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Market Analysis: Apr 23, 2010: Market Analyst Sue Martin

posted on April 23, 2010

Informa Economics this week pegged the 2010 U.S. corn crop at a record 13.13 billion bushels squelching last week's rally, while wheat prices trended higher.

For the week, May wheat gained nearly 3 cents, and the nearby corn contract moved 11 cents lower.

Informa predicts growers will harvest 3.34 billion bushels of soybeans, just shy of last year's record 3.36 billion bushel crop. Nevertheless strong demand pushed the May soybean contract 15 cents higher, while the nearby meal contract was up $11.40 per ton.

In the softs, cotton trended higher again this week as the December contract posted a gain of $1.45.

In the dairy market, April Class III Milk futures rose 11 cents, while the deferred contract was up 14 cents.

In livestock, June cattle gained 17 cents. Nearby feeders were down a dime. And the June lean hog contract declined by nearly $1.

In other markets of interest, the Euro lost 110 basis points against the dollar. Crude oil was up about 50 cents per barrel. Comex Gold advanced $16.80 per ounce. And the Goldman Sachs Commodity Index moved more than five points higher to close at 550.50

Market Analysis: Apr 23, 2010: Market Analyst Sue Martin Pearson: Here now to lend us her insight on these and other trends, one of our regular market analysts, Sue Martin. Sue, good to have you with us.

Martin: Thank you, Mark.

Pearson: All right, well let's talk about the week that was and let's talk first about a couple of things that impact our market severely and that's the dollar. Obviously it's been strengthening, problems in people 54 years old retiring in Greece, creating big liability issues for that country. In terms of excess expense they've been spending a lot over there, rumor has it A&F and some of the others will be stepping in so they'll be raising taxes and that always seems to be the wrong approach for a country to take that's in this position.

Pearson: ... a country to take that's in this position. A lot of debate going back and forth about what's happening around the world and people are running home, have been running home to the dollar. We've seem to maybe kind of hit a high here? What are your thoughts on the greenback?

Martin: I think the dollar still is going to push a little stronger. I've been thinking all along -- or an advocate all along -- that the dollar would push stronger into at least May. From there we may start to see a peak as far as timing goes and start to see a setback. But at the present time everything I look at technically says the dollar still has room to move. I think that the concern about Greece an other potential countries to follow like Portugal, Spain, Italy, Ireland, that has the EU concerned and I also think that after following all the issues that they went through far reaching off of the volcano that was erupting in Iceland and disrupting flights, not to mention people flying, which is a big industry but also the freight that was moving around the world.

Martin: As we've seen, John Deere had to pull a line in, I think it was Waterloo because they couldn't get the parts. Well, I think that's been a little bit detrimental to Europe and I think that too has a concern and the Euro has declined because of that. I think the Euro is still going to slip more and because of that I think the dollar still has underlying strength. I think at the end of the day, the dollar still looks like the least of all evils.

Pearson: Crude oil, what do you think is going to happen?

Martin: Well, crude has been trading in a range for quite some time from around $82 to maybe $86 and the one thing we have to remember is that demand for crude is just going to continue to grow. At some point we're going to have to figure out over the next 20 years a different form of energy or something because if you look at China in the month of March their appetite or their demand for crude grew by 13%. On a global scale they account for 10% at this time but that's going to change probably over the next 20 years.

Martin: They're looking at possibly having about 340 million people to 350 million people moving into the cities and, of course, that's larger than U.S. population. I think that we have to look at that. As they move into the cities they consume more of everything and energy is a big major item and it's just going to continue to go from there. You look at countries like Iran, the age of the males, the average age of the male group there, 45% is 18 years of age or younger. You look at Africa, the age group is 15 years or younger and India, the medium age for 1.7 billion people, 25 years of age. That is a growing population that's young, got a lot of life span and, of course, is looking at better times down the road.

Martin: They have a better future ahead and, of course, that's good for agriculture.

Pearson: Demographics are a big thing, also our youth bulge is another demographic issue that could be destabilizing going forward too. Let's ask you about this, though, wheat, corn, soybeans, let's talk some fundamentals here. Wheat, there seems to be plenty of it around the world but it had a pretty decent week.

Martin: Well, I think that it's, you know, what more can we throw at wheat? We know that the stocks in the world are big, huge and in the meantime though I still think at the end of the day, I know that we have huge stocks but we also have growing economies -- I think the world is supposed to grow by 4.2% this year -- but we have growing economies with the future of looking at growth. We have acres that decline, the worst amount of planted acres in the U.S. since 1913. I think some of that is going to come back to play. I believe that as we head down the road here over the course of the next few years to possibly five years, I think wheat could be your next gold market.

Pearson: All right. So you're not in a big hurry to make sales at these prices. Do you think we've got another 25, 30 cents?

Martin: Well, I think that we have the potential of it. Seasonally wheat does have a tendency to rally into May, possibly could get into June. This year I think it will probably be sometime in May. I would, if you get a nice rally and you're needing to kind of free up some bin space and that type of thing, I would certainly be getting some sold ahead before harvest. It's kind of like your pre-harvest rally that the corn farmer endures and gets to enjoy in September of usually around the 8th, 9th, 10th, 12th of September we get a rally and that's your pre-harvest rally for corn and that's kind of what wheat is going through right now. But the funds have -- everything has been priced in. If wheat can't go down after this last break it's going to lift, they're going to short cover and that's what is happening.

