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Market Analysis: Dec 18, 2009

posted on December 18, 2009


Private analytical firm Informa Economics this week lowered its estimate of the 2009 corn crop by 33 million bushels from November. Nevertheless, prices also moved lower.

For the week, March wheat lost nearly 10 cents while the nearby corn contract declined by about 7 cents.

Informa raised its "guesstimate" of 2009 soybean production by 9 million bushels, and prices moved lower again this week as the January contract lost more than 20 cents. And the nearby meal contract was down $1.10 per ton.

In the softs, cotton surpassed the $75 barrier this week as the March contract posted a gain of nearly $1.

In the dairy market, January Class III Milk futures were down 12 cents, and the deferred contract lost more than 30 cents.

Over in livestock, February cattle gained 85 cents. Nearby feeders were up $2.38. And the December lean hog contract lost 29 cents.

In other markets of interest, the Euro lost nearly 300 points against the dollar. Crude oil gained nearly $3.50 per barrel. Comex Gold declined by more than $8 per ounce. And the Goldman Sachs Commodity Index rose more 12 points to close at exactly 500.

Market Analysis: Dec 18, 2009 Pearson: Here now to lend us her insights on these and other trends is one of our regular market analysts, Sue Martin. Sue, welcome back.

Martin: Thank you, Mark.

Pearson: Let's talk about some of the stuff that's been going on here this week. Actually some of these trends have been going here for a little while. One of those has been the recurring theme that everyone is talking about, cheap dollar, cheap dollar, cheap dollar. It looks like the dollar has hit bottom and bounced back up pretty strong big time against the Euro. What do you see ahead?

Martin: Well, I think that when you look at the dollar, last year at the end of the year, we closed the dollar out, the index, at 81308. And I think we made higher highs this year on the dollar than last year so I think it's possible we're trying to come back and gravitate towards that leveling market that we had a year ago. Do we close higher for the year on the dollar? Well, if we don't, then I think that portends that the dollar is still going to come back down again and double dip with the lows of 2008.

Pearson: All right. So you don't think this is a hugely fundamental change in the dollar's direction?

Martin: No, but I do think that when you look at what happened in Dubai, when they were in the process of trying to negotiate to get the banks to put them on stay with their loan payments for six months, I think that you notice the world – one, they did scramble to buy gold, but what they really did was they scrambled to get back dollars. I think that when the dollar doesn't really hold the presence that it once did, it still seems to be in time of concern or chaos, it seems like it still is the currency of choice.

Pearson: All right. Well, let's talk about how that's impacting markets with the dollar strengthening. Talk about precious metals weakening again. Let's talk about the wheat market, down a dime this week on the board. Chicago, there's a lot of concern about how much the winter wheat crop was going to get in the ground with the late harvest conditions. So that's been an issue there, but it seems like there's been, the overriding theme has been that there's big supplies worldwide.

Martin: Well, there really is. And at some point you have to say, okay, we know there's big supplies. Foreign production deficit is that they only need to import maybe no more than 3.5 million metric tons of wheat this year, and we know that Argentina didn't get their production in like they normally would have. So if that being the case with plantings down 21 percent and they still only need to import 3.5 million metric tons in the world, that's kind of telling you something and that means the demand is really poor for wheat. Now, on the flip side of this, CNGOIC – it's kind of a think tank for the Chinese government – they're saying that they had 163 million metric ton crop but you have the USDA ag attaché to China saying, no, it's more like 150 and the USDA has said around 153. So I think that – or 155. So I think that when we look at China, I think all in all when it's all said and done, the crops may have not as good as they said they were this year. I think that they're also in the process of trying to build those reserves. And once those reserves get built, we're probably going to be in for some hard times in agriculture. But for now, they're still in the process of building, and that gives us hope. In the meantime, we're priced too high in the world market. And so if we find the $5.10, $5.15 area of support in the Chicago wheat and maybe the same area $5.15, $5.20 on the KC, we should get some bounces. But when you get back up toward that $6.00 level, I think you need to unload some.

