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Market Plus: Jun 30, 2006

posted on June 30, 2006

Market Plus: Jun 30, 2006

Pearson: Welcome to the Market Plus page here at our Market to Market Web site. I'm Mark Pearson and with us this week is one of our senior market analysts, Sue Martin. Sue, it's great to have you with us.

Martin: Thank you.

Pearson: It's always good to hear from you. It looks like, from the makings of things so far, and based on the USDA reports Friday, that there are fewer soybean acres than what we thought there would be initially. Uh, down 3 percent in the USDA report. They're talking about record carryout, a lot of soybeans in South America and in the midst of all this you're saying, "hey, I think we're poised for a bull market in soybeans." What's your strategy? What are you thinking?

Martin: Well, I really am very friendly. Of course, far be it from me to say I'm not a bull, you know. I've been the "$8.00 Girl" for a long time.

Pearson: That's right.

Martin: If I ever get my way, I'm 'gonna send a cake to some of my best friends and call it the dancing bull. But I guess I would have to say first off, you know, the South American farmer for a long time has been complaining that he just can't make money and he's been dealing with Asian Rust, couldn't make his farm payments. The government had to step up with some financing and this type of thing. And it didn't save them all, but you know, they stepped in to help. And what's interesting is though that we have found that the South American farmer is, at a minimum, 71 percent sold out on his beans, vs. 69 percent a year ago. So he was even more aggressive. And I think probably what that was, they knew we had these large carryouts in the U.S., weather was good, and with the acres USDA talked about at the end of March, 76.8 million acres, they were worried prices would go even cheaper. And so, when the dollar gave us a correction and the real fell, they jumped up to rise to the occasion and sold beans. So we're getting 'em out of our hair. And in the meantime, the U.S. is going to be the origin of favor to sell beans. As we go into next year for biotech, Europe is going to be looking at using less rapeseed. And palm oil and soy oil are going to be very favorable. And so that's 'gonna help demand on soybeans as well. In the U.S. biotech is really on the cutting edge of taking off and so I think that's another plus for demand as well. We've been crushing aggressively for the protein. And as we crush for the protein, we're 'gonna have to take more beans out of the stocks to get what we need to supply the protein we need. So we're getting a disappearance that the market has not dealt with yet. And in the meantime of all of that, we're also hearing that the South American farmer is not going to plant as many beans this next year. He's real frustrated. We're hearing as high as 10 percent of the acreage in Brazil will not be planted to beans. That's a lot. And then they're already saying, because they're trying to keep Asian Rust under control, they're cutting back and not allowing any irrigation on the acres where beans follow wheat and this type of thing. So we think there are some pluses coming and we think it's on the demand side where we see things better. And we feel that the market has dealt with supply ever since the turn of the year, and the market's been not able to break out. The soybean market's been in a sidewise range since September. It's been coiling. And when you look at a market that goes into a nice rally like it did in 2004, and then turns around and breaks down hard; comes back up like it did in 2005, comes back down, and then goes into a rounded bottom, so to speak, and then goes into a sideways range that it's doing, that is very bullish. I've been in this business 34 years and I don't know that I can recall a time that we broke the market down further out of formation like that on the charts --very bullish. We also have a huge gap on the May beans that goes from 9.61 down to 7.42 -- huge gap. Well if you just get a hint of some of the bullishness on this bean market, it's on a mission. You're going to fill that gap. And I have a feeling in this next year we're going to have some really good positives. And the Chinese economy is going to stay pretty good, I think. We've had some pullbacks, you know, some tightening around the world, some efforts to slow up inflation. But I don't think they can do too much of that or they're going to throw us into a world recession. And I don't see that coming. I think China will still be aggressive for another year. Once we get into 2008, past the Olympics, I look for things to slow. I think their mission will have been to meet that goal: to have better roads, better economy better housing...

Pearson: Better food...

Martin: Yeah. And then we'll see them start to slow up, so I look for this next year to be very price positive for beans. I see more upside potential than I could ever see on the downside. And these bears have not accounted for why this market has not broken down.

Pearson: We've got about 30 seconds left, Sue you wanted to talk about hogs. What particularly did you want to say?

Martin: Well, the hog market, I think, we've gotten to the .75 area and we had trouble and fell back. I think it's gonna' take... if we get another little lift here after the 4th of July, that could be a secondary rally. And I would suggest you go and you sell hogs. The one concern I've had is there's been an awful lot of disease this year in the feeder pigs... this spring. And that could affect our fall and our 4th quarter. And so I think if we hedge... just realize that if we start to come back and take these highs out, then we have to re-look at the market. But I think we've got some highs being put in.

Pearson: As usual, some great insights from Sue Martin. Thank you so much. That's Market Plus for this week. From all of us here at Market to Market, have a great week.

Tags: agriculture commodity prices markets news USDA