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Market Analysis: Jun 04, 2010: Sue Martin

posted on June 4, 2010

Despite strong demand, favorable growing conditions in much of the Midwest pressured grain prices.

For the week, July wheat lost 22 cents and the nearby corn contract was off nearly 20 cents.

Soybeans followed the coarse grains lower albeit more modestly. For the week, the July contract lost about 3 cents, while the nearby meal contract was down $3.70 per ton.

In the softs, cotton's rally ran out of steam this week as the December contract posted a loss of $3.33.

In the dairy market, June Class III Milk futures lost 12 cents, while the deferred contract was down nearly 25 cents.

In livestock, June cattle gained 43 cents. Nearby feeders were up nearly 50 cents. And the June lean hog contract lost $2.80.

In the financial markets, the Euro traded at 4-year lows this week losing more than 350 basis points against the dollar. Crude oil declined nearly 2.50 per barrel. Comex Gold advanced 4.00 per ounce. And the Goldman Sachs Commodity Index lost more than 15 points to close at 472.75.

Market Analysis: Jun 04, 2010: Sue Martin Pearson: Here now to lend us her insight on these and other issues one of our regular market analysts, Sue Martin. Sue, welcome back.

Martin: Thank you, Mark.

Pearson: Well, it's been another wild week. Obviously a 350 point drop by the euro against the dollar, still concerns about what is happening over in the euro zone. It's going to impact our markets and we saw that with the equity markets and the commodity markets, oil prices all softening up this week. What do you think is in store down the road?

Martin: Well, I think that, first off, it is a big concern of what's been going on in Europe mainly because they account for about 40% of our exports in agriculture and we know that when you hear what's been going on and you look at the M3 money supply while the U.S. fed really doesn't pay a lot of attention to it the IMF does and it's not looking in very good territory either, it's more in, well, it's in negative territory and I think it lost like 7.5% in the past month and so I think there's a concern that the U.S. economy may not be as good as it is advertised to be.

Martin: And then today when the jobs report came out and the data showed that we had about 101,000 less jobs than what the trade was looking for it was ____ by the door. Everybody was back to thinking the U.S. economy was not gaining as fast as everybody had hoped and the fear that it's moving along slowly, if something more comes out of Europe maybe we're going to see some tougher times.

Martin: And I think what's happening is all markets then seem to fall. And when I look back in the 70s we were into where the stock market wasn't so good but commodities were better and you didn't have to have the same track on both. But right now it seems like everybody is focused, if the Dow falls everything else should fall too. Well, I think what it is, is it's all this fund money and it is trying to find the door to a safe haven and it is exiting various markets and that is creating this selling and causing various markets to drop even in the ag markets.

Pearson: All right. And what is the turnaround going to be? What is it going to be that makes this thing go the other way, Sue?

Martin: Well, I thought it was interesting because the euro, the June contract got to under 120 today and I have counts around 119.60, 119.61 and that is a major count. And so I've been thinking that once we got the euro under 120 and it can maybe slide through the 119.60 area, 119 area by a little bit but basically I think we're not far from the low in that. But in the meantime the dollar made new highs today and it still has not taken out last year's highs and last year the dollar took out 2008's highs in March and then turned around and fell the rest of the year and closed the year lower.

Martin: So, it's very important to see if we can make new highs. It appears like the market is attempting to do that but all in all I think that are we done with the Dow falling and that type of thing? I fear that this next week we may seesaw around and bounce back a little bit. But around Flag Day, the 14th of June maybe the 11th, next Friday, a week from now I fear that the Dow might hit a peak and start to decline.

Pearson: All right. Well, we'll see what happens. Let's talk about commodities. The wheat market very soft this week and not just in terms of the particular variety. We're talking a much softer market and the crop looks pretty good.

Martin: Well, crop looks good. In the meantime, harvest has started in Texas and parts of Oklahoma. There is talk about the protein levels, varies all over from 14% to 9%. But in the meantime, sounds like yields are quite good, 60, 62, 63 bushel per acre type thing. So, I think you're getting a little bit of hedge pressure there but also it was the whole environment of everything else. The corn market fell hard and I think that along with wheat sort of dragged wheat backwards too. So, I think there was various reasons why the market fell.

Martin: Now, we might see the wheat market make it down on the June futures on the Chicago Board of Trade, they may get backwards towards the $4.24 area. Do they go much lower than that? I'm not sure right now. This is the one market that is so loaded with shorts and the whole story is known, there's nothing else to really know and in the meantime, because of this oil situation and the offshore drilling concerns maybe it helps speed through the biodiesel mandate or the mandates on like E-85 type thing and move it to 15% or whatever, maybe that moves through faster than we think and the emphasis gets put on corn for fuel and in the meantime wheat becomes more of a feed product. We'll have to see as we go down the road but I think that when I look at the corn market at some point here, corn has been falling quite hard too, but one market that is going to interplay back on both of these two markets is the bean market. And if we start to see the bean market collapse I think corn continues to slip a little bit but doesn't fall as fast as it has been but the wheat market all of a sudden catches and maybe we start to see a little bit of short covering there.

Pearson: All right, short covering and that would be a place to sell wheat?

