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Market Plus: Sep 01, 2006: Sue Martin, Ag and Investment Services, Inc.

posted on September 1, 2006

Market Plus: Sep 01, 2006: Sue Martin, Ag and Investment Services, Inc. Pearson: This is the Friday, September 1st version of our Market Plus segment here on Market to Market. Thanks for stopping in. Mark Pearson here and Sue Martin is our guest this week. And Sue, everywhere I go, we were both at the Farm Progress show this week, everybody wanted to talk about Sue Martin and what she's saying about beans because you have been a bull on beans now for, well, at least a year.

Martin: Well, two.

Pearson: Two years now. And you've been talking $8. You talked on the show about that Goldman Sachs Index Fund, they're talking $7.61 on beans, that's awful close to $8. How are we going to get there?

Martin: Well, I think the thing is, the key is, you know, we've got global demand just growing by leaps and bounds for meat and it is because economies have been growing and doing well. And China, part of China's growth has been underpinned or not underpinned but stoked up by the fact that they received the Beijing Winter Olympics bid and that kind of got the ball rolling. So, they're going to have a push to look the best, have the best kind of meat around, good restaurants, nice hotels, you name it and, of course, what that is doing is it's creating a bigger middle-class population within their country. You've got India on growth as well who is also eating better, although they tend to be more vegetarian, but they are going to be utilizing more soy oil for their cooking needs. You've got the biodiesel industry in Europe doing away with taking in rape seed because the prices just got so high priced and now you're looking at the fact that they changed this year and they're going to import soy oil and palm oil. In the meantime, it looks like El Nino is growing and if that occurs that usually has an impact on Malaysia and the areas that do produce palm. So, you've got palm oil prices at two year highs. I think that we're looking at an industry that, bean oil, that is going to have tremendous growth. You had stocks worldwide starting to tighten on soybeans. The USDA indicated that in old crop and new crop in the past report. It wasn't totally just off of the fact of lowering the yield by nearly a bushel per acre. In the meantime, you've got the trade anticipating that we're going to increase these yields. Back in the September report here on September 12th because since the 1st of August the weather has been very good for soybean production and what I think is they might be having a little bit of a faux pas there because the USDA in this report has a tendency to count pods but not the weight of the pods or how they are filled. So, that could be a little misleading. Everybody is saying but our crop condition ratings are higher this year than even last year and look at how we had a near record crop. Well, that is true but last year appears to have come in as an anamole in how the weather laid out. We think that is different this year. So, I'm not banking on that we're going to put a lot into the production this year or this coming month of report in September like everybody is anticipating. But still that is what broke the market and it's seasonal. In the meantime, you've got with the poultry demand growing in Russia and you've got the profitability that we kind of talked about in the show in the poultry industry here in the U.S., not to mention how profitable hogs are. I mean, who would have dreamed 65 cent December hogs, you know, and we're not far from that. You know, that is going to just enhance more feeding and with cheap corn some of these producers are going to feed these hogs a little heavier, that is going to use up corn. But it's also utilizing soy meal. We think that soy meal around the $1.50 mark to the $1.46 level probably is cheap enough. It could stretch down to $1.42 basis the December contract. But we think producers ought to be booking their needs on through the summer of next year.

Pearson: Alright, so that's kind of really your decision behind saying we should be getting close to $8 over the time period. You mentioned Brazil, the cost down there, they're talking about acreage reductions down there. It could be another facet.

Martin: That is another huge one. In fact, I get excited when I talk about beans because we've got some fundamental basis that is forming that is just wonderful. You've got, first off, of course, the debate over acres here in the U.S. where corn is going to try to pull those acres away from beans. In the meantime, you've got South America who has always been our thorn in our backside because of the fact that they were, you know, with the Real going down all those years and the dollar high that they were just increasing acres because they were making so much money. Well, that picture has changed and in the meantime not only has it economically changed, the landscape of disease has changed for them and they're fighting Asian rust. Well, because of this and because the dollar continues to devalue and we think the dollar could, by the time it's all done, we'll have devalued 30%. That subtly wratches the price of beans up to maybe $6.30, $6.50 a bushel. What you have going on here is you have two major entities in the world that produce beans and export beans and in the meantime they're both dropping acres. And the largest soybean producer out of Madagraso and probably one of the major ones in Brazil who is also very political, Maji, is estimating a 30% reduction in acres in just Madagraso alone. We think we're closer to 10% reduction. These have all got to be very positive things, lessening production with a growing demand, that is usually a good ingredient for a very bullish market.

Pearson: Alright, thank you so much. That wraps up our Market Plus edition here on Market to Market. Thank you Sue Martin. And, of course, from all of us here on Market to Market, I'm Mark Pearson. Have a great week.

Tags: agriculture commodity prices livestock markets news