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Market Plus: Dec 31, 2010: Sue Martin, market analyst

posted on December 30, 2010


Market Plus: Dec 31, 2010: Sue Martin, market analyst Yeager: This is the December 31st Market Plus Segment with Sue Martin. Sue, let's talk a little bit. Quite a wild year of 2010/2011 and one of those lead stories really to me has been cotton. This is a product that we're seeing at highs we haven't seen since the Civil War. Can it go much higher?

Martin: Well, I think cotton is pretty much close to its top. If it hasn't seen it already. We note that cotton acres are going to expand in China. You've got stores like Hollister and Abercrombie Finch, they rely on cotton, a lot of their products that they sell to a younger generation is all from cotton and the prices are starting to move up. They have to push those prices through. Those cost increases. But the big thing is when you look at cotton is the draw on acres. What effect is it going to have and about four or five years ago the cotton producer wasn't making money and lot of them did liquidate their cotton equipment and that's a very expensive equipment that is strictly used for one crop or one type of commodity. Where the other equipment can be used - spread across corn, bean, you know, other commodities, and so the thought that acres wouldn't increase as aggressively as everyone thinks. I think what the bottom line is when the push comes to shove that will end up being the case but all be it it's very hard to get an order in and get your equipment received if you're buying new equipment from John Deere and what is it, International Harvester, you know, if the demand for equipment is very high right now. So, it says yes, we're going to see an increase in acres. I think it's at the expense of corn.

Yeager: That is what I was going to ask. So what is it at the expense of? So, corn?

Martin: Yes, I think it's at the expense of corn. And then I think beans and corn fight for the rest of the acres. I think the cost of fertilizer is up there pretty lofty and I think that a producer when he's looking at this next year he's looking at beans and beans handle drought not too badly, pretty decently actually. Beans just don't like wet feet and I think that they'll opt to go with the beans if this price stays this ratio between corn and beans stays this way. But I think that another thing that we have to watch is that Brazil is going to come off with a pretty decent crop I think this year. And having said that if they do, you know, come spring there's going to be a decent supply of beans around into the world market. Now granted the demand by China has just been horrendous and it even is pretty aggressive for the new crop 2011/12 on beans. So, we're seeing good demand, the demand by a large growing economy, but China trying to take efforts to sort of somewhat slow their economy down. But I'm not sure the price increases that they're seeing on food in China is all because of inflation. I think it's because they had some horrific weather. You know we know what kind of weather we had. Theirs was way worse. They seeded -- in the spring because they were into drought in some of the major producing areas. They seeded the -- all the sudden they got too much rain. Then they got into the typhoon season and they were just inundated and had horrendous flooding and that just -- I am surprised we haven't heard more talk about a loss of livestock in that country.

Yeager: And you talk about soybeans and maybe more acres headed that direction. So, to me or to most it sounds like corn would be the winner in terms of a price and would continue to go up.

Martin: I think it will be to some -- and here's the other thing too, you know, last year corn and corn didn't do real well. And I think farmers are getting a little bit frustrated about that type of a yield loss in corn and also dealing with the fact that it's so weather touché when it's corn on corn consistently. So we may see a little bit of a shift back to more rotation. So, beans might garner some more acres. So, that could be a good thing for corn but the one thing that we also have to watch is the dollar. I believe, contrary to a lot of people, I believe the dollar has bottomed and I think the U.S. Economy is going to do better this coming year. And if that is the case that should be beneficial to the dollar as well and therefore if the dollar starts to rise that's going to slow up some of the purchasing power. Going to help Brazil real well. It's going to help those farmers make more aggressive sales and they like that when the dollar goes up but in the meantime it could be detrimental a little bit, slow us down to where we're not as competitive as we are. And everybody has gotten so used to this well, they're buying from us and then they're buying from Brazil anyway. A year ago the story was totally different. The story that every bear had was well, you know, when Brazil's crop comes out -- if they're looking like they're going to have a good crop, we're going to loose or demand, China is going to cancel here and go there. That didn't happen. They took it from both places and this year they're kind of now in that mode where they think that is going to stay that way. That they will take from both places and they might be surprised. They might end up slowing up on us and shifting more to Brazil when that time comes when those crops are made. But for now we're basically the main game in town and we're enjoying the benefits of that.

Yeager: We had a couple of discussions a little bit about feeder and cattle that kind of ran together there during the regular broadcast. Anything you want to clarify or hit again on livestock? You talked about cattle had a pretty good -- better year than what was expected. Do you see that continuing and how do you discuss what they will - we talk about corn more going into soybeans possibly. How does that impact livestock?

Martin: Well, the cattle producer is one in which I would say he is making good money and justified and in the meantime everybody says well the export market is fabulous and they put a lot of weight on the export market. But the one thing they have to remember is that with the export market it's only about ten percent of the total usage of beef or consumption of beef. Most of the beef is consumed here in the U.S. In the meantime we have to look at the dollar and we haven't been importing much out of Australia because our dollar is so cheap compared to their currency. So, the importation of beef coming in from Australia hasn't been happening. But if I'm right that the dollar turns and moves up all of the sudden we're going to start to see Australian beef make it's way into the U.S. and all of the sudden we might start picking up a little bit more hamburger, a little bit, you know, which right now we're having a hard time finding enough meat to grind for the hamburger demand. So, and one seventy has been kind of the resistance for the last two years. I am - since 2008 and I think it's going to be resistance. I'm looking for, as I mentioned in the show, a high around this January 8,9,10,11 time frame with healthy correction and maybe we turn and get another lift back up in towards spring but then I think the real burden of proof is going to be what happens to cattle in the August through October/December period? That's where we should really see our tightest supply and the biggest push for demand. Normally that's a good time of the year and we haven't even gone through a hold back in heifers for retention for breeding purposes. We've been seeing a liquidation of calves and the price of feeders staying up is helping the - retain some of our cow herd but in the meantime we're also getting more efficient with this at this time because those who have had enough or want to retire from the cow/calf business, they're using it at this time as a chance to get away and get good money for their cows. They're coming out on a high. Those that are in the dairy industry are saying they're kind of making -- they're getting rid of the poorer cows because God knows the people producing milk are not making much money at all if any. And then you have the other guys in the cow/calf. If they have a cow that's producing nice calves they're getting rid of her too. So, we're getting efficient but in the meantime somewhere down the road this price level is going to start pull us towards a whole -- of heifers and when that comes look out prices. Who knows where they're going.

Yeager: We'll find out in 2011. Happy New Year Sue Martin.

Martin: Thank you.


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