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Market Analysis: Market Analyst Sue Martin

posted on October 7, 2011

Analyst Sue Martin discusses the volatile commodity markets with host Mark Pearson.

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: Another wild and woolly affair in the world markets this week and the global economy, a lot of volatility almost in every sector. Let's just talk real quick here. The strengthening dollar seems to be a recurring theme that we've been hearing really since the euro started to fall apart. How big a factor is that going to be in our overall commodity demand going forward for the U.S.? Martin: Well, I think it is a factor. It's going to naturally everything is sold in U.S. Dollars and, therefore, as the world buyer comes to us, it makes everything more expensive. In a world economy that may be in contraction. I believe the euro is going to fall apart. I think that if we see Greece and, of course, Ireland and Portugal basically default, you know, you look at Spain and Italy and again, of course, they were downgraded in their credit rating, but the concern is that if these three things, you know, markets, so to speak, you're going to have France in trouble. Pearson: Go to slaughter. Martin: Yeah, eight banks eight of the largest banks in France that own a lot of that debt. Then you have Germany. And Germany, half of their exports go in the Euro Zone. And in the meantime, as that happens, well, as they are selling, they are accumulating debt out of Spain and Italy. Spain happens to have I think I read where Germany has like about 60 percent of the debt out of Spain. If somebody all of a sudden says we can't pay you, what happens to you? Pearson: If you're doing a lot of business with them, Sue, you're going to keep them going, aren't you? Martin: You're going to try, but how do you keep them going? Do you keep feeding them? At some point there has to be changes, and yet if they go into austerity measures, that creates less income coming into them, into the government's treasuries, so it's kind of a catch 22. It's like, is there really any good answer here. But the thing is, with commodities and especially food commodities, I believe individuals in agriculture are very blessed in our whole U.S. Sector. I think in our scheme of the world, the part we play, I think agriculture is blessed in the fact that the world population is growing. And if you look at India and China, the two areas that basically don't have the issues that we have so China slows a little bit; that should only be natural when you figure that they've had 10, 11 percent growth. You can't keep doing that year after year. They're going to slow a little bit and come back again. The key is if we can settle the world situation down overseas, especially in Europe, it may start to put some confidence back into the U.S. Dollar. And all of a sudden you have this huge pent up demand for food and other commodities, and all of a sudden things start kicking forward and this pent up demand comes out of the U.S. for big amounts of food. Pearson: Despite the dollar being stronger. Martin: Exactly. It could happen. Pearson: All right. Let's talk specifics. Let's talk first about the wheat market. Not a lot happened this week. I guess, really as we look at the week in terms of the grains, we really didn't have that much action. Looks like maybe some rains out in the planes. Maybe we're going to get the fall crop planted, Sue. There's not a lot of confidence in yet. Martin: Well, there isn't, and, of course, we've got Canada just chomping at the bit to export wheat into the U.S. we've got they do need some rains. And if they get some rains, that could be a little bit softening to wheat prices a little bit. But I would say the one that I'd really watch, the best of all three, is the Minneapolis wheat. And I think producers that do have Minneapolis wheat to sell, should be looking at that market and may be making some cash sales. You know, $10 wheat, can it do that? I'm not going to say it can't. But when I look at the long term charts, we're in some huge congestive trait here that's here, and it's almost performing a huge pin it and I worry about can Minneapolis wheat be the one to continue to grow the wheat market. I have my doubts. When I look at K.C. wheat and also Chicago wheat, we are getting a little bit oversold. They've had some rally here along with corn. But, again, I'm not sure we're totally done yet. But if we get this world I think it's so important if we get this world situation settled or stabilized overseas in Europe, I think it can make big differences in our grain prices. Pearson: All right. Well, we'll see what happens on that front. Let's talk about the corn market next. And again, this has been a substantial pullback in corn prices. This has been a break. This is more than harvest break. This is a break break. And it's not just December; it's March next year. It's been a sharp pullback. We are telling producers? Where do you think we're going to go from now? The government came out with this report and all of a sudden we have a lot of additional bushels. I don't