Martin: Thank you, Mark.
Pearson: Sue, let's talk first about the wheat market. That has kind of sparked this rally or one of the factors sparking the rally we've seen over in the corn market and maybe the bean market as well I guess you could consider that. As we look ahead obviously Australia has had severe problems growing wheat this year. We didn't do much of a job growing wheat in the United States this year anyway and now we've got surprisingly strong wheat prices for this time of the year. What is your take on the wheat market as we go forward?
Martin: Well, I think we've priced in the supply side. We know what the U.S. crop is like, we've long talked about Australia, we know that Argentina, although they aren't catching much of the press lately, we know that they had issues as well. Now the catcher will be is if China continues with some dry hot weather. They have had some dry weather in the wheat growing regions and if they continue that way they too could end up with less of a crop than what would be expected and needed. So, I think the supply side for the moment is in the market. Now it's the demand side that we need to see kick in and should kick in. Australia knowing that their crop is down somewhere around nine million metric tons, some say six, but knowing that it is substantially lower than the 25 million metric tons of a year ago we suspect that the world demand is going to shift elsewhere to the EU, to the U.S. and to Canada but Canada had some issues as well this year and so their need or their ability to export fairly large amounts is not going to be as good as it has been in other years. So, I believe that the demand is coming towards us and in the meantime the plantings are going along fine in the hard red wheat areas, it's the soft red that we're having some trouble getting some acres planted.
Pearson: Alright, have we rationed off the wheat at this stage of the game or could prices still go higher?
Martin: Well, I think prices can still go higher. Now, we may have at temporary time maybe priced ourselves out of the market for a little bit otherwise we'd be seeing the demand come to us. But that isn't going to last long with everybody in the world on tight supplies. So, eventually here we're going to see that demand come and it's probably sooner than later. Now I think that as far as wheat prices go if there was ever a time that we should see wheat prices trade back over $6 it is this year as we go into the winter. Now, we're putting wheat into the ground, it isn't into dormancy yet so the weather probably isn't going to play a factor here for the moment. But as we go towards February and March I think we're going to see wheat prices gain a chance of over $6, KC wheat probably up around the $6.30 to $6.40 mark and Chicago should probably get up around $6.19.
Pearson: Okay, let's move over to the corn market. Obviously with wheat at that price it's not much of a feed product and, of course, that tightens up the demand for corn which USDA earlier in the month predicted was going to be a smaller carry out than what we anticipated. All these things are all coming together, it's harvest time. What should producers be doing in this corn market, Sue? Where do you think we're headed?
Martin: Well, you know, the corn market is such, it's such a wonderful time for the farmer they almost have to pinch themselves to believe it's real. How often have we ever seen in history where you have good production, third largest crop in history and you've got nice, nice prices? That just doesn't normally happen. But it's a realization market, it's a realizing bull market that has come to -- we heard talk all along all through the summer that this next year we would be probably in a carry out of half of what we were this year coming in. So, having seen it in print finally towards the end, you know, in the last government report in October, brought everybody into realization, the market kicked in but the last time I was on the show, Mark, we talked about years when December corn puts a high in in May for the first half of the year that the harvest lows, nine out of the last fourteen times that this occurred since 1969 nine of them had a harvest low by the end of August. Well we've seen it again now for year number ten. I think that the, you know, it's been a fabulous move, better than I would have dreamed and I thought that the markets were going higher but it's been much better than I would have expected at the time. Are we done yet? No, I think that the highs are not in. I look for March corn to go to $3.62. Ultimately we could have a corn contract that trades around $4, $4.19. We have to remember we have 105 ethanol plants in production. We have 44 coming on line in, you know, currently under construction and we have seven expansions going on. And the capacity of all those together, combined, is 3.3 billion liters, or gallons I should say. So, you know, when we put that to a pencil and equate it out on bushels, you know, current USDA estimate of a little over 2 billion, I think what is it, 2.15 billion bushels, I think they're underestimating. I think we're more like a 2.5 billion bushel estimate of usage and then we've got, you know, expansion in the cattle industry, we've got expansion in the hog industry. The only one that is shrinking now is the poultry. I think -- and exports are expected to stay very good. I think that our carry out maybe it going to end up somewhere around seven and a half, 750 million bushels. So, we can't afford to fool around and we might garner some acres out of the soft red wheat if they continue to stay wet. But this next week is a good harvest week and should be good for trying to get some planting done so that might not happen. We've got to wait and see on that. I guess I think that we've had a dollar move in a very short time and I suspect that we have to be very careful here but I don't think the breaks are going to be deep, I don't think you'll see corn go back under $3. It may be that $3.10 holds us on the down side. I think March corn is going to $3.62.
