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Market Analysis: Apr 13, 2007: Sue Martin

posted on April 13, 2007

Wheat prices are leading the charge higher for the first time since September, as the trade reacts to rain and record cold temperatures on the plains.

For the week, May wheat gained more than 35 cents, but the weather failed to move corn prices much higher as the nearby contract gained just 3 cents.

USDA's monthly supply and demand report had bearish implications for soybean prices. For the week, nearby beans lost more than 22 cents. The May meal contract was down nearly $20.00 per ton.

In the fiber market, the nearby cotton contract had one of its worst weeks in recent memory with the December contract losing $7.53.

In livestock, the April live cattle contract was down $3.40, nearby feeders lost $3.87, and the April lean hog posted a modest gain of 30 cents.

In the financials, Comex gold gained $11.20 per ounce. Nearby crude oil prices were down .65 per barrel. The Euro advanced 11 basis points against the dollar. And the CRB Index lost less than 1 point to close at 317.75.

Here now to lend us her insight on these and other trends is one of our regular market analysts, Sue Martin. Sue, welcome back.

Market Analysis: Apr 13, 2007: Sue Martin 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 tonight.

Martin: Thank you, Mark.

Pearson: Let's talk a little bit about what's been happening this week. First of all let's talk about this wheat market and this big move, 35 cent move in wheat. The market had been flat to a little on the down side here lately since the big move last September. Obviously we're in a weather market for wheat.

Martin: Well, we certainly are. Wheat had had a good downsizing trend right into the past weekend, the Easter weekend when all the freezing temps engulfed a large portion of the U.S. and I think that it was sharply higher on Sunday night and Monday. Then the trade went into a kind of a, just a holding pattern because it takes a little time to really realize what kind of damage there is. And, of course, wheat is kind of known to be like a cat with nine lives. But in this situation wheat was further along than like the year of 1997 that everybody reminisces about and also you had several days of bitterly cold temps, not something maybe around 25, 28 degrees for four or five hours but in the upper teens and low 20's. So, it certainly did a lot of damage and even the Illinois crop, the soft red wheat crop is severely damaged as well and that's the one market that wasn't getting as much demand let alone the hard wheat, the hard red winter wheat wasn't picking up near the demand we were hoping for to create a rationing rally and instead markets declined. Now, I think we're getting this rally, we've been up to about $5 on the KC wheat and the thought is gee, $5 in front of the price maybe we need to sell it. Maybe you sell some of the old crop you're holding but, you know, elevators certainly are looking to buy that old crop wheat because they're going to need it to blend out. But I ponder, I wonder if the damage is this severe global stocks are at 25 year lows and the Chinese wheat crop isn't off to that great of a start. You know, there's 25% of that crop in trouble and they've got striped rust in other parts of the wheat. I kind of think that there's issues, Canada's crop was lower than what they expected by about 3 million metric tons. So, there are some issues out there. I'm wondering if it's possible we're looking at an early harvest low.

Pearson: Okay, so this may be something that producers may not want to jump and perhaps ramp up sales as much as some of them are thinking.

Martin: Exactly. One way to maybe approach it since there's so much emotion right now to the up side is to maybe buy puts and floor your crop for going into harvest especially if you would be looking at entertaining some sales off the combine. I would say buy some puts and get some flooring under you and then let the thing run and let's see what it can do.

Pearson: Let's talk about the corn market. Obviously the same temperatures that are affecting the big parts of the Wheat Belt and the snow and cold temperatures have affected and wet conditions have affected a big chunk of the Corn Belt are already starting to make 2007 a less than perfect crop year. And as you said on the show and other analysts, you know, we need a perfect crop year and big acreage to meet our corn demand. And yet despite all that the market was only up 3 cents on corn. What is your take? What should we be learning from all this?

Martin: Well, I think that what we're doing is killing time. If we go back and we look at years similar to this one where we put highs for the July contract in, in the month of February and whenever we've done that, there's only been seven times since 1970, but there was a tendency in those seven years to have a sell off from the February highs and then the low would be either in March or in May, in the past it's never happened in the month of April. And then you move on into your summer rally. I feel very strongly that we'll see better prices as we go into June and July. I think Dec. corn has not seen its contract highs yet so I'm very positive. And I think that the break that we're looking at is offering us an opportunity. But if I'm right that these April lows are going to be looked at again once we put a five in front of the calendar date I don't think it will be taken out by much but it will come back down. Well, we were moving too fast this week, we were within six cents of that low. So, we need to bounce a little bit, kill some time and, of course, we're swaying in the breeze with the weather forecast. If we were to start clearing up this weather forecast next Monday, you'd see corn turn around and turn tail. I think that we're in a choppy, volatile, emotional market and until we get those planters really running this corn market is going to be very emotional and possibly still see some move to the down side. Then once we get in May I look for lows and it may come early this year, it may be May 1st, May 2nd or something like that. But by the first half of May I look for the lows to be in on this break and then we start our afault to the up side again.

Pearson: Alright, and Sue, as you look at this market and as we go forward with the kind of demand going forward for '08, '09 and '10 with increased ethanol demand and looking at those deferred contracts held right in there, pretty good carry right now.

