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Market Analysis: Jan 19, 2007: Sue Martin

posted on January 19, 2007

By week's end, the markets adjusted to USDA's tightened supply numbers. The focus now shifts to the President's State of the Union address next week, which is expected to include increased ethanol production mandates. For the week, March wheat lost more than 12 cents, while the nearby corn contract gained another 10 cents. The soybean market also was volatile this week, but when the dust settled on Friday, not much had changed. For the week, nearby beans gained a penny. The January meal contract lost 20 cents per ton. In the fiber market, March cotton trended slightly lower this week, posting a loss of 15 cents. In livestock, the February live cattle contract was down 75 cents. Nearby feeders gained 43 cents. And the February lean hog contract gained $1.20. In the financials, Comex gold gained nearly $10.00. Nearby crude oil prices lost $1.00 per barrel. The Euro gained 84 basis points against the dollar. And the CRB Index fell more than 1 point to close at 287-even. 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: Jan 19, 2007: Sue Martin Pearson: Here now to lend us her insight on these and other trends is one of our senior market analysts, Sue Martin. Sue, welcome back.

Martin: Thank you, Mark.

Pearson: Well, let's talk first about obviously the USDA report last Friday threw things into a bit of a loop. It was a wild first couple of days of the week, it was a wild day last Friday and now we've had a chance to sort things out. And let's talk about wheat. Plantings are up dramatically and, of course, $5 wheat is going to do that.

Martin: Well, it certainly did and that's kind of what threw the corn in motion because wheat acres pulled corn acres away. But now as we look at the wheat crop we're noticing that there is starting to be kind of when you have $4.80 wheat basis Chicago and $4.89 July or something like that and you have the KC wheat hanging around $5 or a little under and you've got corn at $4.20, hitting a high this week of $4.20 1/2 on the Chicago or March contract I should say and then you've got falling back maybe trading around $4.00, $4.05, $4.10. Well, you're narrowing in that spread between corn and wheat prices. There is talk that we're going to see some wheat acres taken out and put back to corn. I suspect if that happens you'll probably see it in Indiana, Ohio where you've got wheat under ice and, of course, have had some flooding too because of this weather and that crop was off to what looked like a good start, might have some winter kill, that type of thing. But the other thing too is wheat is now starting to get closer to where it might be put into a feed ration and, you know, to help out the cause there into the feedlot areas that type of thing. So, one thing I think is interesting is when you look at the July and December contracts December contract of wheat is not far off of its contract highs. In fact, it set contract highs this week while the July got within 20 cents on the KC. That tells me that we better be watching this market closely because either you're going to start to catch on the old crop and start to bounce or -- and I think it's a little too early for that although export sales are picking up nicely now and we needed that but it's also seasonal that they should -- or the new crop is going to start to waterfall to the down side. So, I would suspect now is the time to probably be doing a little bit of pricing on some of that new crop and protecting yourself a little bit there. If nothing else be buying some puts.

Pearson: Alright, as a precaution just do not let these prices slide. Let's talk about the one everybody is talking about, that's the corn market. You talked about $4.20 on the board, $4.20 1/2, hit a high. We're talking unprecedented demand, potentially unprecedented acreage shift from acres away from -- I mentioned wheat was up, as you pointed out Chicago soft wheat plantings were down two percent. I think you're right, that's probably the corn shift occurring there. What do you see ahead, Sue, for corn prices? What should producers be doing if anything right now? We still have a wild 2007 crop to get through.

