Iowa Public Television


Market Analysis: Market analyst Sue Martin

posted on July 22, 2011

  Last week's rally in the grain markets fizzled out this week as the trade pondered the impact of weather issues, and monetary uncertainties on both sides of the pond...

For the week, September wheat was off about 3 cents, while the September corn contract moved more than 10 cents lower.

Soybeans moved in step with the coarse grains as the September contract declined 2 cents. Nearby meal prices however added to last week's gains with a weekly move of nearly $2 per ton.

In the softs, cotton was under pressure again this week as the December contract settled Friday with a weekly loss of 82 cents per hundredweight.

In the dairy market, August Class III Milk futures gained just under a dollar and the deferred contract advanced about half that amount.

Over in livestock, the August cattle contract lost a nickel. Nearby feeders moved 70 cents higher. And the October lean hog contract gained nearly a dollar.

In the currency markets, the Euro advanced 236 basis points against the dollar. Crude oil continued its trend higher with a weekly gain of more than $2 per barrel. Comex Gold advanced more than $10 per ounce. And the Goldman Sachs Commodity Index gained more than 7 points to close at 701-even.

Market Analysis: Market analyst 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, welcome back.  

Martin: Thank you Mark.

Pearson: Sue it was reported late Friday that the Speaker Boehner walked out on discussions with the President over frustrations. The President stated his case they seem to be pretty far apart on this default issue what does that mean for commodities? 

Martin: Well, I think we've been seeing a little bit of a hangover from this political situation that's going on trying to get a budget put together. And I think that the concern that if they do end up defaulting, which I find hard to believe is going to happen, but if they did, of course, the dollar will just plummet and in the meantime it kind of downgrades our credibility. And I think the markets are very apprehensive fund  participation right now is very low at very compared to what has been and I think that there is just this kind of apprehension amongst many traders be it rather the public traders or funds that just kind of not heavily invested right now. 

Pearson: All right. So a little bit of commodity concern as we go into what could happen next week if this thing is still fairly far apart as they seem to be late Friday. Let's talk about some specifics. Let's talk about the wheat market first but currently plenty of wheat coming from the Black Sea in that region at this time of year and hurting prices. 

Martin: It is and of course Black Sea wheat is underpriced compared to the U.S. prices. Still we are starting to get towards the ladder part of our harvest here and the hedge pressure is starting to lift a little bit. And I think wheat prices could probably start to appreciate a little bit in the U.S.

 Pearson: All right. Longer-term, Sue, where are we? It looks like plentiful supplies going forward is that the case back? 

Martin: Yes, I think that the U.S. supplies aren't going to be so plentiful but world stocks are okay. If we start to see economies grow, that could start to eat away at some of these supplies. But at the present time I think if wheat prices are able to have a nice little rally here maybe say Chicago wheat gets up to eight and a half or something like that, I'd pry be making some sales. 

Pearson: All right. Lets talk about the corn market and what you see happening there. We've had this big shift to - of wheat. We've even had wheat being used over at the Andersons in Ohio for ethanol production. How is this all going to play out for the old crop wheat which is about over and again as you look at pricing for old crop corn and new crop corn? 

