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Market Plus: Dec 29, 2006: Sue Martin

posted on December 29, 2006


Market Plus: Dec 29, 2006: Sue Martin Borg: This is the Friday, December 29th edition of Market Plus. And visiting with us right now is Sue Martin, Webster City, Iowa market analyst. We have a key report coming out from the government on crop production on January 12th. How significant is that, Sue?

Martin: Well, it is a pretty important report especially on corn because if we do see a reduction in our production number from this last growing season then that's going to tighten up our ending supply, our ending carry.

Borg: With corn prices why would there be any acreage reduction? Why are you thinking that?

Martin: Well, I think, Dean, the whole thing is, is that we believe yields weren't as good as what originally was thought to be. And so therefore we think that that will show up in this report. Will this report show some rationing that has the price rationed to where our demand softens a little bit in this report? I think it's too soon for that. That might show up more as we get in towards the spring, maybe around March to April. I think what's more important is, is that under this market is the absolute need to solidify the acres, that we have to have more acres to take care of this growing demand with ethanol. And especially at a time if we haven't really slowed up domestic usage. And we've slowed it some but not majorly. And that will probably happen more as we go towards summer. But right now our focus is acres. And in the last history or historical acreage shift that we've seen in a non-farm program year was about 3.3 million acres of beans switching over to corn, whatever market or commodity gave, but corn gained that many more acres. This time we're talking, according to Informa, they talked about 7.5 million acres. So, a little over double what we have seen for our previous record. Even at 7 million acres of an increase in corn our stocks will still tighten. We will not be able to take care of all the demand that we've got going. What that means is then that price has to still move higher or exports slow down and it doesn't appear like our exports are going to really slow down much. So, we have to ration the commodity through higher prices so that the end user be it whether it's a hog producer, a poultry producer and cattle feeders but more so in the hogs and poultry that they slow down the number and maybe see a little liquidation and that they say I'm not going to feed, it's just not profitable to do so.

Borg: So, as far as corn is concerned that's going to mean the livestock producers are going to be watching that corn acreage.

Martin: Oh very closely, they'll watch is very closely because -- and similar the ethanol industry too because they know that they have to have a good supply of corn always coming at them or the ability to get corn.

Borg: What about the implications for soybeans in this January 12th report?

Martin: Well, I think in this January 12th report I don't know as if it's soon enough yet for the USDA to admit to the fact that the quality of our beans -- we had decent production. I don't think our yields were quite as high as they originally said there either, they may not admit that. But the quality of the soybeans, ever since 2004 each year has just gotten progressively worse and I kind of think that could be a drag because of the Roundup Ready soybean. But each year it's taken more and more beans to crush to get the amount of protein that we need. And that could be another reason why China continues to import so many more beans each year because the drag on the quality.

Borg: Will there be any effect on the commodity markets immediately after that report comes out? What could be the scenario there?

Martin: The only way you would see -- corn might react better than beans. Beans if you have a lowering of the carry out, I don't see the carry out going higher and it came out at $5.60 the last time -- if it came out a little bit lower and they showed better usage, exports have been absolutely fabulous on soybeans then that could be a catalyst to drive beans higher. In years similar, Dean, in years similar to this one, we're coming into a year that's ending in a 7 and not that the past is a guarantee for the future but it can sometimes give you a clue, in years that end in a 7 May soybeans, this is the May soybean contract, has put highs in, its contract highs either in the very end of February, first week of March or in the month of May. And it goes all the way back, I've gone back 80 years, so from 1927 on forward there's only been one time that a year ended in a 7 where May beans were in a downtrend. They were always in a bull trend otherwise. And I think I don't see any reason for us to be in a downtrend, everything is more bullish because the demand for biofuels is so aggressive, you know, the need worldwide, growing economies worldwide and better diets, you know. India is a country that is having some issues as well. In fact, they are even discussing about possibly banning exports of wheat and India is a big competitor on wheat exports. So, you know, and that's a huge country that will be probably importing soy oil.

Borg: And they may ban wheat exports? Is that what you're saying?

Martin: Well, they may be banning wheat exports because domestic prices are getting so high and they are fearing that they won't have enough...

Borg: They're short.

Martin: They're short on supply. China is the same way. China is very tight on supplies of both corn and soybeans, well not soybeans but corn and wheat. But also another thing with China is you have very little talk now about the Avian bird flu which means all of a sudden they're ramping up their bird flocks, that industry is wrapping up, the pork industry is growing and, of course, people, they want to feed their people better.

Borg: Sue, thanks for the insight.

Martin: Thank you.

Borg: For market analyst Sue Martin I'm Dean Borg, that's Market Plus.


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