like to sound like some loon, but there's a conspiracy on, but it does make you wonder. I mean all of a sudden we've added these bushels, and they are having problems dealing with the changes in the world, modeling with ethanol and so forth. But, again, let's take that number as gospel. Where are we going? Where do we go from here? Martin: Well, think first off, the last time I was on the show, I had said that I thought we'd have a September high. And I did have some timing for the very end of August, but we were so powerful coming out of the middle or the 9th of August lows that I thought and then having an outside range month again in beans, I thought, yes, we're going to keep that power and push it on into September. That did not happen. But when you look at the grain market: one, seasonality; two, you had extremely high prices, and we can't keep things up forever. And in the meantime, you come into corn and you're hearing talk of good crops out of the Ukraine. They are going to become world's number three exporter. And it's thought that they are going to drop their export taxes or duties, so therefore, come January 1, they're going to be very competitive. But they're far distant number three, just like Argentina is a far distant number two. But still, it's competition. And then they have a boatload of wheat to sell. That competes back in against for corn too. Still, China needs going and their crop hasn't been that special, so they are going to need corn and I think that our exports go up this year. But in the meantime, yes, we've lost some poultry producers' business, but we still have until at least may, we still have a fair amount of numbers on hand of cattle and I think our hog industry is doing quite well. And I think that when I look at I don't think we've rationed the price of corn. So I don't think our lows are in yet. I think we're getting some temporary holding here. Usually the first week of holding can be a harvest low, but I don't think our lows are in yet. They maybe stabilize here for a little bit. As we get the government report out, I think our yields go up in corn. All the farmers have said, gee, I'm pleasantly surprised. But I think that yield goes up, but in the meantime could it be that harvested acres are the big surprise in this report. If we're going to get a surprise, that's probably what it would be. Pearson: It's still a tight number. It will raise some concern. But in terms of making sales, real quick, Sue, what's your sales strategy for corn? Martin: Well, right now I'm telling producers to hold off because I think there will be something better down the road. But the problem is we might go to 520 on the board first. You know, we might put a four in front of this umber here before we get this cleaned up. But still, in the past I've never seen in all the studies I've done, in years that end with a two, that is coming up in 2012, a December corn contract putting a high in the month of August in the year before. Now, I'll never say never in the world of high finance, but I don't think we're done. I think we are very dry in the Midwest. If things don't change and you don't get good moisture coming in to support, what's going to happen next year? You've got water rights that have been overused, like in Kansas and different parts of Nebraska, that type of thing. Well, they are not going to be able to be putting in corn in some of those fields. Pearson: Let's talk about soybeans. Where do you see the soybean market going from here? Obviously we had a huge pullback there too. Martin: Well, we've had a $3 break on beans. Pearson: A buck on corn and three on beans, yeah. Martin: And I don't think the low is in on beans either. Meal demand appears to be pretty tepid at best, and if you want good bull market, you need meal to be doing it. We came into the first of the year the new crop year with a fair amount of supplies out of Brazil and Argentina. Therefore, they are able to compete against us in the world market with Chinese business, were the last two years we have been front end loaded with China. We are not having that, but we're not going to go without totally, but it's just not what it was. And I kind of think that's what was hanging over us all ever since February when we were in this big sideways range and just couldn't get going. And I think that when I look at the market, again, everybody thinks the yields are better, so maybe we increase the yield another half bushel. We take it from 41.8 all the way up to 42.2 to 42.3. I think that's expected. We are very oversold in the market technically, but my fear is I think it's ironic that when you look at the long term charts, we are sitting on top of a gap on the weekly charts for November beans on continuation. So like when Sept. went off the board, November was on that chart. We are sitting on top of a halfway breakaway gap, a halfway gap from a year ago, at the exact same time of the year, October 4 7 or 11.we were sitting at a gap of 1135 1150.75.well, our low this week has been 52, and we tested it on Thursday night at 1152.25 basis November beans, and we tried to move up away from it. But are we