Pearson: All right. There's your sales target, folks. Let's talk about the corn market, switching gears some more. Talk about a late harvest. That's been the late harvest story. Still a lot of corn out there. A lot of people are saying that's a bigger issue than what the USDA is figuring. It could perhaps change our January crop production number. You don't leave, what, 800 million acres estimated out, although this week certainly in some places they were telling me their harvest was underway. So we'll see how that comes out. But it all comes down in the end to demand and what's left over, Sue. What's your take on the corn crop? What's your take on sales this year?

Martin: Well, I think that when I look at the corn market, one, I think everybody had dialed in a pretty large crop. And while Informa came out with a number that was a little less than their last estimate, it's still nicely over the USDA. We estimate that on Monday we'll probably have 95 percent of corn harvested. Some say that's not true, that there's maybe even more than that still out there. However, at the end of the day, the big story here is going to be what the condition of that crop really is like. There's going to be a fair amount of corn that's going to have to move by the early part of March because it's not going to store. You have poor condition corn, low test weights. You take this corn to the ethanol plants. It takes more of it to get the end result. And under normal conditions, you'll use 4.2 billion bushels of corn. We're going to use a lot more than that this year because of the fact that it takes more to get there. And then for feeding, you know, we're going to have some cold temperatures in the plains this year with the El Nino. But if they get a lot of snow, that's really going to hurt the feed conversions. We'll have to see how it comes. But there's potential – I just think we're going to burn this corn crop up faster than normal. And I think all of a sudden the trades are starting to think about that. And that may start to put a floor under this corn market at some point.

Pearson: You mentioned El Nino, which we haven't talked about for a long time. But they're saying we are in an El Nino pattern now?

Martin: We have moved back towards the El Nino. And in El Nino years you do tend to have – of course, we wouldn't know it right now today – you have a milder winter through Iowa, Minnesota, parts of Nebraska and Illinois. But you also have a much colder, wetter winter in the plains like Texas, Oklahoma, Kansas and parts of Nebraska and Wyoming. And so far they've kind of had a little worse start than what they normally have had. See, they've enjoyed some really good weight gains for cattle in the last, what, three years or so. But this year may be a different ballgame. But in the meantime, again, the feed conversions, that means more corn is going to get utilized. And I think the trade in Chicago is starting to analyze this and I think they're starting to awaken to the fact that there is potential that we burn this corn up fast. And the poor quality corn maybe ends up in ethanol that goes across overseas.

Pearson: Tell me this, then, are you going to make some corn sales now or do you want to hold off for the next rally? What's your target?

Martin: Well, I expect another rally. We're in a process – this is December and Decembers tend to be schizophrenic and they can – you don't chase them because they'll take your money away. But in the meantime, I believe that as we go into Christmas, we're going to put some lows in there. And then as we get into January and we start to move in January, I think we're going to get a little January rally, but you better be Johnny on the spot. I think around January 13 to 15, you're going to put a high in and then we're going to step back for the February break. But the February break may not be long lived this year because there is going to be an acreage fight. We're going to fight for the acres this year. And then as we go toward – and I'm moving ahead into wheat a little bit, but as we move toward wheat planting time in the next season, we're going to have to stoke that farmer into planting wheat.

Pearson: That's right, especially with those prices where they are right now. All right. So your corn target is what?

Martin: Oh, wow. I guess I would say that if we can hold around this $3.85 area, something like that, and then on the top side, of course, it's going to be tough, you know on the old crop – let's do the March, getting up through $4.34 – because $4.20, something like that, has been our resistance. If we get through that we'll probably shoot up on to $4.34, $4.40. Now, this past year's high has been around $4.73, $4.76 for a lead month of corn, and the December contract had issues around those areas as well. So it's going to take a lot of effort to get up through those price levels. It's not uncommon to have a second year out after a peak in a market – an extreme peak to have a sideways market and lows. I tend to think that we'll try to push up and test those levels and, of course, traders are going to be willing to sell. I will say this, I'll be on the show again before we want to culminate all of our cash sales, but the producer needs to be very watchful.

Pearson: All right. How watchful does he need to be on soybeans?

