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Market Analysis: Apr 29, 2005

posted on April 29, 2005


The grain markets were mixed this week as Spring planting progresses at a rapid pace. For the week, nearby wheat futures gained almost 9 cents, while May corn declined by more than a nickel.

The discovery of Asian Rust on volunteer soybeans in Georgia, failed to stimulate a rally in the bean pits. For the week, May beans gave back last weeks rally, falling more than 13 cents. The nearby meal contract declined by $1.60 per ton.

Cotton continued to move higher again this week, with the May contract gaining $1.85.

In livestock, the nearby cattle contract was up by nearly 2 dollars. May feeders advanced 1.77 and the May lean hog contract recovered from last weeks losses, gaining nearly 3 dollars per hundredweight.

In the financials, Comex gold gained $1.80 an ounce. The Euro lost 224 basis points against the dollar. And the CRB Index rose fell nearly 4 points to close at 303.74.

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

Market Analysis: Apr 29, 2005 Pearson: Here to give us her insight on these and other market trends one of our regular market analysts Sue Martin. Sue, welcome back.

Martin: Thank you, Mark.

Pearson: Good to have you with us. People are still talking a lot about the soybean market. As we mentioned wheat really had the biggest gain of the week but the soybean markets giving back last week's gains also had people talking. We're in the planting season, not a lot of beans in the ground yet but certainly the corn is causing the dirt to fly. What is your outlook for soybeans and what do you see ahead for the soybean market?

Martin: Well, I think first off this week was seasonally a down week. Usually we'll hit a high on the 25th of April and break into the 28th, 29th. And that is just exactly what happened this week so we're doing pretty much a seasonal take. Now, hopefully we'll continue with the seasonal and July beans will rally on up through the month of May or a good chunk of it. We have timing for beans to hit a high in May, our early timing was as early as May 2nd. It appears that is averting and becoming a low and we have high energy days next week for the Tuesday, Wednesday the 3rd and 4th of May. And then we move on into around the next best timing will be around May 10th to the 11th, then May 17th and then there is a little bit of timing around the 23rd, 24th of May. By then we should see a high in the market, if this market is going to rebound it needs to do it. But we closed the week poorly.

We closed under the mid point range of the month in price range. And so I suspect that this next month we're going to come in here and try to test this week's lows, take them out and see how well we react against $6.10 to $6.15 basis July beans. If we take that out then we've got a market that is probably looking into the $5.90 range. Hopefully we've got our lows in here that still takes us higher in the month of May. Then we turn down into June, early July as we look at the crop having been planted. This next Monday I think our planting progress on beans will be around 8-10%.

Pearson: Okay, so we'll start seeing the beans going into the ground. As you look ahead and as you look at new crops, Sue, what are you telling producers? A lot of people are concerned, we mentioned Asian rust down in Georgia, it's kind of starting to come into the main soybean belt but it's got to be a factor in the south yet the market really didn't have much response to it.

Martin: Well, we're about maybe a month to two months early for it to really impact us. So, the market is just realizing that it is there. Also, I think that the market is a little delusional. I think that it believes that we're going to control this very well and I think they're going to find out that they are not right. First off, chemicals we only have probably what, enough chemicals to take care of 20% of the crop. Those chemicals will gravitate to the area that needs it first, that is the delta. The weather in the delta is very wet and so that is just another factor that helps enhance that Asian rust. And, of course, when those hurricanes came in they didn't just pick volunteer soybeans to land on. They were on the kudzu as well and are finding kudzu all the way up into Indiana. So, I suspect we're going to see very easily this spread of this Asian rust this year. It might surprise us as to how well it really does spread.

In the meantime you've also got some other factors that are going to help impact the bean market this summer and give us probably a rally. One is the fact that we've heard that there are more counts of aphids out here and that is going to impact yields this year. So, that is going to be a factor. And then, of course, we've got talk that China is talking about increasing the value of their Yuan against the dollar. If they do that that will slow their exports a little bit, might hurt their economy just a touch but what it'll do is it will increase the imports and that means U.S. ag markets should be good.

Pearson: Alright, so there's a couple of things but you wouldn't be in a big hurry to be pricing any new crop beans right now?

Martin: If you can get six dollar cash beans you might want to start with some because that is not bad. If that's the cheapest new crop you're fine. I look for $6.52, that is $6.50 to $6.52 to come out. We have a triple top in that area and also on the November beans and also I would expect that this year probably the lowest we see new crop beans get is $5.45, $5.50 at the most even at harvest.

Pearson: Alright, like I say, the corn planting is underway, corn prices not showing much this week. Plenty of corn out there, we've got a couple billion carryover. What is going to be the excitement in corn?

Martin: Well, I think that for corn one, you have to have help with the bean market because I think it's our leader. And so you notice if beans go down corn and wheat seem to fall back and then all of a sudden wheat maybe bounces a little bit for right now. But the corn market is lethargic enough. We look at planting progress at the head of the five year average and the South maybe is a little bit behind but basically for the most part we've got a pace here that is going that says maybe we ought to be above trend line yields here. And if that is the case, if Monday we come in and we have planting progress around 50-55% I think the USDA might be expected to raise their trend line yields or the yields that they use in the supply/demand numbers this month coming up.

