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Market Plus: Jan 19, 2007: Sue Martin

posted on January 19, 2007

Market Plus: Jan 19, 2007: Sue Martin Pearson: This is the Friday, January 19th, 2007 version of our Market Plus segment here on Market to Market. Thanks for joining us at our Website. I'm Mark Pearson. With us this week one of our senior analysts, Sue Martin. And Sue, we talked a lot about corn last week and you've talked about corn, you're a little concerned about getting past the summer when maybe we have these acres assured that this corn market could soften up some. So, are the beans going to soften up too?

Martin: Yes they will. I look for a situation, one, when you look at South American cash sales because of the price that we've been seeing in the beans it's helped add to those sales and farmers have been way more aggressive than they were a year ago at this time. So, we're well ahead in South American sales which means they'll run out sooner and we won't have the competition as long. I envision a view where we rally here, go up into about -- we either put highs in in March or we have them in May, kind of like what we talked about in corn. And then we break down and we come down into July, possibly August. I think this is another year where we very well could have an early harvest low and then bean prices are in a bull trend into the summer of '08. Now, when you look at this bean market -- and let's talk about the technical side -- you look at the weekly charts and we have a nice, first off, coming off of the 2005 high or 2004 into 2005, early 2005 February, remember that rally, we rallied so sharply two dollars. Okay, we put in a nice little bottom right there and then we fell back and from that 2005 high of $7.52 1/2 we fell back but we couldn't take out the previous low in February which was $4.98 1/2 for a lead month of beans. Since that time beans each low has been a little bit higher and it's been grinding and forming almost like a nice little saucer bottom on the weekly charts with us coming up on the right side of that saucer now. That's a very bullish chart formation, it is very bullish. Plus on top of it year in, year out May soybeans and July too but May soybeans have a huge gap and anyone who charts understands gaps but this gap goes from $9.60, $9.61 down to $7.52 and on the May contract down to $7.41 up until this week when we finally got over that high. That is probably one of the biggest gaps I've ever seen on any chart ever since I've been in this business and, you know, you say senior analyst, well I've been here a long time. But what I'm saying is it's such a big gap, that gap is going to be filled and we're in the process of filling it. We're in the little baby stages of it, it keeps letting people guess, the bean counters that look at the supply get caught up in supply and negative and that's just what the market wants, it needs you to stay short and negative and disbelieving because it's going to continue to grind and take your money away. I think that when I look at this market we're going to be seeing a pretty enthusiastic move by spring and then as the South American sales start to come back at us again it'll compete a little bit against us, we'll maybe price ourselves out for the moment, crops will look like they're off to a decent start until they prove us wrong and then as we get into the latter part of summer, maybe into August all of a sudden we're going to find maybe either A we're awfully dry with the La Nina setting in or B if that isn't the case then I suspect it's going to be the Asian Rust getting us. And either way we can't afford to have a problem cutting yields in the U.S. after a reduction in acreage. And this is probably going to be one of the biggest reductions in bean acres in history. And we can't have that on top of 7.8% less acres in South America, you know, we can't afford any hiccups in an environment where the demand for biodiesel is growing not only out of the U.S. but worldwide.

Pearson: Alright, Sue, you track all the weather people. You visit with them. What is the take right now? There is a concern about this El Nino evaporating literally.

Martin: Yes it is.

Pearson: Now, that's bad news in the upper Midwest, typically it means hot and dry.

Martin: Yes it does. Now, it can start off with a wet spring and then move in, in the latter part of summer to hot and dry. There's a couple of years that stand out like that where we had a quickening or a quick ending to the El Nino and then went right into a La Nina. One was the year of 1964 and one was 1983. So, 1983 that's certainly what we'd seen was that pattern where price, grain prices took off. But we have to remember we came in with big corn supplies and then turned around and had the pick program which cut the acres dramatically and then got hit with weather and so it took corn prices up nicely. In the 1964 era though corn prices weren't very bullish that year. So, we'll see, that's a 50/50 deal.

Pearson: Big crops, a lot of crop in the bin back in the early 1960's. We still had all those government bins. Well, Sue, it's going to be a wild year, no question about it. Soybean market you're being extremely friendly to.

Martin: And I remain that way.

Pearson: And on a break, how much of a break would you be buying beans?

Martin: Well, I don't think we'll see a very big break in the beans. Maybe you take March beans back around $7.06, $7.07, that would probably be, you know, close to a 23, 25 cent break. I don't expect that. We might _____ more a little bit of a time. There's one thing that if I could leave one thought is the year of sevens. In years of sevens going back the last 80 years -- I might have talked about this the last time I was on the show, I'm not sure -- but in years of sevens you had bean prices making highs, they showed a tendency other than one year and that was the year of 1967 but all the other years that ended in a seven going back to 1927 you either had a high in March or a high in May. And then you had a tendency to dip down into the summer and have a healthy sell off only to turn around and start back up with your fall contracts. I would be booking soy meal. I think that meal is under priced or with time it will get higher priced especially if corn holds in here. And I fear that with the lackness or comfort zone that the end user has I'd be booking meal at least into the summer.

Pearson: Okay, some good heads up there for the livestock industry. Sue Martin, thank you so much for being with us. Sue Martin joining us here on our Market Plus segment. For all of us here at Market to Market, I'm Mark Pearson. Have a great week.

Tags: agriculture commodity prices markets news