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Market Analysis: Mar 12, 2010: Sue Martin, market analyst

posted on March 12, 2010

The USDA released estimates for the harvest of 2009. It's official -- both the corn crop and the soybean crop were the largest ever to be put in the bin by U.S. farmers. The news only served to push the market lower.

For the week, May wheat lost 8 cents and the nearby corn contract lost more than a dime.

A record 3.36 billion bushel soybean crop helped push soybean prices lower. For the week, the March contract lost more than 8 cents, and the nearby meal contract declined $6.60 per ton.

In the softs, cotton continued to build on previous gains and moved more than 50 cents higher.

In the dairy market, March Class III Milk futures declined nearly 50 cents and the deferred contract was down almost 30 cents.

Over in livestock, April cattle gained $2.15. March feeders were up 80 cents. And the April lean hog contract lost 45 cents.

In other markets of interest, the Euro lost 256 basis points against the dollar. Crude oil lost 26 cents per barrel but still managed to close over $80. Comex Gold declined $33.50 per ounce. And the Goldman Sachs Commodity Index lost 5 points to close at 522 even.

Market Analysis: Mar 12, 2010: Sue Martin, market analyst Pearson: Here to lend us her insight on these and other trends is one of our regular market analysts, Sue Martin.

Martin: Thank you, Mark.

Pearson: Good to have you with us, Sue. Well a lot happening. Certainly USDA report was a big part of what happened this week, but also continuing strength in the dollar. As you look at this global economy, where do you see that headed, Sue?

Martin: Well, I think the dollar is struggling against the 81.50 level. I think that as I look at the dollar, it looks on the charts like we could be starting to put in a little bit of a top here. It may be temporary but I think we're going to see a little bit of a softer tone for the moment on the dollar. In the meantime that may last into the middle of April, possibly into May. And then we'll see where we go from there. We have to remember last year the dollar made higher highs than it had in ‘07 and ‘08, and then it closed the year out lower. I think that at the moment, I'm tending to think that this is a temporary rally that we're enduring, and we'll see some softer prices later in the dollar.

Pearson: All right. A little weakening of the dollar. What's your take on oil prices? We're still above $80. Do you think crude is going to continue to be fairly strong going forward?

Martin: Well, I think when you look at China's growing economy, they're commanding an awful lot of energy and I think that world economies as a whole is pulling in more energy. And I think this is propping up the crude oil market for now. And I think that as we look down the road, I could see where crude could possibly get to $86. Don't think it goes over $90. So for the year we might be starting to push the upper levels. We've been trading up around $82, almost every contract seems to be trading at $82 or just under it. So I think it's possible we do get to that $86 level. But beyond that, I'm not sure that I would trust the crude oil market to keep pushing out.

Pearson: All right. So maybe some of these markets -- maybe a little bit softer world economy, do you think, the second half as far as economic growth is concerned? What do you see?

Martin: Well, I think it's going to be tempered to some degree. I think economic growth needs to be paced. And China has indicated that they're going to pace their economy. I think it's interesting that when we see how their economy grew 2.7 percent in February, and I think it was 1.5 percent or something in January, everybody was concerned that they're going to start to increase interest rates again in China, that type of thing, and put more controls on the banks. But the one thing we have to remember is they haven't put any controls on the ag lending banks.

Pearson: They're still aggressive on that.

Martin: That's right.

Pearson: All right. Well, let's talk about some specific cases here. Let's talk about -- obviously USDA report, we'll talk about that with each crop. Let's talk about the wheat market first. Again, confirmed big wheat numbers have been talked about for some time.

Martin: Well, the wheat market, you know, we're just not using it as a whole for the U.S. We're overproducing what our need is. In the meantime we're not exporting because we're not competitive enough. And India now appears like they may have up to two million metric tons or a little more of wheat that they may export. The problem is they may be higher priced than the Black Sea. So I think that we've got competition. I don't really see anything just yet. Wheat is starting to come out of dormancy. We're going to find that the wheat that did get planted is probably in very good condition, and so I tend to think that while we could maybe muster some strength into the April, May time frame, I think there's lower prices coming for wheat just yet.

