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Market Analysis: Aug 21, 2009: Sue Martin, Market Analyst

posted on August 21, 2009

Grain prices trended lower this week as the trade pondered the notion of bountiful harvests.

For the week, September wheat lost more than 20 cents, while the nearby corn contract was down 2 cents.

After last week's bearish report soybeans traded in a sideways fashion. For the week, the August contract lost almost 2 cents but the nearby meal contract gained $13.70 per ton.

In the softs, cotton trended lower, again, this week as the December contract posted a loss of $2.49.

In the dairy market, Class III Milk futures moved higher and ended the week with a gain of nearly 40 cents.

In livestock, August cattle were up 35 cents. Nearby feeders were off 55 cents. And the August lean hog finally moved into positive territory with a gain of $3.20. .

In other markets of interest, the Euro lost 166 basis points against the dollar. Crude oil was up $4.30 per barrel. Comex Gold gained exactly $6.00 per ounce. And the Goldman Sachs Commodity Index gained more than 13 points to close at 472 even.


Market Analysis: Aug 21, 2009: Sue Martin, Market Analyst

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

Martin: Thank you, Mark.

Pearson: Another interesting week as we get ready to start harvesting corn and soybeans and interesting things going on in the market. Crude oil jumped up, inventories smaller than what the world was expecting. Are we starting to see a pick up now in this world economy?

Martin: Well, we're being told that it is and a lot of indicators are indicating that this is occurring. I think the fact that the Chinese Shanghai market when it fell about 4%, 4.3% this week and then turned around and re-gained that all back the next day, everybody was talking about it on the day it fell and our markets reacted to it, then the very next day it all comes back. I think that we have to remember that market has had a big increase from last year's lows and any market can have correction. In the meantime, it just tells us how much China, what a role they are playing in our markets and, of course, they carry a lot of U.S. debt and so they are very important as to their economy as well. But at this time it does appear like things are starting to get better and we have heard since early summer that in the fourth quarter our economy will be growing and so we'll see if that occurs.

Pearson: Based on what we're seeing with a lot of our economic factors that we follow in agriculture the dollar this week, the action of the Euro against the dollar, a little bit of strength going there, not always positive for us in agriculture.

Martin: No, it's not but the dollar has been in a range, so to speak, from about 78, 77.5 to around the 79.50 area, something like that, and so we've just been kind of meandering in that range for some time here. I think that any time we seem to get anything that is disappointing in news to the economy the dollar seems to spurt. I think that we're, there's a lot of attitude out there that the dollar is going to go under 70 cents. That may happen but I'm not sure I expect it this year.

Pearson: Well, let's look forward into what is happening with our current markets as far as the agricultural futures are concerned. The wheat market this week under a little bit of pressure, obviously a good harvest and plenty of wheat out there. What are you telling wheat producers right now?

Martin: Well, again, the last time I was on the show I said for wheat producers if you haven't sold to hang on and even though price might go a little bit lower into September at this point the prices are so cheap let's see what we can garner into the next year. We have to remember, first off, Stats Canada came out on Friday morning and stated that wheat supplies or production was higher and it kind of surprised everybody and so that was a disappointment to the market and wheat prices fell through the day on Friday. In the meantime, though, we keep forgetting that Argentina is a major player in exports of wheat and they don't have wheat to export and on top of it the new crop that they planted isn't getting planted to the degree that they needed so they're down sharply again for the next year without the knowledge of what the weather will do for them.

Pearson: So, with those factors in mind we get this crop put away, we get through this harvest low and then maybe we start making sales?

Martin: I think so. I think one thing that is hurting the wheat right now also is the enthusiasm towards the soy market, they're buying soybeans, selling wheat and then on top of it the news of the CFTC this week when they announced the Deutsche Bank and also Grisham, those two index funds, hedge funds needed to go back to speculative limits meaning they were going to have to down size positions in corn, soybeans and wheat and the biggest position I think funds hold, index funds hold is 46% in the wheat.

Pearson: So, the CFTC action on index funds not as deep as some people thought it was going to be.

Martin: No, and I think the reason for that is that while the have a position I don't think that position, if this had happened a year ago it would have had a bigger impact. I think the position that they now hold is less than a year ago. I don't think that we have seen quite the infusion of capital into our markets this year by these funds that we would have seen a year ago at this time.

Pearson: This all goes back to a CFTC decision whether or not the index funds would be held to the same standards and speculative limits as individual speculators.

Martin: Exactly and it's thought that there's about two dozen more funds like this that could still be worked over by the CFTC.

Pearson: Are you concerned that could cause some additional liquidation in those pits?

Martin: Well, it will probably cap rallies or give us more stair step fashions in the bull markets and, of course, not help us at all with the bear market.

Pearson: Let's talk about the corn market and what you see happening there. You've been out and about, I've been out and about, the Midwest corn crop by and large looks good virtually everywhere. There's pockets, sure, and there's hail damage and there's holes but by and large this looks like a big crop.

