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Market Analysis: Jun 30, 2006

posted on June 30, 2006

Market Analysis: Jun 30, 2006

Annotations for PLUS

00:00:57:12 00:01:02:22 [00:00:05:10] PLUS

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

00:01:02:22 00:01:03:02 [00:00:00:10] PLUS

Martin: Thank you, Mark.

00:01:03:02 00:01:22:13 [00:00:19:11] PLUS

Pearson: Good to have you with us. Let's talk a little bit about, we just had those folks down in wheat country, down in Kansas talking about disappointing yields down there and we've certainly heard some of those. And obviously the market responded positively to what was happening in wheat, the negatives as far as production are concerned. But we've had quite a run back down the mountain too in the wheat market.

00:01:22:13 00:02:10:03 [00:00:47:20] PLUS

Martin: Well, we have and this is a harvest break that we've had and seasonally the harvest break will pretty much hit most of its pressure right about this week, this past week to this coming week. And I think that has helped sponsoring some of the bounce that we're seeing in the Chicago and the KC but probably what is helping it even more so is all the dryness throughout South Dakota and on up into the Canadian prairies. And because of that and along with the fact that today in the U.S. stocks report and the plantings report we see that the plantings acreage for Durham wheat is the lowest since 1991. And you put that in along with the weather that is detrimental here and they're seeing wheat production going backwards in the spring wheat and that certainly is helping Minneapolis wheat futures make new highs, yearly highs here.

00:02:10:03 00:02:18:02 [00:00:07:29] PLUS

Pearson: Alright, well as we roll on that hard red wheat and that harvest moves north, and like you say, continued dry weather what is a wheat producer to be doing at this stage of the game?

00:02:18:02 00:03:08:02 [00:00:50:00] PLUS

Martin: Well, it's hard for them to want to sell, they're just coming out of harvest and they're hoping for some bounce here. And I think they will see some bounce especially as we start to see some rationing take place. This is usually the time of the year where demand picks back up, you know, right after harvest or right during harvest and after harvest because the supplies are more plentiful. And I think we're going to have to ration the crop. And so that should help push the KC wheat a little bit higher. Chicago gets pulled along with it. But the Minneapolis is on its own bullish mission as well. So, I think they don't have to be in any hurry at the present time to sell. I think there is something better coming. On the KC I think if you can get the Dec. back up around the $5.50 I probably would take a look at selling some. You get up around $6 I would really be more aggressive. I think next year's bull story won't be the wheat market, it will probably be the bean market.

00:03:08:02 00:03:28:22 [00:00:20:20] PLUS

Pearson: Okay, alright. Let's talk next about the corn market. What you're seeing in corn futures right now, we've seen basis firm back up a little bit. It depends on where you are but we're seeing that firm back up a little bit. And in Chicago this week we had a bump, like you say, the stocks report is going to be a factor and the acreage report is a factor, nice rally on Friday. What is ahead for the corn market?

00:03:28:22 00:05:42:22 [00:02:14:00] PLUS

Martin: Well, I look at the corn market and I feel that we have a rally coming here as we go in towards pollination. The acres did not increase as aggressive as what some of the analysts were estimating that they would. And I think that that's a friendly surprise because we keyed in, in this recent break that we went through in the month of June, we were keying in basically 2 million more acres, at least 2, maybe 2.4 and then along with cooler weather when it came in, in June, that helped set the market back in prices. But having said that and knowing now that the final plantings are not as great as what we had thought along with the fear of hot weather moving in, you know, the 6-10 day came out on Friday afternoon and it showed above normal temps and below normal precip. for Illinois, Indiana, Missouri, Iowa, you know, a lot of major places. And so I think that we're going to be of great concern. We have to grow corn. We have a major need for it. Stocks was no big surprise, it was right in line with what everybody expected. So, I think that the corn market is on a mission to get a rebound. Now, we have to be very careful here because the producer wants to get bullish very easily and I think we have to be very watchful. Corn in Iowa looks stressed in places, it doesn't take much to stress it. Those showers that we get are very spotty and so Iowa as a state is getting very dry and it won't take much of this hot weather to turn this crop south in condition. So, I look for if the rains are disappointing on Saturday and Sunday of this weekend I suspect that Monday we'll see crop deterioration and we'll probably take those three percentage points that we put on last week back off. Now, the thing that we're looking at is, and I caution producers, is because when you go back over history in the last 40 some years it is very not normal or very abnormal to see corn rally in the month of July after it put in lower lows in June following some highs in April, May. In other words, when you took out those highs of April, May or did the April, May highs, took out the April, May lows in the month of June, July did not come back and take out the highs of June. So, you have to be careful on this rally. It was very abnormal. If you do the market is on a mission but I doubt that it does. I would say that would happen more easily in August than it will in July.

00:05:42:22 00:05:54:02 [00:00:11:10] PLUS

Pearson: Alright, so producers should plan accordingly. Let's talk about soybeans. And again, the interest there is that there's an awful lot of soybeans, Sue, left around. This crop is halfway decent but we're still going to have an awful lot of carry over aren't we?