Martin: Well, I think first of all it's not very often you see wheat prices underpriced to corn and I don't think it's going to be a super long lived situation. When I look at corn, we seeing a little bit of apprehension or pull back or downsizing in usage. Still basis has been quite good, I mean, it softened later this week at the gulf for both corn and beans, but all in all when I look to what the weather is doing, you know, we go back to the weather and it is kind of a unique year with all this political hangover because normally everybody would be gangbusters about buying the market especially for as day as it is in the South and Southwest. And also for the situation that we've had some adverse weather. Although usually every year they pencil in to some degree but we also are uncertain as to our harvested acres yet and that will come out on the August 11 report. But in the meantime you've got the situation going here where we have a ridge which we call a dirty ridge that sort of moves back and forth, it doesn't lock in place, and that keeps everyone guessing as to how long the heat is going to stay. It has pry been since 2005, maybe since 2004, since we've had this many days at 100 degrees plus, and is it doing any damage? Well in some areas yes. But as far as the pollination goes, we have a lot of corn starting to enter into pollination. Maybe I would say 45% of the crop is pollinating and maybe it is a little bigger than that. We will find out Monday afternoon but I think we are seeing the crop condition rating starting to slip. We pry have seen our highs for  the year. I'm looking at this ridge and the patterns aloft that seem to be with us and you look at other years similar to this and I suspect that we are going to see this heat be with us through most of our August if not into September. Once you get through pollination if you have good enough moisture, then you can maybe make it through pollination, but if the heat sticks with us when we get into the blister stage which is the following two weeks after pollination, then you are going to start downsizing this crop. You take one bushel an acre off -The USDA in the last report estimated carryover at 870 million bushels. You take one bushel an acre off in yield from 158.7 that the USDA is at which is below trend, and move it down to one or even say two bushels and move it down to 156.7 and you now have a carry out of about 373 million bushels. That is pretty tight. And of course grains are extremely tight in the world and corn is part of the coarse grain. 

Pearson: All right. So new crop, what are you doing for sales? 

Martin: Actually right now, we are basically about 42% sold for new crop. We've been in a holding patter never since the middle of June. We thought there would be a high in June and there was, but it was extremely short-lived and what we're seeing is something comparable to what we did in 1983 all be it wasn't weather that really got us that year, it was the -- Program, but I think that we possibly could see higher highs hit in August and if we do I think we will see higher highs again in September. I will tell you this, I am watching the market very closely. I think that if we close higher at the end of the month here on December corn than what we did at the end of June that is our tipoff that we are going to see higher highs in August over July and higher into September. We do that and I will start getting sell signals all over the map. 

Pearson: At what price do you want to start making those sales? 

Martin: I would say if we can make it through the 722 area which is our high, contract high, and the all time high for Dec. corn is 799 1/2. If we can get to 742 I would start looking at it. If you get to 775, 770, I've got quite a few counts in that price area. I would then take a look at getting more sold. Now if we have an initial weather situation and the market starts to streak and run because it comes into reality, then I would say you might see something sharply higher than that. Maybe something over ten dollars. 

Pearson: A new high. All right. Soybeans, are we that bullish on soybeans? 

Martin: I am very friendly to beans. Actually to be honest with you, I like beans best. Right now my timing indicators look fabulous on wheat in the long-term and weekly and they look fabulous on beans. Corn is kind of mediocre. It is killing time but when you look at the beans I think everybody has been so hung over with the crop out of South America this past year, but when I look at Brazil, I don't think Brazil is going to expand acres this year. Sugar prices made new contract highs today. And Brazil is looking at expanding sugarcane acres down there. They are also looking at corn. Those are ethanol products, energy products, and Brazil is big into ethanol. I think when I look at the bean crop out of Brazil we are not going to see an expansion there unless price creates it and that means running higher. You look at the carry out and we are estimating 175 million carry out and in the meantime if you drop your 43.4 bushel to the acre is what the yield is estimated at and you drop that by a bushel, you take it down 242.4, you take your carry out down to 100 million bushels and that would be - 

Pearson: A hair-trigger.

Martin: Well yes. It is a stock -- ratio of about 3.1 percent record low. If you drop it two bushels to the acre you're going to drop that carry out down to 26 million bushels. It won't happen because price will take care of it. It is going to ration it. It will have to. In the meantime you look ahead at next year and we have Argentina, number two exporter of corn in the world, and they haven't been exporting, we haven't had them as competition, but they are going to start exporting corn probably in February or March. So we are going to have competition next year. In beans yes they will pry compete by you've got China was 7.9 percent less acreage in beans. They're canola or grape seed, I should say, is going to be down 2.2. Those are big numbers in reduction for a country that is pry going to want soybean oil and when they are expanding in pork production like they're going to and taking initiative to do that means more corn, more DDGs, and more soybean meal. 

