don't think we're going to get that 1.9 billion bushels. Well, I don't agree with that. That's corn yet that is still unshipped. But, like I say, we have three and a half months plus to get that done.

Pearson: Alright. Well, now let's take a look at new crop. And Sue, as you know, every week on the Internet we do the Market Plus segment where we tape the questions from viewers via Twitter and Facebook and we've got one this week on new crop corn. We thought we'd ask it during the program. William in Hiawatha, Kansas is confused on the corn market as we look at new crop. He says, is $5 enough or is it possible to get to $6 or to $4? What is more realistic?

Martin: $6.

Pearson: Alright.

Martin: Well, not everybody agrees with me. But when you look at this new crop corn, first off, yes we've got planting taking off. What happens? Corn goes up. Everybody thought, oh, corn's going to fall down, they sell into it but the market goes up. They had every reason they wanted to today to be able to sell that market and break it and close the week lower. Did they do it? No, they couldn't get it done. I think that, yeah, the daily charts are vulnerable. We have the market a little bit overbought. You have spent, what, three weeks, four weeks in a range here on corn. You don't top a market that way. We're just killing time, another stair step to move it higher. $5.21 on December corn was a minor wave 3, we got to $5.17 so we're just kind of digesting that but we're going to go higher. You have huge gaps above this market in continuation. On the July from $5.52 to a little over $7, that's huge. And then you've got it on the Dec corn as well, maybe not quite as big, I think $6.32 to $7.10 or something like that. So, I think corn is going higher. I think $6 is probably going to be realistic. But you've got to get over the $5.73 that was last June's high on December corn contracts. So, I think we've got to get over that and this year's Dec. corn I think got to $5.79. So, once we clear that, I think the doors open and then we'll start pushing stronger but I think we're going higher.

Pearson: Alright. Well, real quick let's take a look at the soybean market. And let's talk new crop soybeans. Didn't see much of a move this week, relatively flat at 3 cents up. Where do you see us going on the new crop side?

Martin: Well, I think I forgot to take my horns off because I'm very bullish.

Pearson: Okay.

Martin: I think beans also have the potential on new crop to go higher. I think that for stuff when you look at years ending in a 4, it's a pattern, but years ending in a 4 from 1914 every one of them has made new highs from the year before on a new crop bean contract. Furthermore, just because we have all this production in South America and now looking at the U.S., but looking at March 1st stocks, in years when the western hemisphere's March 1st stocks increase from the year before by 4.8 million metric tons or greater there has been 14 of them since 1976. 10 of those November beans made new highs. The other 4 they tested the highs. I think you look at these new crop beans, yeah, at some point we're going to say, gee, we're going to have some beans coming out of South America. The one thing everybody has been so bearish about and try to push is all these imports that we're going to have. Well, guess what? Maybe those imports just don't make it here. China is back already buying in South America. So those Brazilian beans, it would be only natural that stocks would go up in Brazil and Argentina, the Argentine farmer isn't selling and he's harvesting right now. And then you've got in Brazil some of those cancellations so those beans are sitting there. But just maybe those beans don’t' make it here because with China stepping in and starting to buy, well, guess what, all of a sudden you start seeing that value of beans in Brazil start escalating and all of a sudden that commercial is going to say, you know what, we don't need them in the U.S., we'll keep them down there.

Pearson: Alright. And now we'll talk, we had a big move up in old crop beans, we'll talk about that on the Market Plus segment on the website. Let's take a look at the cattle market. Fat cattle didn't move at all this week. Unchanged. What does that tell you where we're going?

Martin: Well, I think with the fat market, you know, we're looking at the feeders, we're congesting here and a lot of times you'll get a market that will hold, after Easter you get that little post Easter rally and then the market tends to peak and you've gotten your Memorial Day weekend buying done and then the market slips off and sells off. So there's a little bit of a seasonal there. But I think what we've got going in this cattle market is we're holding back heifers and that is very friendly to feeder cattle, that is what has been holding the feeder market up. And so as we hold back heifers I think it's also going to push up your October cattle and December cattle, especially the October. So we might be surprised what is underneath that October futures.

Pearson: Okay. And real quick on the hogs. Do you see this downward trend continuing?

Martin: Well, I think the hog market as we go towards June can be kind of an ebb and flow market, not like a normal June market would be. Years tend to be like that when you have a late Easter and we had one, but this market really priced itself and yet if you looked at exports, phenomenal on pork, you bet, and beef.

Pearson: Thank you so much, Sue. That wraps up this edition of Market to Market. But Sue and I will continue our discussion and answer more of your questions in our Market Plus segment online. You'll also find audio podcasts and streaming video of our program as well as links to our Twitter feed, Facebook page and the rest of our social media outlets exclusively at the Market to Market website. And be sure to join us next week when we'll examine efforts to improve water quality in a leading farm state. Until then, thanks for watching. I'm Mike Pearson. Have a great week.

Tags: agriculture analysis cattle commodity prices corn cotton dollar economy feeders gold live cattle markets Mike Pearson soybeans Sue Martin wheat