Martin: Oh, I think so. I know on our Web site we're 100% sold straight across the board old and new on corn, wheat and soybeans.

Pearson: All right. Well, let's talk about the -- so wheat market sell the rallies. Corn market, you're kind of -- you've been sold but for those that maybe didn't follow that what do they do?

Martin: Well, I think they're kind of behind the eight ball right now. It's not even the middle of June and you've got $3.40 on the July futures and $3.62 I think or $3.59 I guess on the December futures and the low of harvest on December was $3.52 and three quarters and on the July $3.33 and three quarters from last September. And so that is the prices that the market is going after to see if it can get through there. I sense that those lows will come out and then we'll start to see the market find a spot and try to stabilize.

Martin: There is a count, I haven't done them yet on the Dec., I should, but there is a count on the old crop that actually targets down to $2.56 on the board. And will we get there? I'm not so sure. If the bean market starts to fail, yeah, we could. However, when you have years where you have crop conditions as good as this, since 1986, I think the USDA started giving crop condition ratings around there, ever since we've had only three times in which crop condition ratings at the end of May were as good as they are now. And, of course, come Monday we expect the ratings to go up again and so at some point the crop can't get any better and it's off to a good start to you have to view everything really good now, there's a long ways through this growing season and we have pollination to go through. I'm going to say at least 54% of the crop is going to pollinate all at the same time in the first two weeks of July so that's a very important window. But I tend to think that the July contract where probably you get down around maybe $3.30, $3.27, something like that and that market tries to catch there and maybe it gives us a bounce. If you get a rally during pollination use that and get your grains sold but it's a tough one right now.

Pearson: All right, soybeans you're saying they could maybe go into a tailspin too?

Martin: Well, I'm concerned about the bean market. For one thing, we had on Thursday a gorgeous rally, everything was friendly. The basis levels are firming and I think that's really what is tough for a lot of traders right now is they see, especially cash traders, they see the basis firming and then the market falls. And we had a beautiful day on Thursday, market was up maybe 25 cents, maybe didn't sell totally up there but close and then we made new highs on the week after last week having made higher highs and closing the week lower this week came back made higher highs again. Normally that would have propelled you and all of a sudden we turn tail and we close lower again this week. That tells me we'll probably see lower lows here this coming week and then we'll see if the market can catch and start to bounce. Again, in years when you do tend to have an El Nino exiting into a La Nina or transitioning into a La Nina and you've come into the year as an El Nino the market does tend to see a more bullish attitude toward grains but you've got this outside influence and I think this outside influence is overshadowing a lot of things. It's causing fund money to step aside, so to speak, and of course it seems like in the beans now it's almost taking on that same behavior that corn would get when you would talk about Chinese demand, the market would be sharply higher and the next day it would fall away. Well, now we're starting to see that in beans. And if we look at quarterly data we have been following on a trendline for the last five quarters from 2006 lows. And you normally move down towards a 40 quarter moving average and I think that's what the market is going to do before it heads higher.

Pearson: All right, so your low price on the soybeans?

Martin: I'm thinking we might go back and take a look at $8.00 and possibly get to $7.20.

Pearson: All right. Let's talk about livestock here real quick. Fed cattle market there's been some pressure the last couple of weeks and obviously the jobs data and some of this other stuff is going to be maybe negative but we have some higher priced beef moving into retail channels.

Martin: Well, we do and yet I have to give credit to the cattle market -- the one good thing we've got in our favor is the fact that the rest of the world is very tight supplied. We're all in the same boat. The U.S. is tight supplied and our production isn't going to grow any more, we're not going to see a larger calf crop and in the meantime, cow slaughter is continuing, I think it was up like 17%, weights are still low, they're like 18 pounds less than a year ago but in the meantime we did, since the first of the year today we exported 26% more beef and also the highest number of beef went across our borders since 2003. So, that is not bad news and there's good fundamentals under this cattle market. You've got a good corn crop coming, that could be friendly to the feeders. The problem you've got is huge open interest. Now, it has come down some and you have a seasonality to drop back in the prices into the middle to the latter part of June and so comingle that with a bad economic outlook that is causing fund money to exit the door and that is why we're breaking.

Pearson: 30 seconds, your thoughts on the hog market?

Martin: Well, I think we have a hog market that I think -- maybe I'm being too optimistic -- but I believe that one, we made major lows last year. We've had a huge rally and the market needs some downtime. You're into somewhat of a seasonal little pullback but I think that at some point here this hog market is going to catch, hog exports seem to be still pretty good for the product. We may have stabilized the product this week so I'm not as bearish but we may still get a little lower near term but I think breaks will find support.

Pearson: Sue Martin, thank you so much. That will wrap up this edition of Market to Market. If you'd like more information from Sue on where these markets just may be headed visit the Market Plus page at our Web site. You'll find expanded Market Analysis, audio podcasts and streaming video of our program and it's all free at the Market to Market Web site. And, of course, join us again next week when we'll present more of our exclusive interview with Secretary of Agriculture Tom Vilsack. Until then, thanks for watching. I'm Mark Pearson. Have a great week.

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Tags: agriculture business commodity prices markets news