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Market Analysis: Sue Martin

posted on May 25, 2012

Market Analysis: 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, good to have you with us.

Martin: Thank you, Mark.

Pearson: A lot of things happening out there. There are some weather issues in big parts of the Corn Belt people are concerned about. We talked just a moment ago about what's happening down in Kansas, with very dry conditions down there. The 2012 crop certainly is not in the bin just yet, but something that seems to be outweighing all that is the situation in Europe, particularly in Greece. And the stronger dollar, is this what we're going to see, a strong dollar and weaker commodities? Is this going to be the fight that we are going to see throughout the summer?

Martin: I think at least until the middle part of the year, into July -- late June, July. I think we are going to see this. Over this past week, the Eurozone Prime Ministers met and had a summit in Brussels. And out of that came more Eurozone bonds. And the problem is that behind all of that, basically the one supporting that or backing it is the ones who have good standing or stability or credit worthiness, and that would be Germany. They're the ones that are going to end up backing that if there's defaults. So, you know, we have the -- on June 17 Greece will have their elections, and that's going to be a very critical time. Everybody is going to be watching to see because they have promised austerity measures, and now they don't want to do it. It appears that that could be a trend that we see. Like France, now we see Greece do the same thing. If that happens, I think the market is going to become very unsettled. So I think that said, it creates concern that as Europe has these issues and the economy slows, maybe they back away on corn. China -- because they're number two largest customer to China, that creates them to slow because demand isn't as good and maybe we see more concerns there. I think that's what was really rattling the cage this week. As the euro fell, then the dollar, of course, got stronger. But in some cases, that's good for Brazil. Farmers down there, that's very good for them. For us, I think that as the dollar gets stronger, yes, it's a concern but I think at some point here, the dollar is due for this corrective rally anyway. And I think at some point as the dollar goes, then it allows like the Australian currency to lose ground and more meat comes in, stuff like that.

Pearson: It's going to be interesting to see what happens. Of course, weather is going to be the biggest determinant of crop yield, so we want to track what's happening there. One thing, there's the dry weather. Talking about the dry situation in Kansas, parts of the Corn Belt. Let's talk about wheat first. What's your outlook now for the wheat market? What do you think we're going to see?

Martin: Well, we've see a beautiful rally. You know, in a week's time, we've rallied $1.20 plus and the market peaked and got a nice little selloff, but nothing major. Now today it tried to bounce back. It's all contingent as we come in here and we look at this next week. Will we have rain in Russia in the former Soviet Union, Pakistan, Ukraine? Will they receive the rains that are predicted, or does the weather patterns turn back to hot and dry? If they do, the wheat will probably resurge. You've go the U.S. yields now, harvest starting in Kansas, parts of Oklahoma. The yield's not good, from what we've been hearing. And of course, farmers disappointed. They were talking 60 bushel wheat.

Pearson: Things looked good for a while.

Martin: Oh, absolutely. It looked good for a while. But now they've been cut at least 30 percent, maybe more. And then you get this talk, well, the wheat -- the early harvest of wheat is going to help compensate for corn because of the tight supplies. Maybe that doesn't happen.

Pearson: That's going to be an interesting one to watch. What's your price target, Sue, on wheat?

Martin: Well, we've been up around -- gosh, we got up to around 698 or so. I think that that's an area where you do look at possibly making some cash sales. We've dipped back and had a nice up day on Friday. I think you get a little more lift. I think you ought to start making some cash sales here because I think we could peak and then ultimately come right back down as we head into towards July. And then bottom maybe in July is what I'm thinking. So I would be making sales. We recommended 20 percent this week on our website.

Pearson: All right. Let's talk about the corn market. I'm hearing pockets of very dry conditions, the rootless corn syndrome where we've got the moisture cracks and the corn is not establishing roots, some dry spots. There maybe some relief coming this weekend, but it seems to be pretty light. What's your weather outlook for the corn market? What camp are you in there?

Martin: Well, I'm in the camp that I think we're going to still come back. We're going to ebb and flow but come back with some heat. I think we'll see that in June. You get a 6 in front of the calendar, and that's going to start to get everybody concerned because June is going to be a pollination month this year. By the time we get to the fourth of July, a major chunk of the U.S. corn crop is going to be pollinated. And so they're going to really be watching. I think that the July contract gave up, the bull spreads give up hard this week, mainly because of the fact that they felt that the wheat will compensate with the harvest starting. Also the fact that they feel that maybe there's a little bit of corn out there. Basis started to soften. Some rumors that there have been some cancellations. We don't believe that in the corn at all. We have to remember, you've got Tyson, a very large global processor of chicken, processes like 42.3 million chickens a week in the world. And they're talking about increasing 60 percent of their processing in India by 2014, 50 percent in Brazil, and 50 percent in China. In China they'll go from three -- or two million birds a day to three million birds a day. That said, there's going to be a need for demand for corn and for soya meal as we go down the road within the year. A good year, because it will be by 2014. So I think that the weather is very critical here. Stocks are tight. I think that, you know, we could fall back to 550 on this July corn. The Dec. Contract, maybe eventually I think you go to 449 on the Dec. But it's still early and there's a lot of jury yet to deal with. You get into mid-June, though, and if not too much has happened, acres is what they're going to start focusing back on.