Martin: Well, we do and first off, let me say, you know, this week when March corn got to $4.20 1/2 it was within a penny and a half of a price projection that we had had. It's a wave three, not Elliott but a wave three projection that usually stalls a market or makes it hesitate. I think that's all we're doing is hesitating. I don't think your high is in on corn, not straight across the board I don't think it's in yet. First off you've only one time in history put a top, a contract high in for corn in the month of December, never in January. We're into a time where when you've had a counter seasonal fall move and you come up and you make higher highs in January, you'll see higher highs in February, you'll see higher highs in March. Usually a big percentage of the historical says you better be selling new crop corn because you're putting some highs in. I look for a high this year either in March or May. And if it's in May I suspect it's in the first few days or a week of May. And if it's in March I'm going to be real curious because I think that government report in March, the prospective plantings is going to be, everybody is going to be on edge for that one especially when this last one in December, not December but January, this supply-demand report caught us off guard in the final plantings for production out of this past year, caught everyone off guard. You know, the USDA economist, chief economist, Keith Collins kind of gave us the heads up but we just weren't listening close enough I guess. He was giving us clues. Well, you know, we have a demand for this corn crop and we have to solidify those acres. If we don't and, of course, we're going to be on edge all summer with weather, you know, coming into pollination that type of thing and if this El Nino is dying out as fast as some climatologists say, you know, we could go into a wet spring. That will have everybody on edge that we maybe aren't going to get the acres planted that we need. So, we're going to be a wild, wooly market. Does that keep someone from selling the crop? No, these are excellent prices and I would be selling some. I would be marketing, taking advantage of it but we have not seen the top yet in my opinion. We haven't seen the rationing yet to where you see feed usage slow down, in other words, where we see liquidation out of hogs or liquidation out of poultry or cattle slowing down, you know, and with the weather we certainly have had it's creating an awful lot of feed going into cattle that we wouldn't have had.

Pearson: Sue, what is your target to make those new crop corn sales? And you want to use the December contract?

Martin: Yeah, if we look at the December corn first off I want to go with timing. Sell some corn in March and then come back and sell some more in May and I would have all my new crop corn sales done before the end of May.

Pearson: Okay, as we look at this demand picture and this acreage they're talking 10 million acres, that plantings report will be our first chance to really see if that's been accomplished.

Martin: It certainly will and if the USDA comes out with 10 to 11 million acres, which will surprise me if they do, but if they come out with that the market is probably going to have its high in and you'll sit down then you'll take a look at spring planting weather conditions and that might give you another secondary bounce and then, of course, on down from there. I look for a weaker market through the summer and then we see what we do with late summer weather if we're indeed in a La Nina.

Pearson: Alright, Sue, you proclaimed on the show you were an $8 girl on soybeans. You've got to be feeling pretty good about what the soybean market has been doing.

Martin: Oh, I am. I like the bean market. Do I think it's overpriced? Absolutely no way, shape or form. I wouldn't sell this market with wooden nickels. I am so bullish beans. Now, you have to take it one step at a time. We have to realize that the carry out of $5.75 is a record carry out and world supplies appear large at the present time. But we're also looking at about the same situation that corn had last summer into the fall and I suspect as we go into the spring we're going to be where corn was last fall losing acres to wheat while beans are going to be losing acres to corn. Now, the thing is how many acres will we lose? I look for around 6.5 to 7 million acre change. But the thing is if you look at the last quarter or the first quarter of the marketing year our usage for residual supplies was third lowest in history. That would make you think that the USDA overestimated the crop. If you look at exports they continue to be very rampant and robust and I suspect that they will. You know, meal crush or the crush for the protein for meal has been very good. We had a very large crush in December and I don't expect that to change. Oil seed plantings around the world other than sun seed oil in the Ukraine expects to be a pretty good crop but when you look at India they lost a huge percentage of oil seeds to wheat and then when you look at rape seed, well, you know, the UK is having some issues with rape seed. They might lose some of their crop because of winter kill potential because they were so abnormally warm it got off to too much of a head start so they might lose some of that over the next month or two. But the thing is all in all soybeans account for the largest percentage of oil seeds in the world and South America, we're waiting to see how good is that crop going to really get going and the northern parts of Brazil are wet, catching way too much rain and that is setting off, igniting Asian Rust. Parana, one of your largest producing, in fact, maybe the largest producing province in Brazil having trouble with Asian Rust. That crop might be as large as it's going to get and you might see a little bit of retraction there. We can't afford retractions. Then you take us in and we have a wet spring I just am so excited about the bean market. Use any pull back you get here, that is sort of a hint of a February break and you best be buying it.