Martin: Well, it does and the corn crop looks the best. I hear it from all over, it looks the best in many areas that they've had so it's going to be a decent corn crop if we can get it home and even if you get into say late September and you get frosted or frozen it's going to take a pretty good freeze, the crop is so green that if you get frosted it might not do an awful lot of damage, maybe a little quality but not an awful lot. The problem is that we're so far behind in the dough stage that if you go to parts of the western part of the Corn Belt like Nebraska and northwest Iowa I'm hearing corn is denting. But beyond that getting through central Iowa, Minnesota and into Illinois and it's the opposite, we're so far behind. That's the concern that as far as we are behind and the cruel nights that we have this crop is going to come home so slowly. And are we going to have the same weather as a year ago? Probably not, we're not in a La Nina, we're in an El Nino.

Pearson: So, with that in mind, Sue, what are you telling producers about making sales? If we come in with the crop and some of these numbers are huge or some of these private estimates out there, if we come out in 2009-2010 with 2 billion bushel carryout what is that going to mean for price?

Martin: Well, if we come out with a 2 billion bushel carryout, keep in mind the USDA projected I think it was a 165 or 167 this last time, but if we come out with yields up around 162 or 164 like Informa indicated if everything went okay I think then we're going to have a much bigger situation for carryout. The situation we have to remember is one, we have Brazil with production down sizably in corn acres this year. Because of the profitability of soybeans and the lower input costs beans will garner the acres away from corn so we're going to have a sharp decrease in corn acres in Brazil. Argentina, same thing, their acres are going to probably give way to more beans. So, the problem is going to be Argentina is the number two exporter in the world and you have Brazil down, they have numbers of livestock up, they're going to need to import more corn and they usually buy from Argentina. Well, they're going to have to come to the U.S.. So, there is going to be some potential here for corn. I think corn is going to remain in a sideways fashion, maybe with a little upward bounce pulled by soybeans, but at the end of the day I wonder at some point if we don't see corn and beans separate, corn falls into December and beans maybe don't.

Pearson: Let's talk about soybeans. Your take on the soybean market is that, again, our crop looks pretty good out there too.

Martin: Well, it does look good and, of course, in Minnesota, according to Pro Farmer, they found the pod count is down in Minnesota, same thing in Illinois, we are hearing talk of white mold in Ohio, Illinois and even some in Wisconsin. I think that's going to cause a concern when they start getting out there. From the road they look good and then all of a sudden you get out there and you're going to find there's been a problem. But in the meantime, I'm starting to get bullish beans. The last time I was on I felt like we could still pull back. I'm not feeling so much -- I mentioned the analog study the last time I was on that indicated on crop condition ratings beans could have a rally here, put a harvest low in, in July and move. Well, it's interesting because in the bean market we have a situation that in August, whenever you've had August soybeans put new contract highs in for the year, November beans -- there's only been seven times in the last 40 years this has occurred -- November beans have tended to move on and make new contract highs also after the expiration of the August contract. And, of course, we're starting to get a little tight on time but in Market Plus I'm going to talk about some fundamentals as to why I think beans can move higher and make new highs.

Pearson: Appreciate that plug for Market Plus. Now, I also want you to talk about one other thing and that is the livestock market which has been the flip side of these grain and oil seed markets for some time now. The hog market moved up a little bit, the fed cattle market looks a little bit better. What is your take for the balance of the year for fed cattle?

Martin: Well, I think that the cattle on feed report coming out on Friday showed that the heavier weights were up about 17%, then the 799 pounds down to the 700 pounds, we're down about 6%, those are cattle coming after October into towards December and then the lighter weights the report was skewed toward the lighter weights if you put those lower three categories together, maybe an increase of 21%. The bottom line is we have tight cattle numbers and as we go towards December they're going to get a little bit tighter I believe. What I see happening right now is cattle being pushed in towards later, getting heavier and, of course, our deliveries were all taken and a lot of them are going back on feed and with the hopes of being sold on the October futures and then pushed into where they'll show up again in late September or sometime in the September to October period. I think we're going to have a decent number of cattle hitting us around October but beyond that I could see another tightness of supply hitting us as we go towards December. The cattle market has been in a sideways range for nearly a year and at some point usually they don't fall off the bottom side of that sideways range, I would suspect you could come back out to the top side especially if these economies are getting better. So, I don't think I'd be hedging cattle unless you can get Octobers up around 90 cents.

Pearson: Your take on the hog market?

Martin: Well, the hog market, that's the one that I had thought the last time I was on the show that we were seeing some liquidation. But recently the sow slaughter came out down 10% so that doesn't indicate liquidation. I have talked to a lot of hog producers and, of course, they are very concerned. There's some hanging on by a thread. But I will say this, we're into a seasonal move here with the pork market, they normally put a high in around the 24th of August, fall into about the 31st of August and then rally into September. However, I want to say one thing, this hog market should find -- I think it's going to come back and test the lows.

Pearson: All right, Sue Martin, we appreciate your insights as usual. That is going to wrap up this edition of Market to Market. If you'd like more information from Sue on just where these markets may be headed visit the Market Plus page at our Web site. You'll find streaming video of our program and you can also download audio podcasts of our Market Analysis and Market Plus segments free at our Web site. Be sure to join us again next week when we'll examine the outlook for agricultural trade in the months ahead. Until then, thanks for watching. I'm Mark Pearson. Have a great week.

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