Martin: Very watchful, but the whole trade feels that way. I was at the farm – the marketing rally for Farm Journal in Chicago, 15 analysts, and every one of them said that they looked for a high in January. What does that tell you? It says all these guys out of Chicago and everywhere else, they're looking at the South American crop, they're seeing it get bigger, ideal conditions, and they're saying when will this affect us? And in the meantime they're all trying to assess it and they're going to jump the gun because they're futures traders. And that tells you how ready they're going to sell in January if they get the chance. Some are saying we've already seen the top. I don't think so. I think there's another rally yet to come. I believe that too hits us around the 13th to the 15th. I can't emphasize enough get stuff sold on that date.

Pearson: All right. 13th to the 15th of January, key time to sell soybeans out there. All right, talk about livestock, Sue. What do you see for fed cattle?

Martin: Well, the cattle market, you know, the producer has really struggled for cattle and so has the feedlot guy. I guess I look at the cattle market – it's all been about demand. And unfortunately, in slow economic times and unemployment, people gravitate to cheaper meats and, unfortunately, beef has been a higher in meats, so it struggled. But when we go into this next year, if we have a tough winter in the plains, I think that's going to be helpful to prices and push them higher. Feeder cattle this past week hit 96 – well, they actually hit 9040 and 9060 was our weigh for count on the down side. And usually weigh fors will stop you like the Brick Wall of China. So I think that I would have to say – and we've rallied $4 on feeders since then – but I would have to say for the producer, you know, we're seeing the premium in the February futures and normally the basis would be equal to maybe a dollar over – on the futures over cash – so I'm looking at the producer looking at the premium and he's – they've already pulled cattle off the show list a week ago. I think those cattle are being shoved into January, and that could be a negative. So we're going to need to see some nice changes with consumer demand, because after we get into January, if that isn't the case, that market is going back down.

Pearson: Okay. So you're not going – you don't think we'll see 90 cents. You're not going to see a big rally in this fed cattle market, then, for '10, at least in the first quarter.

Martin: Not in the first month or two of the first quarter. Depending on the weather, it may take until April to get this thing mutating and probably even in towards summer, when people are more willing to start – you know, the weather lightens up a little bit and you don't have the heat bills. And then on top of it, you have maybe some people getting back to work if the economy truly is turning around. All of that said – we've also noticed that credit card usage has been down a little bit for Christmas. So that's not a good sign either.

Pearson: That's true. All right. So with that in mind, you mentioned the calf market. I heard from some order buyers who were saying calf market has been a little bit better just because people are trying to feed some of this wet corn out there.

Martin: Well, exactly. And another thing that you've got this next year is the fact that our dairy should be pretty well cleaned out. Milk prices have risen so all of a sudden you're going to start to get this – next year in 2010 I think there's going to be a demand back for heifers and, you know, for cows and that type of thing. So I think there's going to be a ray of sunshine here as we see a whole back of breeding herd and then tighter supplies again but a growing demand and also growing world economies. I think that's coming at us too.

Pearson: Good point. All right, and that's especially true in pork where we had huge export numbers and then the global economy collapsed and those numbers disappeared. And we're still producing a lot of pigs. What's your outlook for hogs in 2010?

Martin: Well, I think the one thing that we're going to be disappointed in, in this pig crop report that's coming up is that we didn't liquidate near the numbers we should have. However, in 2010, again, we've seen a wonderful counter seasonal rally. In fact, the first fall I was on this show, we had a counter seasonal rally and hogs went to $50 in December. And this year I think, you know, the December went off the board on its highs. Febs have kind of piddled around, or whatever you want to call it. I see the April and June being good.

Pearson: All right. That's what we want to hear. Sue Martin, thank you so much. That's going to wrap up this edition of Market to Market. If you'd like more information from Sue on where these markets may be headed be sure to 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 be sure to join us again next week when we'll examine the efforts of chestnut producers to make their product more than a Christmas tradition. Until then, thanks for watching. I'm Mark Pearson. Have a great week.

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Tags: agriculture commodity prices corn markets news nuts