Pearson: All right, corn market, your thoughts.

Martin: Well, the corn market, you know, today on Friday it broke pretty hard. It was down about 8, 9, 10 cents and on Monday of this past week we had corn break 15 cents but didn't take out the lows, got close, but didn't take out the lows and then, of course, reversed around and kind of meandered around an upper range of that past Friday's range. But today because of the expectations going into Monday for the planting progress to come out now I'm looking for 43% planted on Monday afternoon by the USDA.

Martin: However, the trade is looking at that and knowing that we're way ahead of schedule compared to the last few years, not to mention the five year average, and I think the market decided, hey, last Monday they broke it really hard, let's step into it today and they sold into the market. Now, we'll see what can happen. But maybe this is being too anticipatory but when I look at the chart on corn I see a left hand shoulder technically and then we lifted and we broke hard to the decline, to that $3.43 area basis May corn.

Martin: And now we've been spending about a week and a half, two weeks in that area and I'm wondering if it's possible that that lower range that we've been in here of the last two weeks could be a head pattern on a head and shoulders meaning we have a rally yet to come again, probably in May, and then another dip off of that and then we see where we're at. And that would also kill time to get us into what could be important timing as we go to the latter part of June on into July for pollination and we'll see what our summer is like.

Martin: With the sun spot activity we should have a warmer, I think, summer and possibly a drier summer. What does the volcanic ash do to us? That remains to be seen. Some think it will give us a cooler summer with some more wetness. I tend to think we're going to have a warmer, drier summer, not hot hot but not really as wet or anything like that. It's going to be a nice summer, I think. But in the meantime, the acreage report that comes out at the end of June is going to be an extremely important report. We'll see because farmers have gotten in early, farmers love to plant corn, it's going in easy, it's the best conditions in years and I think we'll have more acres than what is believed.

Pearson: You don't want to make sales right now though?

Martin: It's tough. When you're sitting near the lows and we can't seem to garner it I would look for a rally into May, I'd like to tell you the timing, it's like early May but I would get some sold then.

Pearson: All right, soybeans?

Martin: Well, can I go back one step?

Pearson: Real quick.

Martin: On corn, if you're uncomfortable making sales here then I would also as you make those sales look for some strategies to come back maybe in the new crop corn with call spreads, maybe you buy a $3.80 call or something like that and sell a $4.30 call in the December so if something goes awry you're protected. You maybe do that and it shouldn't cost you a lot of money, maybe 15 cents, something like that.

Pearson: That's some good insurance.

Martin: But in the meantime, on the beans I think we've got a market here that still has more room to lift. I think that we finally -- we waft through a 50% retracement this week very easily, we have new highs from the winter low this month and we're going to probably close higher for the month. I think you're going to see higher highs made in May. The demand is very good. China has bought record amount of beans this year and they only have out of 805 million bushels that they bought maybe 22.5 million bushels left to take. They're taking it, they want it.

Pearson: All right, so good demand for soybeans, maybe not be in a big hurry to make sales there, we might get a lift again you think?

Martin: I think we're going to get a little lift. In May get some sold.

Pearson: All right. Fed cattle market, you were real friendly to cattle last fall, you thought we'd see a nice bump this year, we've certainly had that. Is it going to continue, Sue?

Martin: Well, I think so. I think the thing that we have to look at in the cattle market, of course, the April contract has gotten over the dollar mark twice and, of course, it falls back a little bit. But the cattle on feed report came out on Friday and it showed placements less than the marketings number. Placements came in at 103, lower than the lowest estimate on the range of guesses, so that's friendly. In the meantime, we're in a situation where beef is down, we're extremely tight on supply of beef in the coolers and demand is picking up around the world. Exports last week were the highest they were since I think 2008, July of 2008. That's good.

Martin: And also another thing, not only do you have tight supply of numbers and less cattle going on feed as compared to what you're marketing, marketings was at 104 so you actually placed less than you marketed. I think that we're going to have a tight supply. I think demand is going to stay good. And the other thing that we're going to have to look at is, is that the 800 pounds and over declined 15%. In placements it was the 600 pounds and under where that increased maybe 30%. But we haven't even gotten to the stage where producers are willing to expand and hold back heifers to breed so that will create another tight supply around the corner.

Pearson: Real quick on the hogs, we've got about 30 seconds.

Martin: Oh my goodness, we'll talk about hogs in Market Plus. But I think the hog market had a hard day on Friday, 380 point range, could possibly be a key reversal in the May contract I guess. But I think the hog market, when you look at the product and the cold storage report we're extremely small supplies, the kill was down 1.5% I think and maybe a little more than that. I think the hog market is going to step back and then come back for higher highs in June.

Pearson: Sue Martin, we're going to have to leave it right there. We'll have more on Market Plus. Also, if you'd like more information from Sue on where these markets may be headed, as she mentioned, visit Market Plus. It's a great place. Go to our Market to Market Web site. You'll get expanded Market Analysis, audio podcasts and streaming video of our program and it's all free at the Market to Market Web site. Be sure to join us again next week when we'll follow President Obama on his White House to Main Street tour where he'll discuss plans to grow the rural economy. So, until then, thanks for watching, I'm Mark Pearson. Have a great week.

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Tags: agriculture commodity prices corn markets news wheat