Pearson: All right. That will be the acres -- that will also impact the bean market. What's your outlook on the beans, Sue?

Martin: Well, I think the bean market, $15 beans is a pretty good ticket, especially on the old. And of course, that's bringing you up to 14 on the new. Now, we have to remember last year on November contracts, we had 14.63 and there are many highs against $14. So this year's new-crop contract, because of concerns or anticipation of bigger acres, regardless of the fact that world stocks are tightening, the attitude is that we're going to grow acres. And everybody is focused about the supply and slowing the demand because of world economies. I'm not sure I'm totally buying into that. I'm very friendly for the year 2013. So I think it's possibly we turn and the market goes something like this. Maybe not only on beans but corn and maybe wheat. We rally up into June, get a peak, turn around, fall back. And we step down into July. Might be July 17, could be the latter part of July. Then you get a dicey rally into September. And then from there, we'll have to see what we're really made of.

Pearson: All right. So soybean growers, hang on. It's going to be an interesting ride this summer.

Martin: We're about 40 percent sold on new-crop beans, and I think we're going to hold it off from there.

Pearson: All right. Let's talk about livestock, Sue, and what you see in fed cattle market, first of all, demand wise. Obviously it's been a real robust export market there. You talked about the strong dollar earlier. What do you see for cattle prices?

Martin: Well, I think the thing for cattle, cattle prices is, one, numbers are tight. And, two, the market acts like technically like it would like to rally up to about 122. Maybe it could stretch to 123, but 122 on the June. We have to watch the 117 level because I think that's a line in the sand. If you take that out and close under it, the market is going to get another fall back. And I think we are limited this year as to how much higher we do go. Seasonally you try to break down into early June at least. And so maybe the market is kind of meandering that way. And yet the cattle market feels like it has a better underpinning, I would say, compared to pork. And I think that the demand is good, but it's the domestic consumer that we have to really be concerned about. The dollar rallying, what's it doing? It's bringing Australian beef into the U.S, and that is another thing we have to watch. Another thing is the weather. What happens to these pastures? We have to watch condition of pastures because if they go south on us, we have no place to go with these cattle. The pastures in the south are not good. So therefore, you're going to see another round of liquidation, and this time with concerns over a slowing global economy, plus on top of it, a dollar that's lifting and bringing more meat in -- a year ago we weren't bringing meat in -- now you've got a problem this time if you see more cow liquidation, you're going to have a problem because it's more meat being put onto the marketplace and cattle are carrying more weight.

Pearson: That's another good point. As you look at the hog market, Sue, in contrast to what's happening in the cattle. Again, robust export markets. First quarter was very strong. Where are we headed for hog prices?

Martin: Well, the hog market is concerned because of the fact that prices in China are on decline. Still, they're much higher in price than U.S. pork imported in, so that's a good thing in our favor. The problem in the U.S. is, one, we are killing more hogs than what we should and the USDA has us targeted for increased pork production next year, along with poultry production. And then you've got the retailer at record high prices and the wholesaler at two-year lows. And so the spread is very wide. What's that causing is that -- and they're doing it -- the retailer is doing it to make up for the tight supplies of beef and poultry at this time. But that could really weigh on us. As we go down the road, it could hurt the demand for pork. And then as we go down the road, we continue to increase in numbers. It might spell a tough market ahead for us. So I'm recommending hedges. You get some rallies in here. Buy puts. Talk to your broker. Get some put strategies on. But also, I would say outright futures shorts might be in the cards for hogs.

Pearson: All right. Sue Martin, as usual, you always have some great insights and some great thinking. It's always great to have you with us on the program. But that's going to wrap up this addition of Market to Market. But if you’d like more information from Sue on where these volatile markets just may be headed, why not pay a visit to the Market Plus page on our website. You'll find expanded market analysis, audio podcasts, streaming video of our program and links to our Twitter feed at Facebook page, and it's all exclusively at the "Market to Market" website. And be sure to join us next week when we'll commemorate the 150th anniversary of the Agriculture Department. Until then, thanks for watching. I'm Mark Pearson. Have a great week.

Tags: agriculture cattle commodity prices corn economy feeders hogs markets news soybeans Sue Martin wheat