Martin: Well, they are and this is the one good thing. I think we have to remember the seed companies are clearing their shelves of seed corn this year. So, if you go into next year and we're going to have to have more acres next year because we're certainly going to have more ethanol plants, you know, we've had 80 on the drawing board or under construction that will be coming online throughout the course of this year into next year so we're going to have to have more corn production again next year, we're going to fight for acres all over again. Well, if you don't have a good year this year where are you getting that feed next year? So, there's some emotion and vulnerability here and, of course, once we get the planting done then the next thing is going to be not only for corn but for soybeans as well is the _______________ and, of course, pollination is 90% of your yield in corn so we're going to be dicey all the way into pollination and the longer it takes the later it pushes this pollination period out into the potential hottest time of the summer. So, I think that when we're looking at selling next year's crops I think you can do that, you can market some of that but I would probably be looking at breaks in here as we look in May, I'd be kind of buying some call options back or buying just for the summer rally and then, you know, see how pollination goes. If it's good the market is going to go south. The one kicker here is, is that these cold temperatures really reached down into Georgia and Alabama and all those states that were so far ahead in emergence and everything. Well, it was thought that everything went hunky dory why we'd have corn harvested in August and that would mean that the end user would go hand to mouth in July if the pollination made it. Now we don't necessarily have that situation because we're looking at re-planting a lot of areas.

Pearson: Alright, strap in your seatbelt, it could be a wild summer.

Martin: I think so.

Pearson: Alright, let's talk about soybeans, maybe a little bit of the opposite effect going on there? Maybe the later this corn crop gets planted the more bean acres we'll see, is that what the thinking is?

Martin: Well, that's the thinking and, of course, nobody believed that 67 number when it came out from the USDA, that 67 million acres, nobody believed it and it was kind of a shock. The bottom line is we're probably going to draw some acres back, you know, probably out of the south in place of corn where they can't get seed. They'll either plant wheat or beans and so we're going to probably draw some acres back, maybe we draw 2 million acres back and we get to 69. Well, I was friendly the last time I was on the show for beans long-term that even at 70 million acres we would be positive. I think that as we go into May we're going to find a low here in beans as well. I look for a rally in the summer, in June, July period for the beans, possibly the November beans will put their high in right about there. And then we'll sit down as we go through August unless there's a bitterly bad situation going on for too much heat for the bean crop. But long-term as we go through next year I'm very bullish beans. We have to remember if 67 million acres held you'd lose 10 million metric tons.

Pearson: Alright, so soybean producers also need to be wary and, again, the volatility is probably going to continue and more opportunities for 2008 and beyond. We're getting tight here, Sue, for time. I just want to talk a little bit about the livestock markets. First off, with this pull back here should we be locking in some feed needs?

Martin: Well, I certainly think so. I think that this is an opportunity and given how I've already talked about corn, yes, absolutely I would be using it and for the hog producer I'd be booking in some meal too.

Pearson: Alright, let's talk fed cattle prices, a little bit softer on the board this week but wow, what a week in terms of what the _____ lot trade did last week, I mean, we've got some exciting stuff going on in this cattle market.

Martin: Well, we do, it's been a wild week there in both ends. The cutout for choice beef, you know, rallied sharply this week, $13 I think or maybe even more. And it's running about $29 over a year ago at this time. But I think the cutoff has peaked because the movement of box beef really slowed down this week with that rise. So, the packer has gotten back into the black nicely but now he needs to move the beef so he's going to have to probably pull prices back a little bit to get the retailer interested. And the retailer isn't stockpiling any meat. What he's doing is he's buying it as he needs it and so consequently he's raising the prices in the stores but he's not stockpiling and so therefore I sense that getting interested we're going to see that peak and move backwards. Now, as far as cattle prices I would continuously recommend to the producer I think we've seen our high, it came seasonally early this year. I think out of the last 20 years maybe seven of them peaked in April before and I think that I would recommend keeping your cattle moved. I think our top is here and we're going to see cattle prices soft into June.

Pearson: Okay, real quick this calf market has also been strong with a pull back in corn and, of course, the demand on this fed cattle side has really been strengthening that. What are you seeing on that front?

Martin: Well, I think the first clue this week was when on Tuesday morning when the government report came out, leaned a little negative with an increase in stocks and then we had the opening call for quite a bit lower and feeder cattle opened sharply lower. First time that's happened since I can remember and so that was a clue that something was amiss. I think the feeder market has reached its peak as well. You know, the consumer is saying that they've got their dollars being stretched, you know, gasoline prices are going higher, our barbecue season has not gotten off to a good start this year. So, there's issues out there. I'd be hedging your feeders.

Pearson: What about on the hogs?

Martin: Well, the good old hog market, that's been the one that's hung in there. And I think that when we look at what the dollars is doing you have the dollar down to its lows, its contract lows. Now, maybe we double bottom with it, those lows were made in December but still the dollar is in a slide but that's beneficial to selling pork overseas to Japan whose economy is looking good.

Pearson: Alright, so there's the final word on it and you're right, the dollar situation is helping a lot of our commodities, exports are strong all the way around. Sue Martin, thank you so much. That's going to wrap up this edition of Market to Market. But if you'd like more information from Sue on where these markets just may be headed visit the Market Plus page at our Market to Market Website. And, of course, remember you can download audio podcasts of our market analysis and Market Plus segments absolutely free at our Website. And, of course, be sure to join us again next week when we'll meet two outspoken scientists who fail to see eye-to-eye on the benefits of ethanol. Until then, thanks for watching. I'm Mark Pearson. Have a great week.

Tags: agriculture commodity prices markets news wheat