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Market Analysis: Mar 18, 2011: Sue Martin Analyzes the Commodity Markets

posted on March 18, 2011

Grain prices rallied Friday enabling both corn and wheat to end the week in positive territory.

For the week, May wheat gained 4 cents, while the nearby corn contract moved 19 cents higher.

Soybeans also ended the week on a winning note as the May contract settled Friday with a weekly gain of nearly 30 cents. Nearby meal prices followed suit with a gain of almost $18 per ton.

In the softs, cotton tumbled below the $200-mark as the May contract lost nearly $6 per hundredweight.

In the dairy market, April Class III Milk futures lost 82 cents while the deferred contract declined by a little more than a dime.

Over in livestock, the April fed cattle contract lost $5.48. Nearby feeders were off $5.36. But the April lean hog contract eked out a gain of 17 cents.

In the financial markets, the Euro gained 268 basis points against the dollar. Crude traded in a wide price range before settling Friday with a weekly loss of about 25 cents per barrel. Comex Gold declined $17.60 per ounce. And the Goldman Sachs Commodity Index lost more than one point to close at 702-even.


Market Analysis: Mar 18, 2011: Sue Martin Analyzes the Commodity Markets

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.

Pearson: Sue, what a week it's been. The market has responded to the tsunami, the earthquake, the devastation in Japan. Of course, other things are going on in the world. We talked about Libya, but other regime changes and issues elsewhere in the Middle East. It's -- a lot into the commodity markets this week, and a tremendous amount of volatility. Do you think we're past some of that now? Will we calm down going forward?

Martin: I don't think so. I think we're going to come into this next week probably just about as volatile. There's been lots of rumors, lots of concern. You know, when markets have fear, they always go down. We have to remember the markets we're ready to break in front of this tsunami -- earthquake and tsunami so this just fed it even faster. But I think that as far as the tsunami goes and the radiation fear and all that, I think that's starting to settle down a little bit. You have the Libyan situation for the moment looking like it's going to settle down. So, you know, that's a good thing. Maybe the trends now will get back on track with fundamentals. I look at the grain markets, and I think that they try to still move a little bit higher this next week. I don't trust the grain markets real well. I know that everybody is bullish, and we've certainly seen a lot of commercial buying this week on that break. You have South Korea come in, bought in excess of 700,000 metric tons of grain and soybeans. I think that when I look at China, there's been lots of rumors about China buying as well, and maybe true, maybe up to two million metric tons for new crop, about a half million to a million for old. But the bottom line is, this market was due for a setback and it got it. Is it done? It might be. Maybe we go into a choppy range affair, something like that. But I think that the corn tries to come back to around 702, something like that, and the beans around 1404.

Pearson: All right. We're going to get to beans here in just a second. I want to talk first about the wheat market and what you see happening there. As we look at this market this week, it also had that volatility to. There seems to be a lot of concern about increased demand for wheat worldwide after what we've seen in the Middle East. We've seen increased sales to the northern coast of Africa. Obviously full bellies don't revolt, so they're using that as a good reason to purchase more. As you look ahead in the wheat market, Sue, what do you think we're going -- we can expect from a producer standpoint, from a sales standpoint?

Martin: Well, I think for the producer, I think we still have another rally coming in the wheat market. Our condition ratings this coming week should show more deterioration. It's pretty warm in the plains and also in the southwest and, in the meantime, no rain. So I think we're going to see more deterioration. Beyond that, I also think that demand is going to stay very good. Now, you've got Russia talking around 83, 85 million metric ton grain production, and that's fine. They can maybe come up with that much, but they utilize about 73 million metric tons of wheat themselves, and that only leaves about maybe 11 million metric tons left. And they need to refill their stocks or their reserves. So I don't see them as much competition. The Ukraine has a little bit of corn to export and wheat. But beyond that, I don't see much competition around us. I look at Egypt and the middle eastern countries, they're going to continue to be avid importers. I look at Japan and what they need first is rice, which they have plenty of, and also wheat because they can't refrigerate anything right now and be assured it's going to stay running. So they're going to first try to feed their people with that. Grocery shelves are running bare, so they need food. But at the moment I think what they're doing there is penting up demand. It will come out of it -- you know, we went back and looked at chernobyl, and we noticed that it took about a month, month and a half before the markets started to catch and really move back up in favor of what had happened. And it ended up, for example, cattle markets made new highs as they went in through the end of the year. I think when we look at the grain markets, wheat has merit and should try to rally back here a long ways. I think we could try to make new highs. K.C. wheat is still the best. But I don't dislike wheat at all. I think we're going to be stronger this next week.

