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Market Plus: Mar 09, 2007: Sue Martin

posted on March 9, 2007


Market Plus: Mar 09, 2007: Sue Martin Borg: This is the Friday, March 9th edition of Market Plus. With me is Sue Martin. Sue, I'm wondering about the stock market. Volatility in the last ten days or so started over in China. What is your take on that?

Martin: Well, I think it was a wake up call. China's stock market fell about 9%, hardest break in 10 years that it's had, not that that wasn't due probably because, you know, China's probably going to have around a 9-10% growth this year. Last year it was almost 11%, the year before 10% and the year before that 9%. So, a country of that size, huge growth. But it all goes back to the Olympics and the summer Olympics in China, in Beijing start August 8th of 2008 and they end on August 24th. Now, I believe that when they were awarded the ability to have the Olympics China became, they had lots of U.S. dollars in their pockets and they wanted to spend some of it. And they felt that they needed to put on the best image they could possibly have. And so this kind of stimulated their growth and got them in gear, they needed clean air, they needed more hotels, more roads, more restaurants, better food, they needed more cabs, more bathrooms and through the whole process that was a big pull on a wide basket of commodities. Once those Olympics take place the reason to have a much better impression I guess I would say after the Olympics are done is over with. The shine will be off and there will be no more need to have to worry about making that great impression on the world. They've done the best they can do. So, then I look for the government to slow down their economy because it needs to slow down. So, they'll slow down their economy and the demand that has been so rampant and driving us for the last three years, two or three years will start to slow back and the grain markets, steel prices, lumber prices, you name it will all start to slip into a bear trend.

Borg: You mentioned grains there, the stock market effect on grains. Did you see what happened in the Chinese market affecting grains?

Martin: Oh, very much so.

Borg: What about corn?

Martin: Well, because they had this tremor, that's what it was, it was a tremor and, of course, their stock market turned and started to come back up and ours almost appears like it's got a V bottom on it and is coming back except that I believe our stock market has got the top in for the year mainly because cyclical there was timing here for the latter part of February for a high and I think that by the time we get into October prices on the Dow will be considerably less than where they are. But does that mean our economy is bad? No, if you go back to the 70's stock market was in a down trend and commodities were in an up trend. I think we're into an inflationary time and I think that what happens is that the demand for cleaner air, better fuel and being not so dependent on fossil fuels be it whether it's South America or China and parts of Asia I think we're going to find that the growth and the demand for corn is going to continue and, of course, exports will stay quite strong. Now, what's interesting is in this report, supply-demand report here on Friday the government increased Brazilian production two million metric tons, left Argentine production alone. But that's on top of in February they increased between Argentina and Brazil six million metric tons. So, they've added another two. But to off set that they lowered South African production which happens to be a competitive exporter. They lowered their production by nearly, almost right at two million metric tons as well. So, it was an off setting factor and then when you see growing demand in the world supplies, stocks in the U.S. or in the world and U.S. continues to stay tight.

Borg: So, you're saying continued strong corn prices and even looking for stronger in the summer?

Martin: Exactly. If you go back and you look at years when -- and both in beans and corn -- when you put new contract highs in for that contract of the July contracts whether it's beans or corn they have a tendency after March 1st to make new contract highs again. Now sometimes those ultimate highs don't come until you get maybe in May or April or June or July depending on the commodity. But I think this year I look for corn to put its ultimate high in, in July as we go into pollination. That will probably be some weather premium because there is no weather premium in the markets at this time. In the bean market I think -- here's another thing -- in all of those years there was a tendency for a break before you had the ultimate high and I think that's what we're doing. I call this nothing more than just killing a little time.

Borg: What about live cattle prices? Corn is high, feeder prices don't seem to be negatively affected like that and the live cattle market has been gaining.

Martin: Well, it has. Now, there is resistance on April cattle around the $101.80 to $102.40 level. This is what we call a wave three in our technical side of counting. And normally wave threes give you some static so I ponder, I wonder if the cattle market won't have a little issue here this next week when we start to pull back and then once we get in towards deliveries it will be interesting to see because if you look at the placement numbers the placement numbers off of the government reports would indicate that you should start seeing a pick up in numbers towards the latter part of March on into April. So, we'll see if this indeed happens because I am hearing talk off the floor and it's by the same people that were right on the April contracts going over $1. They're seeing that we could see cattle prices on June go over $1 as well and possibly see $1.10 before the end of August.

Borg: Thank you, Sue. Sue Martin -- that's this edition of Market Plus.


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