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Market Analysis: Oct 23, 2009: Sue Martin

posted on October 23, 2009

Underpinning much of the rural economy, of course, are commodity prices. And this week, with most farmers well behind schedule, the rare harvest rally continued. As of Thursday's close, December wheat gained more than 30 cents, while the nearby corn contract moved nearly 10 cents higher. Harvest delays and uncertainty in the southern hemisphere supported oilseed prices again this week. As of Thursday, November soybeans moved 13 cents higher while the nearby meal contract fell more than $15 per ton.
Market Analysis: Oct 23, 2009: Sue Martin Pearson: Sue Martin, let's talk first about grain prices. In my experience, $5 wheat and, as Tim just mentioned, corn at $4, a little better at harvest time, that's cause for celebration for most people.

Martin: Well, it is, especially this has been a year of a very sideways market for many commodity markets. And so our highs this year were around $4.76 and, of course, we got down on the December contract to $3.02. Last year's contract of December corn got down to $2.96. So, it's been a very sideways market. And like I said earlier, the expectation of a large crop huge yields coming in all at once was creating some bearish attitudes and talk of sub $3 prices. And then, of course, the weather set in and things changed. You had the frost freezes and, of course, dry down is extremely slow. Some of this crop won't dry down very well at all without help. But you also have the end user who also bought into that thought. Be it whether it was an ethanol plant or a livestock producer, they didn't book ahead because they thought there was going to be a good supply to grab at the fall in normally what would be the cheaper prices. And it didn't happen, so now they're having to bid because they don't have the supply readily to them. We've had a beautiful rally, the market has taken off. You've had some front buying in this marketplace. And I tend to think that when you look at commodities in general, you know, corn has been fairly underpriced to everything and that market is up around $4. $4.08 will give us some static. You might get to $4.62.

Pearson: All right. Well, we can look forward to that. Now let's talk about oilseeds. Again, despite the harvest pressure, we are seeing the oilseed market with this late year again showing some strength here.

Martin: Well, I've been a proponent of soybeans for some time. This is the one market hugely bought ahead by foreign buyers, China especially. We have front end loading record in history. And with that kind of demand – of course, Argentina didn't have much of a bean crop this past year. They're going to have a whale of a crop next year. Brazil same thing, had weather situations with the La Nina. And so they too didn't come off with as good of a crop as they would have liked to, and they're basically much sold out, 93% sold. That leaves the U.S. as the only game in town. Normally Europe would be going to Brazil for beans. They can't get them there, so they too are in our back pocket buying beans, which is a good thing. So I look at the bean market, and here's where I think the most bullish market really is. The problem is you're dealing with $10 beans. And let's say this next year beans are going to $14, $13, if they do that. I would say $12 should be – I shouldn't say sure, you know, but –

Pearson: Nothing is sure in this world except death and taxes, but $14 perhaps on soybeans.

Martin: There is a potential for $14 if the right things lay out, but we have to remember we've got a huge competition coming down the road. So we want to be gratifying the market with your crop now because it doesn't pay you to store it now. And then coming back to the marketplace, can you do call spreads or you can go in and buy futures.

Pearson: Do some kind of an option strategy. Real quick, Sue, livestock markets. What do you see as we go forward? We've got about 30 seconds.

Martin: Well, and you know, Mark, I've never talked for 30 seconds in my life.

Pearson: I can't believe I pushed you this fast, frankly. Now we've got 15. So there we go.

Martin: The cattle market is the one market that has really suffered and struggled. Well, the hog producer has too but he's gotten some reprieve, but the cattle haven't. And I believe we've put a low in here. We've worked through all these heavyweight cattle. We're in tight supplies now for about the next three weeks, and I think you've got – I'm hearing meat salesmen for the packers are telling me they're getting hit with all sorts of orders, just tremendous demand. I think you've got a cattle market now that has the potential to go to $88 in the cash market, maybe $90.

Pearson: Got ten seconds. Real quick comment on pork.

Martin: Well, the hog market is – normally you'd be going down in price at this time, but because of the fact that you've got pork so cheap in value, it too is enjoying some pretty good demand.

Pearson: All right. We've got to leave it right there. Sue Martin, thank you so much. That's going to wrap up our special economic summit. I want to thank all of our panelists and our audience for joining us here in Shenandoah, Iowa. And we want to remind you that we'll produce three more of these special road editions of Market to Market over the next year. Future programs are tentatively slated in Wisconsin, Nebraska and Kansas and you're invited to join the discussion by submitting your questions at the Market to Market Web site. Sue Martin will be blogging at our site over the next week and you're invited to share your insight as well. And, of course, join us again next week when we'll return to our regular format. Until then, thanks for watching. I'm Mark Pearson. From all of us on Market to Market, have a great week.

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