Grain markets were mixed this week as wheat prices bounced back from last week's plunge. For the week, September wheat gained 6 cents, while the nearby corn contract moved 6 cents lower. Soybeans also declined as the August contract gave up 19 cents. Nearby meal prices followed suit with a loss of $7.50 per ton. In the softs, cotton declined for the fourth consecutive week as the December contract lost 38 cents per hundred weight. In the dairy market, August Class III milk gained 61 cents, while the deferred contract moved 14 cents higher. Over in livestock, cattle prices recovered a portion of last week's losses as the August contract gained $2.50. August feeders advanced by $1.28. But the August lean hog contract lost $1.60. In the financials, the Euro gained 8 basis points against the dollar. Crude oil advanced by $2.30 per barrel. Comex Gold declined by $28 per ounce. And the Goldman Sachs Commodity Index lost just over 1 point to settle at 630.50.
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: We saw a bit of a rebound in the wheat market this week, of course with the turmoil in the Ukraine. Have we put a low in, in the market, do you think?
Martin: Well, I think the wheat market has, it might still fall another 20 cents, something like that. You know, it did try -- it has been stabilizing here. It was kind of congested the past week and then, of course, the news out of the Ukraine gave a sharp outside range day, key reversal potential and then today we turned around and took a chunk of that all away. And, you know, it'll be interesting because it's an inside range day. So if we're putting a low in here then we need to see it within the next two trading sessions, maybe put in and start to reverse and come back up again. Taking out the high of Thursday should be very positive for wheat and to note that we're kind of pulling the hedge pressure off. You know, over 85% of the crop is harvested. And even though yields are getting better the further north they go, you know, we have to realize that there is an El Nino coming, it may be a moderate one, but usually El Nino means that grain prices, not grain prices but grain production elsewhere in the world sometimes tends to bite the dust a little bit and you've already got, while they're saying Australia is looking good at the moment, they're liquidating cattle and that has to make you question why are they liquidating cattle when they're in a second year drought? How is the wheat then? Is it really as good as they say?
Pearson: Alright. So as we take a look for producers out there wrapping up harvest, advice for marketing?
Martin: Well, for now I'm going to tell them to try to hold off from making sales because the market has evaporated so much. You know, the last time I was on the show I thought we could still go maybe and try for $9 wheat and we were hanging up around $8.50. Nothing wrong with $8.50 obviously now. But the problem is at the time we were adding in stocks of corn and wheat globally in the reports and all of a sudden the focus started to shift away and we started going back towards supply, also looking at demand side of things, saying that the U.S. was priced a little too high for global markets and therefore we were losing our demand, we had priced ourselves out. And so now we're too cheap, we're getting too cheap and so I think if nothing else there will be something, even if we don't turn and go back up to the highs there should be a nice little rally coming this fall. And I would think that producers will get a better chance to sell it down the road here than where we are today.
Pearson: Alright. As we take a look over at the corn market, last time you were on you were very bullish on corn usage as we look to the future.
Martin: Mike, I was bullish everything.
Pearson: And we've seen corn drop a little bit since the last time you were on. Do you still think there's a pretty bright future for demand? We've got a question from one of our Twitter followers, Wayne near Shelby, Iowa. He says, assuming good crops this year and a slow building demand, will we have low grain prices for 2014-2015 do you think?
Martin: Well, I had always been of the opinion that 2014 would have a chance for some rally. And then we would benefit ourselves in the fall with El Nino, with the wet fall, gratify subsoil moisture and then turn around and break in 2015. So we're kind of, we tried the effort, couldn't hang onto it. We're declining in prices. I think that what we're going to see is very -- if I'm right about the El Nino that it comes in and it hits us more towards fall and we have a wet fall and problems occur around the world, then I think what could happen is we could have a more volatile market here over the next two years. So you could have wild swings in here. You know, the one thing I caution producers and speculative traders on is keep in mind corn has huge, and I mean huge, gaps above the market. From about $6.32 to about $7.10. And so, and that's on a Dec contract, year-in, year-out Dec contract. All the market needs is a little nudge or just a little bit of a story to start it and it'll start working that way. Have we got the story right now? No, we don't. We've got -- when the USDA in May and then added to it in July, or June, grew global supplies by 10 to 12 million metric tons, all of a sudden that's saying well, you know what, you can have your little setbacks but it isn't going to matter. And then you've got bigger acres, not bigger acres in corn so much, but big enough and the weather we're gratifying moisture. And so it's going to be interesting because I do think we're going towards more of a drier pattern now to finish out this season. But the problem is if the temps don't get hot with the drier, you know, we won't really see the effect on the marketplace, it'll just ignore that until it sees the yields. So -- and right now I would say we probably have priced in a 170 bushel per acre yield. Does that mean corn can't go lower? No, it certainly can go lower and it could try to ebb down to the $3.70 level, $3.77 to $3.75 area was kind of a support shelf going clear back to 2012, every low there was a channel line there of support. But if you break that you could sink even more and probably look for $3.40, $3.50, some are thinking $3.08 and there's even some people talking at $2. Well, if you're talking $2 I don't see a $2 in corn. I think it's too cheap. We're feeding livestock heavier, especially hogs. They came in 13.5 pounds heavier this week than a week ago, or a year ago I should say. And so, you know, you're finding use for all this corn. One thing that concerns me for corn usage is in the ethanol industry. We have already seen where a few ethanol plants have started to take in or bring in sugar beets because the government has incentives to do that. And that is at the expense of corn in those areas and this is happening in areas where it's all corn production, not sugar beet production.