00:05:54:02 00:07:35:03 [00:01:41:01] PLUS

Martin: Well, what's interesting is when you looked at stocks on farms in corn, wheat and beans there is less in percentage on farms in the farmer's hands than there was a year ago at this time. Now, granted, because crop sizes were so big and everything that means they still have a little bit more than they would have had probably in bushels than a year ago. But in the beans when we look at the stocks, you know, the stocks came in less, they were under a billion bushels and the trade pretty well had them pegged a billion plus for stocks and the supply bears keep telling supply, supply, supply. We've been listening to that since February and March. And, you know, we came in around 990.1 million bushels. A year ago we were just right almost at 700 million bushels. But the key here is, is that I think that there was a couple of things that showed up. One, the yields might have been down from what the USDA expected in Illinois, Indiana and in Missouri. But I think there is also something else going on that not too many people talk about, but right after the harvest was done and we started hearing crush, and crush has been very good, we found that the bean was low in protein content and high in oil content. So, you had to crush, for this meal you had to crush more beans and that gives you a disappearance in your stocks. At some point the USDA will address that, probably a year from now when it won't make any difference. But I look at the bean market and I'm very bullish beans. I guess one way to put it is, Mark, in February, March we knew we had these huge crops and we knew we had 76, the USDA estimated 76.9 I think it was or 76.8 million acres of beans and the bean market couldn't break. What's going on? I think there's more to this story and I think the market is going higher.

00:07:35:03 00:07:38:13 [00:00:03:10] PLUS

Pearson: Alright, so potential bull market in the beans. You wouldn't be making sales?

00:07:38:13 00:07:50:22 [00:00:12:09] PLUS

Martin: No, I would not be making sales. If you need to make some cash sales on old crop beans here in the month of July then pick the window of July 10th through the 13th, 14th, that might be a high.

00:07:50:22 00:08:05:23 [00:00:15:01] PLUS

Pearson: Alright, let's move over to livestock and talk about the fed cattle market and what's ahead there. A little bit of a rally this week on the futures. Of course, we're into the grilling season in a big way. The cattle market has got some people concerned and yet this feeder market continues to be quite strong. What's ahead for fed cattle?

00:08:05:23 00:08:59:23 [00:00:54:00] PLUS

Martin: Well, I think the anticipation that we were low, getting tighter on feeder cattle prices or numbers and I think also the fact that the numbers coming in from Canada are slowing down both in slaughter cattle and in feeder cattle and I think the combination of that and cheap corn, we still have cheap corn with this wide basis and I think that is enhancing everybody to try to keep putting in more cattle. But at the bottom of the line is, is that, you know, we've had a huge rally back from the lows, August feeders have gotten up right around $117.90, I think, or $117.95 and there was a gap on the weekly charts, year in, year out, August feeders at $118.20. So, we pretty much almost filled that. The October feeders did fill their gaps on weekly charts for that contract. So, the market is poised now, I think, to probably if it comes back up and pushes a little higher I think that it's not going to go very far and I think you're probably going to peak the market out and set that.

00:08:59:23 00:09:04:03 [00:00:04:10] PLUS

Pearson: Okay, and then if you haven't placed some kind of hedge, do so.

00:09:04:03 00:09:23:02 [00:00:18:29] PLUS

Martin: Use this rally and hedge. There is a little bit of an attitude, you know, first people didn't believe the market could break and then it broke hard, then they got scared and then they hedged. Now the market has moved back up and they've got an attitude and they need to be just saying this is business, I'll stay with this and just keep hedging your cattle as you place them and treat it as a business.

00:09:23:02 00:09:28:02 [00:00:05:00] PLUS

Pearson: Alright, let's talk about the hog market and what do you see happening as far as hog prices are concerned going forward?

00:09:28:02 00:10:11:22 [00:00:43:20] PLUS

Martin: Well, the hog market has been a real wild animal too, you know, we've seen some demand in Japan slow up. The trade got a little bit nervous when they heard that we might be selling beef to Japan fearing that pork would lose favor and so they sold into the market. We're noticing weights are coming more in line so that's a plus. But we did take the futures up on the August hogs up to around $74.10 and there is a lot of resistance around $75 and then more at $77. So, the market has sold off five dollars since that time. I think it's been partly a hedge situation or a spread situation with cattle. But, you know, we're still seeing expansion and the pig report did show that there is expansion underway. So, I think any rallies I would be hedging cattle, or hogs I mean.

00:10:11:22 00:10:34:23 [00:00:23:01] PLUS

Pearson: Absolutely, some good thoughts as usual from Sue Martin. Sue, great to have you with us. That will wrap up this edition of Market to Market. But if you'd like more information from Sue on just where these markets are headed visit the Market Plus page at our Market to Market Website. And be sure to join us again next week when we'll examine an online trading system for value added agriculture. Until then, thanks for watching. I'm Mark Pearson. Have a great week.


Tags: agriculture commodity prices markets news wheat