Pearson: Alright, let's talk about the one that is, in our mind at least, defying gravity fundamentally, but one that you have championed for a long time. I've got to give you credit, you said we hit the harvest low when you were on the show, I think the end of August, first part of September. And that has proven to be the case. Now, soybeans, you have been very to soybeans all the way along and fundamentally, at least according to the USDA report, there's plenty of soybeans, Sue. And we were up, what, almost 30 cents this week.
Martin: Well, I know, there's plenty of corn right now too but the market is looking beyond supply, it's looking at demand. We know that South America is losing acres and they are trying to get acres but the dollar keeps declining. We've had the dollar down this week and I think that the dollar against the Euro and against the Yen, you know, the beans can rally but when the dollar drops back it's kind of defusing that rally a little bit. South American farmers we know are going to not plant as much soybeans and, of course, if this corn keeps up they might elect to plant more corn. You know, the weather has not been very good in northern Argentina, they're very warm and dry and the forecast is going on the six to ten day back hot and dry. And that is in corn, soybean and wheat country. So, I think -- and southern Brazil is in the same boat. I think that the bean market -- I'm excited about beans. I think it's the baby of all of them. As we go through the year of '07 we're going to have to have more bean acres by the, you know, the '08 crop and you've got China in our back pocket. I think in one day they bought 11 cargos this past week. They have no other place to go because Brazil is down to about 10% left of their bean production and so the rest of the world just has to come to the U.S.. We're in a very good spot at this time. I think that the beans, we've got some resistance around this $6.34 area, we washed right through that. Now we're sitting at the $6.50 level and Mark, for the last year and thirteen months, let's put it that way, we've been in a sideways range. The top side of that range if $6.50, Jan. beans are sitting right at that and we made new contract highs this week. I think that the beans are headed higher, we're going to put a seven on them before too terribly long. We might have some hesitation, again, I don't think a bean contract goes under $6. I'm very bullish beans and I used to be an $8 girl, I'm putting a plus behind that as we go through '07.
Pearson: Alright, eight plus again, so not in a big hurry to get beans sold?
Martin: Oh no, I'm not. If anything I'd probably hang onto the beans and maybe entertain prospects of how you can maybe sell some corn and take advantage because the corn is dollaring up real nice out of the field but we're seeing farmers sell corn, we estimate at least 25% of the new crop is sold. It might even be higher than that.
Pearson: Alright, let's talk livestock. Fed cattle market, you got to be pretty unfriendly about a year ago in this fed cattle market and it struggled. As we go forward on the board this week we were higher. There is a lot of concern about just what is going to happen to cattle feeding margins, obviously, with the corn market that you just talked about and the bean market you just talked about. So, we're going to squeeze every dime we can out of these fed cattle. What is your outlook now?
Martin: Well, I think the cattle producer is going to, you know, they are already on guard because the end user did not book his corn needs because he knew there was a good supply out there, a third largest crop so he didn't feel the need to. Well, in some of these cattle feeding areas just last week your analyst mentioned something about, you know, 70 cents over board price, you know, in some of these feeding areas and that sure has been the scene for about three or four weeks. But actually corn to price out and be too expensive for the ethanol plants could be $5 a bushel. It's still profitable up to $5. So, that tells me as end users they better be on guard, the hog man the same boat and maybe more so. The one concern I have for the cattle market is the fact that in the cattle market two things, we're forming a head and shoulders top formation on the charts, that could be very eerie, predicting more to the down side. I think that feeder cattle and fats are coming together in price, it may be such a thing that fats and hogs are trying to come closer together in price so you're getting spreading. But the other thing is watch the drought in Argentina, not Argentina, in Australia. I'm afraid that that's going to send more beef into the world market and compete against us especially with the dollar vulnerable.
Pearson: We've got about fifteen seconds, the hog market real quick, Sue, what do you see?
Martin: I see a hog market that shocked me this week as to how strong it got. But I think you've got to give it to $65.60, we could meander here between $64.60 and $65.60 and if the market can't exceed much over that we're going down to take the lows out.
Pearson: Thanks Sue. That wraps up this edition of Market to Market. But if you'd like more information from Sue Martin on where these markets may be headed, visit the "Market Plus" page at our Market to Market Web site. And remember, you can 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 how an immigrant from Mexico realized the American dream, one grape at a time. Until then, thanks for watching. I'm Mark Pearson. Have a great week.