Pearson: So something to keep an eye out as we look into this next year.
Martin: Exactly, that could be a bad thing.
Pearson: Well, now let's jump over and talk soybeans. There's a bearish story to be written there with 84 million acres. Do you think we're going to continue to slide in the new crop soybean pricing?
Martin: I do. I think that the bean market is, it has had a hard break, you know, it has had a hefty break. The one thing that nobody is talking about that showed up in this last report here this month was we noticed that the foreign production deficits, which means you take the U.S. out of the picture and see how well the rest of the world produces and it kind of gives us a cue as to how needy the rest of the world is going to be. And we notice that on beans their farm production deficit increased 3.3 million metric tons. And so that means the need is a little bit greater. Of course, you've got Brazil saying they're going to ramp it up again this year and they probably will. It'll be interesting to see what does El Nino do to them. There's a big question mark there. But the bottom line is beans got up within about 28 cents I think or something like that of the $13 mark and, actually 21 cents, and now they have broken down. $10.16 is an objective off of the gap that was left on the chart. It is also a 40 quarterly month moving average. And so I think the market is headed for that. In the history usually when the bean market on a quarterly chart goes for that it tends to go through it. $10.06 is a wave 4 count and I would think you do that. It's very possible we go to $9.83 too. That would not surprise me at all. Now, having said that, we're not into August yet and July is corn month and August is bean month. So, we could have a bounce in here and kill some time and then all of a sudden roll over because in the countryside beans don't look as good as corn.
Pearson: That's true. That's true. Now, let's take a look over at the livestock market. We've seen the cattle market pull back pretty big last week and yet held its own this week. Did we put in a high do you think in the live cattle market?
Martin: I don't think in the fats we have. I think in the feeders we may have, at least for a while. In the fat market, you know, you've got -- this week we had the cash market reach $157 to $158. You know, you've got lean, 90% lean cow beef basically almost right neck to neck or just under other cuts that it's amazing. But demand is very good for lean cow beef. And then you look at the other cuts and we really, you know some, your choice kind of ebbed higher, select had some, or I should say choice fell back a little bit, select came up a little bit. But we did see weights ebb a little higher this week. I think weights still maybe do that. But weather is absolutely ideal so far this summer for weight gains in animals. But all said, I think that we're not seeing the consumer step away from the beef demand because it's interesting, you know, the retailer raised his prices right through the 4th of July holiday, in fact there were stores in Denver that raised $2 to $3 a pound on their ribeye steaks. You have other stores even in central Iowa here where they're selling ribeye steaks $7.99 a half pound or as an 8 ounce steak, which in essence is $16 a pound and people are buying. I think what we're going to see is the consumer is going to opt for, and it will probably be a trend that is more healthier, long-term it could have a real bad effect on us down the road when we get ourselves back up to where we once were. But I think they're going to opt for smaller cuts. They might go for cheaper grades but especially smaller cuts. They won't buy that 12 ounce steak or whatever, they may go for 8 or 6 or something like that just to get by.
Pearson: Certainly. Now you mentioned on the feeder side we may have seen the high put in there at that $218 mark we touched. What leads you to believe that could have been the high?
Martin: Well, for one thing I had a price objective of $222 and we got fairly close to that. I've had several of these wave counts and it has been amazing to watch the market just walk through them like they were a hot knife in butter. But $222 was one. I'm watching the corn market because I think corn and feeders are kind of joined at the hip. And you do have some awful dry weather out in the western parts of where you do have cattle and pastures. And so all of a sudden you've got high heat back in there again and, you know, who knows if they'll end up having to do some liquidation or if they'll just try to work their way through this one with hopes that it's still going to get better in time. The one thing about the feeder market is at some point everything has a price limit. And I guess at some point -- it would be one thing if the fat market would fall, start to fall and break away, then that might slow the demand by the buyer of the feeder cattle. But for now I think that feeders have reached a high and if you come back up to around $214, $215 I would probably say put some hedges on. There's nothing wrong with these prices. And in the meantime if you've got some $200 puts maybe roll them up. Just kind of shore yourself up a little bit and keep your protection on. In the fat market I think we could see December cattle go to $162, $164.
Pearson: Alright. Well, Sue, we're about out of time so we will discuss the hog market in our Market Plus segment online. But I want to thank you for being with us tonight.
Martin: Thank you.
Pearson: That wraps up this edition of Market to Market. But, as I mentioned, Sue and I will continue our discussion and answer some of your questions in our Market Plus segment on our website. 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 an online effort to educate people on the complexities of commodity trading. Until then, thanks for watching. I'm Mike Pearson. Have a great week.