Pearson: All right. As a producer, do you want to make sales at this point?

Martin: Boy, it's a tough market, Mark. I mean all the grains are tough at this time. You look at wheat and it's cheap. But cheap might get a little cheaper. I think you're going to go back and look at last October's lows or the fall lows of last year. So I guess, you know, if you can get back up around $5, I would probably say take a stab at it and make some cash sales. I look at new crop and I guess at this time I would probably be tending to wait that out. The one problem I have is, though, I'm very negative to grain prices on corn and soybeans across the board, basically as we go in June and July. And that's also a negative time normally for wheat. So I tend to think that wheat joins the forces. So our rally is not going to be big, I don't think.

Pearson: All right. Now, let's talk about corn. Big number confirmed from the USDA. People thought maybe there would be a catalyst there, maybe we'd see with all those unharvested acres that we might see a little bit of a bump. Well, it didn't happen. It's just a big corn number. Record crop. What does that mean for price going forward?

Martin: Well, already we've had a 30-cent plus break on the corn from just before the report into the report. And I think that when I look at corn, you might see the May futures come down to $3.50 and test that $3.50 level. The March expired off on Friday at $3.54 and so it held the $3.50 level but the May is probably going to come and say a take a look at that. I look at the corn market. you know, if we break this market too hard, all of a sudden it's going to be -- and we're still going into planting season, farmers can make changes this year because they didn't get a lot of work done last fall so they don't have the fertilizer on. They can change their thoughts. So we need to keep corn profitable because we really do need to pull another, I think anywhere from 4, 3.5 to 4 million acres of more corn this year.

Pearson: All right. So the market is going to have to buy some acres on corn. Speaking of which the acreage report comes out the end. That's been notoriously inaccurate report here of late.

Martin: It certainly has. It's more of the June report that's more important. and I think that everybody is going to be expecting a bigger number on corn and, of course, you know, it's interesting because I was at a meeting this week in Covington, Indiana and one of the questions that the emcee asked the crowd was -- there were 460 farmers there, and one of the questions he asked the crowd was how many of you are bearish. And everybody raised their hands. And then they asked how many of you think we'll have more bean acres. Nearly everybody raised their hands. I was surprised at that because the outlook meetings said less acres of beans and, of course, the government reports has also sort of indicated less acres. I think that the one thing that tends to us lead us maybe to think maybe more bean acres is that, yes, you will probably have some beans. Right now beans are pretty profitable even still at $9 plus prices on the board for new crop. And I think that when you look at these acres of beans or of wheat that did not get planted, 6.2 million acres, you know, the lowest number of wheat acres planted since 1913, I think that there's a fair amount of beans going on some of that land and I think that that's good. First time planted beans is going to yield probably better than a second crop. So I think that that's being looked at by the USDA. It will be interesting because you're going to give some prevent plant up in the Dakotas. We may garner some more acres of beans but I think it's the corn that -- at the end of the day, I think because of the yields being so good this last year, I think you're going to see corn garner more acres.

Pearson: So are we selling corn now?

Martin: Well, I think when you look at corn, you know, this past week or a week ago, corn on new crop got up to $4.16, up 50-percent retracement. And we've recommended on our Web site to be making some cash sales. I think that you do do that. Corn is a very sideways market but, you know, you look at the market and $4, $4.25, is that the best we can do? $4.40, $4.50 was earlier around December. But I look at this market and we've got from here into fall. Again, very negative for corn and bean prices in June and July. So I think any bounce that you get, yes, I think you do make sales. But once you get around $3.40, $3.50 on the old crop if that occurs you might want to step aside of that. I would highly recommend producers this year, because we're so sideways and flat, I would highly recommend that when you sell cash -- if you're struggling to sell cash anyway, then go buy some call spreads. And protect yourself that way. You won't get everything but it will give you a chance to view the marketplace and see what's going on.

Pearson: All right. What about soybeans, though? Same thing then? Do you want to sell the old crop beans right now, or do you want to wait and sell new crop?