Pearson: All right. The market is stronger as we look forward to the wheat market. And like you say, concerns about conditions here in the U.S., but that's crop we have to kill five times before we harvest it anyway, so we're kind of getting to that juncture. But as we look at the wheat market going forward from a sales standpoint, I mean these are good prices, Sue? Do producers need to take advantage of them?

Martin: Well, one way they can approach this -- these markets are so wild -- is they can go ahead and make cash sales and then look at the market and buy call spreads. They can do something like that. In years when you've had very dry conditions like we've had and demand is so good, what you normally will see is a strong April/May period. And we might see something like that.

Pearson: All right. Let's talk about the corn market. There's a lot of interesting things there. You mentioned the China rumor, which hit the trade late in the week and caused quite a furor because of the delivery time frame the rumor was in, which is early fall, and whether or not we would be into enough new crop at that point. So that kind of ignited things. What's your take on the corn market? Do you think we could go back to 702?

Martin: I think you can back to 702. You might even take the may contract and go back to around 725. The thing is, mark, I'm a little leary. You know, I'm kind of moved out of the bull stance to a more neutral stance because of a situation I'm seeing. Everybody is so bulled up. I understand where they're coming from fully, but I also have respect for history. We have an analog study on the corn based on July futures that of the last 42 years, whenever you've had July futures make new contract highs in the month of February, there were nine of those. And this is year number ten, but nine of those where that that happened. Well, out of those nine, two did not go on to make higher highs and seven did. Of the two that did not go on to make higher highs, when they fell back and took out the February low, the market fell on in down towards may and then they bounce and then they'd erode back toward the July contract. So the July contract wasn't any good. The Dec. contract, however, in those two years was good and did make new highs, which is kind of ironic. Those years are 1974 and 2007. Now, in the seven years that did do higher highs after February for the July futures, we noted that there were two of those years that put in a march high and fell back. And when they took out the February low, they never looked back and neither did the Dec. So I fear -- and then all the others, the other five did go on, and they never looked at the February low. So I think there's something about this February low, and we've already exceeded it to the down side. That concerns me. The problem is the market fell so far so fast, $1.37 in a little over a week. That's like a bean market. So we had to catch, send this market back up. I think we're going to be chomping around here. If we take that 745 high out in the July contract, fine. Then I'll say we're probably looking at something much, much bigger. But my take is farmers use this rally and get some old crop grain moved.

Pearson: All right. All right. Good point. Informa did came out with a number just under 92 million acres on the corn number. You've been talking we need bigger numbers than that. Is that bullish at 92 million, or 91.8?

Martin: Well, 91.7, yes. Actually that was 800,000 bushels -- or acres I mean, higher than their last estimate. So they actually did increase acres, but the fact it was under 92 million I think shocked everybody, because I know last week we were in Chicago for meetings and nearly everybody was talking 93, 94. So that was kind of interesting. And the trade has wired in at 92 because of the USDA outlook needs and the baseline. So coming out of that, that had a positive appeal, but it was more like the beans that was more appealing.

Pearson: All right. Now let's talk about the bean market. Now, there's some stuff going on in the bean market, again related to China. China refusing some loads that have come out of South America because of quality problems. May be pushing more of the demand back up towards the u.s. that's floating out there. What's your take on the bean market, Sue, at this point?

Martin: Well, I'm a little more friendlier beans. I think that the bean market, of course, didn't seem to act quite as poorly to the down side as corn did. Corn was catching up because it had so many longs in there. But the bean market, you look at the fact that, you know, 75.279 million acres, not enough. That's a pretty good regression backwards of a million and a half from what we had last year. We have to have beans. In the meantime you've scene the South American crop, Brazil's crop, targeted as high as 71.6 million metric tons. You've seen the highs in that crop, and now it's going backwards because of the consistent rain and the drop in the quality and also yield. So -- and then not to mention being able to get the beans to port because of the poor roads in mato grosso, that type of thing. So I think that you're looking at a situation that is feeding in a change of thought process, and that should lift us a little further in this lift process. And I think beans could come back and take a look at 1404, maybe 1420, something like that, and then we'll have to take another look at them. Interestingly, beans also on the July contract have an analog study the same as what the corn does. We just have to remember history is no guarantee for the future. It just gives you clues.

Pearson: And in terms of corn and bean sales, how far sold are you on new crop?

