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Market Plus: Mar 17, 2006

posted on March 17, 2006


Market Plus: Mar 17, 2006

Mark Pearson: Welcome to the Market Plus web site, Mark Pearson, glad you've joined a special Saint Patrick's Day version of the program this week. And with us is Sue Martin, one of our senior analysts. And Sue, on the show you turned negative last fall, I want to say about last October and this fed cattle market was out of sight and cow prices were huge. And you were saying, oh no, this cattle thing is going to turn, it's going to turn. Boy, I tell you, first of the year it turned and it hasn't looked back from heading south. On the show you were talking we could see maybe some substantially lower prices in the next 60 days.

Sue Martin: I think so. If I look at, you know, the cattle market has had, on the feeder market, you've had about a five day rally in the feeders and maybe about two and a half, three dollars lift from the lows. I don't expect much more. You might take May feeders up around $107.30 or something like that early this next week, but I don't see much more beyond that. I think this feeder market, if you can't lift this fat market and it closed at its lows, near the contract lows, if you can't lift it any better than we're doing and the cut out continues to decline I don't see how that feeder market is going to hold. I think that this feeder market is going to turn tail and start to decline. You know, it's interesting, I went back and looked at the years that end in 6 and, you know, they're so infamous for this kind of thing, what is happening in the cattle market right now. And what was interesting is, is in the year of '86 and '96 both of them from the contract high on the May feeders which would be set probably in the year before to the low of late April, because both of them bottomed in late April, what was interesting is, is that you had an 1800 point decline from the highs. Well, at the moment, you know, you might have had an 1100 dollar decline, an 1100 point decline, that would be about the max that you've had on the May feeders. Conversely, the March feeders had a 1400 point decline and also you brought them right down on the May feeders to a 6.18% retracement. So, know wonder the market _____, it was due to. But I wouldn't trust this rally and I think it's going to come back and head south. In the meantime, just because we are still heading in to bigger numbers and carcass weights, 29 pounds on steer carcass weights over a year ago, you know, the weather has been so kind to us, almost too kind to us. Every animal, you know, whether it's a hog or a cow or, you know, whatever, it has gained weight very well and we just have way too much tonnage coming at us. And at a time when the rest of the world isn't wanting chicken and it's backing up here and, you know, God forbid when we have the first announcement of an avian bird flu here in the U.S., which will happen probably, but the first time it is announced boy that livestock market is just going to have a problem.

Mark Pearson: Absolutely, a lot of protein out there and that could cause a problem.

Sue Martin: Very nervous, and I find, the interesting I find in this cattle market is even with the hard break that it's had I don't hear anybody complaining. Now, I know that producers in the cattle industry have made some beautiful profits in the last four years, I want to see them keep that and not any of them are really complaining and, you know, before market bottoms and turns you've got to hear some complaints and we haven't heard that yet. 0

Mark Pearson: Have not heard about the dollar per head losses, you're right, we haven't heard that yet. Alright, now, so fairly dark on cattle, you're talking maybe 72 cents on that June contract.

Sue Martin: Exactly, 72.20, I want to tell you something, there are traders on the floor that are talking 68 cents.

Mark Pearson: We were thinking we would hold it at 80 so, alright. So, there's some problems there we can plan around. Let's be alert. I also wanted you to talk again about soybeans because I'll be honest with you Sue, I was out in Arthur, Illinois this last week and I heard people there saying, what is keeping this soybean market as high as it is, we've got this huge carry out, all you're hearing about is a big crop in South America, what is doing it? Why should we be optimistic on beans?

Sue Martin: Well, I think first of all, the big crop in South America while yes it is record it isn't as big as what everybody had hoped for and therefore because of that it says the U.S. has to continue to produce beans. We are seeing a time where demand is growing. We have world economies strong and I think that it says with an increase demand towards biotech it says we're going to need those beans and we're going to need the products. I look at our own production and we're going to have to have a production this year, if you don't have a good growing season this year we'll eat into these carry outs pretty fast because the demand is so strong. Now, everybody worries about the avian bird flu slowing up soy meal demand and this type of thing and maybe temporarily it does but what I see is it pents up demand. If we look at the last couple of years in China everybody talked the same song and dance and what happened -- we exported more soy meal to China than we did the year before. So, I'm not totally buying the story they're giving us but, you know, farmers are listening to it, they're hearing it, they're panicky, they're selling beans. I think beans are going to be very strong in through the month of July or well into the month of July. And, you know, these funds, everybody talks about the funds, the bear is especially frustrated with the funds because they're staying against them. But the funds are buying the beans as well. And why are they doing this? These index funds are no fools, they aren't going to go just lamely and buy a market. You know, they'll lose their money if they're wrong and then they've lost the shot at keeping that business. So, I think there is more to it than that and I think the fact that you've got beans, according to the producer price index relatively reasonable, you know, you look at other inflationary markets and beans are cheap. And while they may get a little cheaper and I'll look for a low around the first week of April, you know, if we take out $5.72, that's a January low, that should project you down around $5.59 1/2 the contract low on the May contract which is also your harvest low. But I don't know if you take that out. We may not take that low out and if you don't that's very telling, that's telling us we better wake up because last year you made lower lows in corn and soybeans but you closed the year higher. Why? We all knew big carry outs and it still didn't stop the market from closing higher.

Mark Pearson: Alright, some great insights. Sue Martin, thank you so much. That will wrap up the Market Plus segment here at our Market to Market Web site, thanks for joining us. Tell your friends and neighbors. From all of us here on Market to Market, I'm Mark Pearson. Have a great week.


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