Martin: Well, I think the one that bothered me at this meeting was that everybody was bearish. All analysts pretty much are bearish. And I tend to agree. I think before the year is out we're going to have beans trading with a 7 to a 6 in front of them. So I think a person needs to be very watchful. South America, the bean production numbers just keep getting higher and higher. It's almost like having a contest as to who can come off with the highest number. ABIAF came off with a 67.7 or a 67.6 number, and that's the highest now. Regardless of that, I'm hearing that maybe 40 percent of beans get sold and marketed in the March to maybe June period. And then from June on towards fall, the other 60 percent gets marketed. That's a lot of weight against us and that's a lot of weight against us and that's just talking Brazil. It's not even talking about Argentina yet. But the problem is I think we could be looking at a year where we have good crops, better quality both corn and beans. If that's the case, we could have South American production being sold from this past crop year, being sold at the same time we're harvesting ours. That could be very bearish if that occurs.

Pearson: So you might want to take some protection and mail some sales on old crop and new crop of beans.

Martin: Here's what I would recommend. Go ahead and make your cash sales if you need to get some done. Get some started on new crop. $9 beans is not bad. Then turn around and go into the July contract and buy some call spreads. Maybe don't go far out on the money but maybe do $9.60, $9.80s, and then sell the $10.80 calls. Look at where our highs have been in December to January and sell those calls because if you market crosses that barrier, then it's going to move nicely and look at last year's highs.

Pearson: Real quickly, the cotton market continues to march higher.

Martin: It's been a dynamite market. Very good. Of course, we think that, you know, cotton is going to garner because of this, a lot of acres. and cotton probably needs to because we've had, what, three years if not four of declining production in cotton and you've got growing economies and China and needs cotton also. So cotton is trying to buy some acres. Will it succeed totally in the delta? Not totally I don't think, so but in Texas probably.

Pearson: Cash cattle market, $94 in Texas on Friday. Definitely an improvement. You said we'd see the mid-90s. We're there. What's your outlook going forward for fed cattle?

Martin: Well, I think that the April futures are going to get to $96, which isn't very far. Maybe not even that. But $96, $95.80 to $96.20, $96.30 something like that, that's a second wave count on the charts for us. That might give us some resistance. I think the cash and the futures are going to come to even money. So I think we're already starting to see that. Today the cash even in Nebraska there was some 148 in the beef. So I think that the cash is trying to do that, narrowing that spread between the cash and the futures. And that's a good thing for producers. Probably also a nice time to be having hedges on because if cash outpaces you're not making much in the way of -- well, you're making margin calls but you're cash is going to make you more. I think that to me is a time in the cattle market that we need to be watchful. China looks to be importing beef this year. That's a plus. I think that the muddy conditions in Nebraska and other feed lot areas is causing some weight loss. We're having weight loss anyway but the conditions of the processing of the beef is not as good. I think that's propping up the beef market a little bit right now too. You might want to watch this next week around Tuesday, Wednesday. There could be some peaking in there in the market. And we go in for a set back. But all in all, I think the April contract is good because of the condition and weights of the cattle.

Pearson: All right, sue, hog outlook. What do you see for pork?

Martin: Well, the hog market, you know, when you look at exports in January, we were 4 percent less than a year ago, down sharply from December but that was because Russia stepped out of the market. We've got them back so that should be positive. In the meantime the product isn't maybe doing quite as good but I think here again is a market that maybe sets back a little bit toward the latter part of March. But I'm friendly hogs from April into June. I think we're more traditional this year so that should be a very positive time for prices. Again, if you're hedging, I would say go do puts.

Pearson: Go do puts. All right, Sue, there's the final word on it. 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 may be headed visit the Market Plus page at our Web site where you'll find streaming video of our program and, of course, you can download audio podcasts of the Market Analysis and our Market Plus segments absolutely free at our Market to Market Web site. Now, before we go we want to remind you we are in the middle of fundraising on PBS. 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. So, until then, thanks for watching. I'm Mark Pearson. Have a great week.

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Tags: agriculture commodity prices markets news USDA