Pearson: Alright, well let's go over and talk about the cotton market. You haven't said much about it -- you think this might be a sleeper?

Martin: I think it's very much a sleeper. If you look at the charts you're in a very sideways market and it's been doing this for quite some time on the weekly charts. It's getting ready to set up, it's going to lose acres to corn as well. I think cotton is a sleeper. I'd be buying the December $60 cotton calls. I think that cotton in time here is going to be moving and joining the rest of the forces with higher prices.

Pearson: And just back real quick your target for bean sales would be about what?

Martin: Oh, goodness, I'm going to say $8.30 to basis the May and July contracts, I'm going to say $8.30 to $8.60 and we'll see what happens. But in no way would I be making sales unless you have to have the cash and then try to retain some ownership back on the board.

Pearson: Let's talk about the livestock sector which has been hit on the flipside of this with these high feed costs, horrific natural disasters out in the plains states with the blizzards and ice and everything else that's been happening out there. Fed cattle market has hung in there pretty well but it's going to have to to keep people buying calves.

Martin: Well, it is. The concern is though you're looking at one more storm here coming through this weekend and it's thought that this one moves even a little bit more into the south, hits Texas down into the panhandle with up to a foot of snow, something they don't really need. We think that that generated some cash sales here today on Friday and allowed because people wanted to, feedlots wanted to get rid of cattle that were maybe market ready, didn't want to endure this in fear of the weight loss that they would suffer. So, that kind of hurt the market. You've also seen some huge unwinding of spreads, the long Feb., short April right late in the day and, of course, you know, weight losses in other feedlot areas that have been suffering this weather, you know, 30 to 50 pounds. Still while you've had the weight declines carcass weights on both heifers and steers are running about ten pounds over a year ago and then probably, what, 14, to 16 pounds over the five year average. So, we're still plentiful supplies and that is the sore subject there. There was talk that Excel might be dark on Saturday and dark one day next week, there's a couple of plants that will darken up Monday and Tuesday of next week. They're trying to get back into good margins and they're trying to force the wholesale beef higher. We're moving a lot of product but it might be coming at a little bit of a lesser price.

Pearson: Okay, let's talk about the calf market. I mentioned the issues on the plains, you mentioned another. That snow is going to be coming through cow country in a big way too and this feeder market has been clubbed as this corn market has gone high.

Martin: It has, now, it's settling down a little bit because the anticipation is that maybe the corn has gotten a little too high. I think it's a hesitation or a pause that will allow the feeders to hold for a moment here but I think these feeders could get under 90 cents.

Pearson: Alright, let's talk about the hog market. What do you see happening for hog prices?

Martin: Well, hog prices appear to me like we're going to catch another slip in those prices too. They just have been spending a lot of time trying to go higher and haven't been getting the job done. The only concern I have with being too negative is the fact that Canada is liquidating like crazy and our pork demand still seems to be pretty decent.

Pearson: So, as we look overseas do you see any opportunities out there for pork producers to lock in profits?

Martin: Well, I would probably lock into the April contract. I don't know if I'd go much further out than that.

Pearson: And the flipside on covering feed needs, Sue, what would you do for corn and bean meal?

Martin: Oh, gosh, bean meal there's a subject, you know, very little coverage by end users and that is the one area, again, that people might get caught shorthanded because, you know, that's trying to also play catch up with the meal or with the corn market and I think that the end users are too complacent in the meal. I would be booking meal needs straight through into summer.

Pearson: That's it, Sue. Thank you so much. Appreciate your input. And 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 may be headed visit the Market Plus page at our Market to Market Website and remember you can download audio podcasts of our market analysis and our Market Plus segments free at our Website. Now, be sure to join us again next week when we'll examine a Midwest effort to grow pharmaceutical crops underground. Until then, thanks for watching. I'm Mark Pearson. Have a great week.

Tags: agriculture commodity prices markets news USDA