Pearson: The meal market has been strong. Real quick, what are your price projections for soybeans? 

Martin: I think we ought to be making new contract highs. We have had four runs at a high here since March or actually since February and four runs is usually kind of unusual. I think we will get through that and I think we could possibly see the beans, November beans, get up to around 15.40, maybe, 15.60. If the right thing happens with weather you could possibly run this thing even higher into 18/19 dollar range. On thing we've got to remember is both corn and beans is these numbers I've been throwing out are even without the thought of less harvested acres that we don't know about yet. 

Pearson: All right. As we look at wheat, corn and soybeans, and we look at what's happening in the livestock sector. We talked earlier about the increased wheat feeding. Are cattle markets pulled back? Recovered? What is your take going forward? 

Martin: Well, seasonally cattle prices/fat prices soften into early August. I think we've been doing that. Secondly, I think that the heat has certainly been taking a toll on consumer demand, domestically, but the export market is fabulous. And I can't believe that it's not going to stay fabulous. You've got some drought conditions going on in parts of Australia, so that may create some of their liquidation too. We've had drought in Central America and parts of Mexico that have sent cattle into the U.S. but, all in all, I think once we get past some of this heat, the demand could really start to kick back in. The cattle on feed report was, you know, it showed more cattle on feed than what was expected, but we had to realize there has been a lot of animals moving and light weights off of pasture into feedlots because of dry pastures. And the cattle inventory showed heifers for beef replacement down five percent. Bulls for replacement down five percent. 

Pearson: Not building the herd.

Martin: No, we are not building the herd. That spells a bullish feeder market down the road again. We've had 140 on the feeders. That is a pretty high price for right now, but the fat market nearby the October I think has got a little bit of trouble yet. Maybe it falls back off to 1.13, like three dollars, but I think that when we look at the longer term, February and April of next year, I think they are so bullish.

Pearson: All right. Are you friendly to hogs? 

Martin: Yes, I am. But, you know, you look at the export market and here again; one, you've got the heat creating weight loss. We haven't had much in the way of death loss in hogs like we have in cattle but in the meantime you got a potential export market coming in pork. You've got China looking at possibly around the first of August starting to pick up, taking carcasses every day maybe up to one thousand carcasses. Russia is now talking about importing U.S. pork. So the picture is bright. In the meantime we have plentiful supply of meat in the coolers losing weight because of all this heat. They're not eating. So, you kind of got a funny little walk here to walk, but longer term, China, the Chinese Government is paying every hog farmer over there $15.50 just to breed a sow or a gilt and in the meantime, they are also subsidizing the - by one thousand to twelve hundred dollars mainly to do research to eradicate diseases. They want to expand. 

Pearson: They like pork. We've got about thirty seconds here, real quick gold and oil those other key commodities and we are so energy dependent in agriculture and oil has been creeping up. What is your take there? 

Martin: I think we have to watch crude oil if we can make it over that magical one hundred dollar mark. We might see it at one thirty or one forty. Nigeria, they are talking a strike in Nigeria this next week on Wednesday and that could support the crude oil market here unless that government comes around. The government has not been willing to do - raise, what do you call it, basic prices for employment and so that is kind of coming to an influence and so usage doesn't seem to be slowing up.

Pearson:  Sue Martin, thank you so much. That wraps up this edition of Market to Market.  But if you’d like more information from Sue on where these volatile markets just may be headed, visit the "Market Plus" page at our web site.  You'll find "Expanded Market Analysis," audio podcasts and streaming video of our program -- all FREE -- at the Market to Market Web site. 

Pearson:  And be sure to join us again next week when we'll continue our walk down the long and winding road to raising the debt ceiling.   Until then, thanks for watching.  I'm Mark Pearson.  Have a good week...

Tags: agriculture cattle commodity prices corn economy markets news pigs soybeans wheat