Pearson: Alright, new crop sales?

Martin: Well, I think new crop sales, you know, $2.50 to $2.60 usually since 1972 you've gotten, other than maybe three or four years, you've gotten a chance for that on the board. I would suspect we still get a little bit of a chance for that but the market is very lethargic. So, if we fail here my take always was have your new crop started in sales and your old gone by May. Well, here we are and you haven't gotten much other than $2.50, $2.49 and three quarters on the board. So, it's going to take a weather scare to drive us back higher. There seems to be plentiful supplies of corn around. You know, we're continuing to see these processing plants or ethanol plants losing money, I'm wondering if they'll slow their pace down just a little bit on processing.

Pearson: That's going to be interesting to see. Let's talk about the wheat market. The bright spot this week, nine cent gain on nearby wheat. But that has been kind of a jump after the pressure that it's been under here for the last month or so. What is ahead for wheat producers? What should they be doing?

Martin: Well, I think wheat producers we have to keep one thing in mind. For the most part the crop looks really good. And I don't think that the frost did much damage. So, I think we have to keep in mind that this is a rally, kind of a pre-harvest rally and I think they need to take advantage of it and sell into it. Sometimes these rallies will last on wheat into early May and then we turn down but they need to utilize this rally. $3.40 seems to be pretty staticy on the wheat, so I would say anything around this $3.35, $3.40 area sell it in the July. We were there twice this week and kind of gave it up today when the beans failed late in the day on Friday but I think that wheat will probably pull back into the $3.18 area on the July.

Pearson: Real quick cotton had another up week this week. So, the cotton market has had a nice rally going in there. You see it there on our chart. What is ahead for cotton prices? Obviously China is a big factor.

Martin: Well, China is a big factor, demand is very good for cotton and of course, you know, yes we have some decent supplies of cotton but if there continues to be much in the way of bad weather we'll probably work those supplies backwards and the demand is very good. And here again, if the Yuan increases in value they are just going to make us look like more of a bargain to them because the dollar has been so cheap. And, of course, had a good pull back over the past two weeks. So, I think that cotton while it's higher up in these $55, $56 area maybe we get to $58 on these late months but this $60 area is going to, I think, give us some static. Remember, cotton last year was the first thing to peak out and break. It's been one of the first markets to turn back up this year. So, but it hasn't had near the run like beans have. So, I think I would be telling producers if you want to sell some cotton go ahead and sell it on this $58 area. I'd even start some at $56 but I'd sell up against $60 to $62.

Pearson: Alright, let's talk about livestock. Fed cattle market is continuing to amaze everyone. Cash prices very strong. The board was up this week. You were talking about a better cattle market this spring. It's here. What should we be doing? Should we try and take advantage of this? We've got the Canada situation. We've got Japan still not open.

Martin: Well, I think we should be. On all of my radio commentaries I've been talking to producers and telling them, you know, a rally in April, take advantage of that rally, that we would be probably putting this year's highs in, in the first half of the year on the live market and probably on the feeder market as well but that our highs would come with the expiration of the April contracts. Well April futures on cattle went up, fat cattle went off the board today at $93, $92 and so that is a new high, all-time high for April futures but off at its highs. If you look at the October futures in 2003 that put in the ever all-time high for any cattle contract it was at its highs when they expired as well. Last year in August, August feeder cattle, same thing for the all-time high ever on feeders. So, I think we're doing the same thing again. You've got the highest priced beef hitting the retailer or the grocery stores now that we have seen since BSE was first found in December of 2003 and that is on top of having high energy prices or gasoline prices. Yes, gas is coming down a little bit at the pumps but not fast enough and people are going to feel the pinch.

Pearson: You also mentioned this feeder market and the strength there. That has been amazing and the feeder market has sure held up. And it has continued to rally for the last 45 days. Cow/calf people have got a lot to sing about but is there -- should we lock in some of these gains? Could this come to an end?

Martin: Well, I think it will come to an end, everything comes to an end eventually and nothing stays up forever. And I think that when you look at the cattle first off back to June fats they could rally. There is a wide spread between cash and futures so they could lift a little bit. I wouldn't hurry real fast to do that because I'd give them a space here in the first half of May and then I'd get stuff sold and I'd be sold out into October. On the feeders I'd be selling any rally. I'd be using August and getting them hedged.

Pearson: Alright, let's talk about the hog market. We talked earlier in the show about what has been happening with demand for U.S. pork overseas for the other white meat. A little concern about expansion but again market was stronger the entire week.

Martin: Oh, it was. In fact, pork cutout was making higher highs almost every day here this week. And, of course, this is actually quite strong and I think, again, we're hearing that the retailer is going to be featuring pork through the month of May so that is a little detrimental to beef but good for pork. And I think that the slaughter dropped off a little bit. So, I think prices can still hold together here for the hogs.

Pearson: Alright, Sue Martin, thank you so much.

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