Martin: Well, since the last time I was on the show, we've not been able to get any more sales off. We probably should have more aggressive on the cold crop than what we were. So we're basically still pushing old crop sales. We had them at 1458 on the march. We didn't quite get there. We missed it by two cents. So we're looking at this rally to get some stuff done. On the new crop, 20 percent in new-crop beans; on new-crop corn, 25 percent; and old-crop corn, 25 percent. We will be using this rally to get more aggressive, and then 25 percent on old and new in the wheat, again wanting to use this rally to get stuff done.

Pearson: All right. Cotton market pulling back a little bit this week but, again, a very volatile trade. But they certainly grabbed some acres from beans.

Martin: Well, they did. Still, even though after informa's numbers came out -- and we have to remember these are informa's numbers, not the USDA. It's like talking to mom and dad; you might not agree but you have to take what you've got. So I think that when I look at informa's numbers on cotton, we're going to grow acres not only here but in China as well and in other parts of the world. I look at a year from now, and I think cotton is probably going to become a market that sort of waterfalls back down. I think when I look at a near-term chart or a leap contracted chart, extremely overdone. While you may still feel like when you get the one month dropping off and the next one will try to make an effort to come up and align, I think ultimately we're going to waterfall over.

Pearson: All right. So take advantage of the markets today. What about, Sue, on the livestock market? Fed cattle took a big hit on the board this week, but the cash market was pretty strong around the country.

Martin: Well, cash held in there, but the board did take a hard hit. And, of course, the product hung in I'd say pretty decently. I think that what we've got going here is first off, Japan loves beef. They're our biggest beef customer, so I can see why the cattle market fell. In the meantime they're our biggest -- not our biggest, but we sell them most of their corn, 95 percent. And so I think that -- and those were the two markets that took the hit. But the cattle market has been loaded up with longs and fund money and, of course, fund money was trying to find the door. Seasonally cattle do tend to turn over from mid April or mid march on through April, into may and early June. And I think you're looking at that type of a situation. I look for cattle kills to increase and the weights maybe to start picking back up. I think that when I look at the cattle market, it just looks to me like it's a little overdone, due for a correction. You know, I think the USDA had estimated that we'd have, like, 10 percent export -- increase in exports in beef this year, and currently we're running way over that, and I mean way over it. And to get to that estimate, you know, USDA isn't going to miss it that far, I don't think. So to get something close to 10, maybe 15 percent, it would appear to me that something has to happen. Demand has to slow a little bit. And the combination between that, you know, and right now we're backing meat back into the domestic market because of the fact that Japan is not able to take what they need right now. So I think what we're going to see is that pork replaces beef for a moment into the Japanese market, but in the meantime we're going to back up some meat and maybe that sets the market down. I'm looking for the market to set back to about 107.

Pearson: All right. And the hog market?

Martin: Well, I like hogs. I'm bullish hogs. I've been bullish hogs for some time. It's my attitude that once we start getting into summer and beyond, I think hogs are rolling over into a new plateau and they're going to start at a higher range. So I'm very bullish hogs and on breaks I'd be buying hogs as a spec trader. Producer hedging, buy puts. Don't do futures because I think we're heading higher and Japan is going to be taking a boat load of pork.

Pearson: All right. And so with that and all the volatility that we've had in these markets, we'll see what happens next week. You think the volatility is going to continue?

Martin: I think it will. And god forbid if we have a weather market.

Pearson: That's right. We could have some issues there. We'll see what happens in South America, whether the weather markets beginning with weather. We've got fifteen seconds, Sue. Crude oil. Been a wild week there. What's your take?

Martin: Well I think the crude oil market is going to -- is just kind of getting a little bit of a breath here. But ultimately, I think it could still come back up and test the highs.

Pearson: Sue Martin, thank you so much. That wraps up this edition of Market to Market. But you can find expanded market analysis from Sue as well as streaming video of our program -- free -- at our Web site.

Pearson: Now, we want to remind you that Market to Market may be airing in some different timeslots this week as America's PBS stations conduct fundraising activities that are crucial to their operations. So, if you value programs like Market to Market, please consider phoning in a pledge and investing in a service providing you with accurate information and timely market analysis.

Pearson: And be sure to join us again next week when we'll examine prospects for finding oil in the Niobrara Chalk Basin of Wyoming and Nebraska. Until then, thanks for watching. I'm Mark Pearson. Have a great week.


Tags: agriculture commodity prices corn markets news wheat