going to be able to do that, stay up away from it? I fear we are going to still come back and look at that gap and probably fill that gap. That gap should never be filled until this move is totally done. Pearson: All right. So are the highs in, Sue? Martin: That's a tough one. Pearson: I know it's a tough one but I get this question all the time, and I know you do too. Martin: They are. The reason I say it at least they're in for quite some time. The reason I say it is because of the fact that when I look at my long term indicators, quarterly, monthly, my timing indicators do not look good, and that has me concerned. but I do think that in the beans there will be a v bottom here and we will come screaming straight up out of here and it's just a matter of where does that rally start from? And then, once we kind of spin that rally off, we will then start to move in a sideways fashion and then we'll start looking at next year's situation. Pearson: So let's talk livestock for a minute. And you've been really friendly to the cattle market. Boys, that's been paying off. We're a little slower this week on the board. The cash market is strong. Go looking out into next year, after what we've been through with the drought down in Texas and Kansas and Oklahoma, I mean it's a dark situation for the beef supply going forth for the next couple of years. That's got to be good for price, isn't it? Martin: Well, think at some point it is. You know, I think the cattle industry has to be feeling very good, even though they've had high priced corn at some point. And now with the break in prices, they probably should be looking at, at some point here, starting to lock up some costs, buy call option spreads. But what I would suggest to them is take a look at the fact how you've been able, through a bad economy, not only in the U.S. But a world economy, and yet you can hang up there August cattle for next year make new all time highs in the month of September. Does that seem right? In the old days you would have said we aren't going to hold cattle prices even if we were breaking down. Now, cow slaughter, both dairy and beef slaughter, has been tremendous in the last three weeks. And we're running well ahead of a year ago. In fact, cow slaughter is probably I want to say the number of cattle cows going, both beef and dairy, going to slaughter is probably second largest since some point this is going to come back to haunt us. The key is and I think this is what has been helping hold this cattle market together, is the fact that, one, the funds have been looking at it as a bright spot but the numbers worldwide have been really down in the beef industry. And our export market has been good, and the dollar has a major thing to play. If we rally this dollar very aggressively, I bet Australia would just love to ship us some beef. Pearson: I know they would. Should we be buying cows now? Martin: I would probably say I guess I would probably say yes. Pearson: Okay. I think I agree. It's going to be a while before we get this herd built back up. Martin: Think about when we start holding back heifers for breeding. We are going to have another tighter supply. Pearson: And we are going to eventually have to do that. People are going to eventually the economy is going to recover, and we're going to see that. Talk about the hog business, where you see pork prices going. Martin: Well, I think hog prices are still going to go higher. China has been importing U.S. Pork very aggressively. And then on top of it, our regular domestic customers have been very good buyers as well. The hog market is, normally at this time of the year, would be tending to break back. It hasn't done that yet. It's trying to hold here. This could be one of those years where we try to rally pork prices into December. Now, if we do that, then they might peter out and start to slip back. Where the seasonal on beef is that as you get to the very last week or so of October through the first week of November, beef prices or beef cattle prices tend to break. I think the hot market still has a chance to push a little bit further here and I would say to the pork producer, because of the uncertain climate that we seem to be in these days, maybe go ahead and get yourself some puts underneath you. I wouldn't do it I wouldn't do the futures. I'd do put strategies in the market and I guess I would say I think the hog producers are seeing good times. Pearson: Even with the stronger dollar, that export thing is going to be strong for pork. We only got about five seconds. Martin: I think soil think pork is in a better phase, of course, you know, you look at pork, and it doesn't look that high prices compared to beef. Pearson: Well said. 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, streaming video of our program and links to our Twitter feed and Facebook page-- all FREE -- at the Market to Market Web site. And be sure to join us next week when we'll examine the market impact of the government's latest crop production estimates. Until then, thanks for watching. I'm Mark Pearson. Have a good week...

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