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Market Plus: Oct 01, 2010: Market Analyst Sue Martin

posted on October 1, 2010


Market Plus: Oct 01, 2010: Market Analyst Sue Martin Pearson: Welcome to the Friday, October 1, 2010 version of Market Plus here at our Market to Market Web site, glad you've joined us. With us this week one of our regular market analysts, Sue Martin. Sue, a couple of things I wanted to touch on. We didn't get a chance to get to feeder cattle and they were soft around the board this week. That seems kind of counterintuitive when you have that huge pullback in corn you think people would be looking at maybe bidding these feeders up a little bit which I guess they did a little bit on Friday but for the week we were softer. What is your take on this calf market?

Martin: Well, I think that longer term, first off, we're in the process of fighting acres between corn and wheat and, of course, we come back with feeders on those wheat acres and we're getting towards that time of the year where they do buy feeders for that. But the price of corn has had people a little concerned and you would have thought on Friday maybe the feeder market would have been a little bit more enthusiastic but I think it was the velocity of the markets breaking that had everybody a little bit nervous. So, I think your funds were doing some liquidating and you just had kind of a selling, negative tone going into the end of the week. And the one thing that I would be a little concerned about with feeder cattle, and we're probably too soon to even talk about this right now, I think feeders could get a little bit cheaper but I think they're going to -- I don't see them going very far south because I think we've got a bull market coming here this next year. Again, the problem that we're dealing with is that everybody has been so bullish for next year that the deferred months of fats are awfully high and so you're kind of starting to see that market maybe take a breath for a moment and then you look at the feeder cattle and you say, okay, if the price of corn comes down enough, okay, maybe I'm interested but if we hit drought next year it could be the thing that ruins the market too as you go towards 2011. So, then next year I believe that the producer of feeder cattle has to be very cautious and needs to utilize rallies in that board to protect his feeder cattle prices because I think we could stand a situation -- there is a gap on the year in, year out January feeder market and the electronic board, the weekly chart that goes from about 106 to 97 I believe and that is a huge gap, a nine dollar gap. At some point that gap will be filled. I'm hoping that we have a year yet before that occurs.

Pearson: All right. So, let's go back to the corn market for just a minute because you have discussed I know about the fourth wave of corn which could get us into $8.00. But that is -- you're not predicting that but you're saying that if we do get dry weather next year that could be the driver.

Martin: Yeah. It certainly would be because you've got Brazil planting less corn acres, you've got Argentina now that is starting to catch some rains even though there's parts that are still dry and about 28% I think of their crop is planted for corn and we need to watch because the Ukraine exports corn too but they aren't going to have it to export this year, they're going to need it and so the U.S. is basically the biggest game in town and South Africa, whatever excess they have, and they had a good crop, it appears that China is going to consume all of that. I think that China has got some issues with their crops. They don't admit it and they aren't going to admit it but you just watch their actions and actions always have spoke louder than words. They are going to be in our export market. They are in the rice market aggressively. They have imported way more wheat already than what they did a year ago. I think they need a little bit of everything. And in the meantime, you look at the corn market, okay, now we've stepped back. Corn was rallying so fast that on that on that $1.85 rally we had already made a 50% retracement on a lead month contract. In other words, when July went off the board and when September went off, December became lead month. On that chart we got a 50% retracement at $5.27 and a half and our high was $5.28 and three quarters. Is there any reason at the end of a quarter the funds wouldn't liquidate there after that kind of a rally and take some money off the table, they have made good money. And so on the down side, now if you take from the late August low to the high that we've had here in September, okay, that pullback then, a good 50% retracement happens to be right at about, oh golly I think we came through it, was right around the $4.78 area. We took that out but if you look at the lows of June and draw a trend line up along all the lows all the way up there is a trend line that comes in right around $4.62 to $4.60. If you take a 38% retracement from the June low to the high that comes in at $4.59 and then if you take a 6.18% retracement from the late August low back to this high, a retracement back of 6.18 is $4.59, $4.60. There's a lot of support right in that area. It isn't going to take us long, we're going to be there this next week, we might be there Sunday night. But we're going to go back, we're going to see lower lows here and I think the key here is how many people after the last USDA report that we've had and the USDA coming out and saying, we did not in any way comingle, I'd love to see that one. I don't believe it but they said it. That breeds uncertainty amongst the trade. There's no way you're going to have people carrying positions through this next one coming out, the supply and demand, they're going to be nervous with it so if you start to rally off of a low early like Sunday might, Monday and I think we'll be down those, they are going to turn and we start to lift, they are going to dump it right back down into the report. If we break down into that report they're going to turn and bounce that night before the report just because they don't want to be in the market. They are going to get to the sidelines.

Pearson: All right. We'll watch that October report with interest. That's all the time we have for Market Plus this week. A big thanks to Sue Martin for joining us and thanks to all of you for joining us. From all of us on Market to Market, I'm Mark Pearson. Have a great week.


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