Iowa Public Television


Market Plus: Dec 16, 2005

posted on December 16, 2005

Market Plus: Dec 16, 2005

Pearson: Welcome to the Market Plus page here at our Market to Market Web site, I'm Mark Pearson. This week our special guest, very special, Sue Martin has been joining us. And Sue, one of our senior market analysts and you took off on the corn market so much of the show that I'm afraid I'm going to have to divert you over to soybeans because we didn't talk about beans as we normally do. But your take is South America is in the driver's seat right now and that is where everybody is watching. So, it depends on what happens down there weather wise right now.

Martin: Well, it does and another thing, everybody is watching it because Argentina, like I said in the show, has picked up some slack for Brazil. But the other thing is that it is so important that they produce because of these foreign needs. But more so they're out of beans basically at this time to sell and when we got hurt by Hurricane Katrina because it did hurt us for our first quarter of exports in the new year and that is usually some of our biggest exports out of a new marketing year that is, what it tells me is that our exports are going to start picking up and I think over the course of the next three to four, maybe five months we're going to have some pretty good exports. and then, of course, South America will start to come at us and compete. But another thing that is important is the fact that in this bean market when I went back and I looked at years, this was interesting Mark, our gold market is over $500 an ounce and I have a client, I can't take credit for it, I had a client who kind of asked me to check it out for him. And so I went back and I looked since 1970 of all the years that gold went over the price of $400 an ounce. Well, there was seven years and it was interesting because the tendency of the highs for the gold happened to come in around January. There was one of those seven years it came in in August but the other six came one year in December, one year in February and the other four in the month of January. But what happened was is that the gold led the grain market and then after the gold peaked down came the gold but while it was breaking one would think well then the beans would fall back on the fear of losing inflation, but not so. The bean market rallied every one of those seven years into April or July. Now, if it rallied and put its high in basis July beans in April it still came back and tested that high in July. This could be a year with as dry as it is that we rally and put highs in in July this year. I'm very friendly to beans. I still say we're going to see eight dollar plus beans again. If for some reason, I don't really look for this, I still think we're going to rally into spring this year. But let's say for some reason it doesn't happen and it goes down into April I would becoming extremely friendly to beans and feel that is a low for a long term bearish cycle that started in 2002. Remember in January of 2002 I was on the show for the new year's that year and I remember the producer on at that time was on the air that weekend and was very negative and wanted me to talk about the bearish side of the market. And I remember saying that I think I had 14 reasons why the market was going to go higher and the first trading day of January we made a low and it turned higher. Well, we're in a cycle right now that some look for that will bottom by early April and it would be a low to low cycle is what they're looking at. So, you could have had your nice market in '03-'04 but you'll finish that market off and then you're in bull markets. Well, however they want to go about it, but all I see is that this market, I look at so many things, I look at the economies, I look at the foreign production deficits which really are very important and we're going to see these markets go higher. I would be very scared to be too bearish when you've got a ton of index fund money that is going to hit us after the turn of the year.

Pearson: That is another good point and that's part of portfolio management right now to have some exposure to commodities.

Martin: They don't want expensive things, they want cheap things.

Pearson: That's right. Now, let's talk about the cattle market which you said you wanted to touch upon.

Martin: Yes, the cattle market, Mark, you know, I talked about the tendency in the years of 5 that you would put your highs in, but in early December I think this year it's thrown us just a little different twist. And I'm wondering if the February contract of cattle is going to peak around the very last day or two of the month of December or maybe it gets into the very first day or two of trading of January and we have a top in on the February cattle. And then we're done. The market is so heavily long with funds but these funds know that there is a huge hedge oriented crowd out there this year. And why, everybody is talking about it, these are great prices, we're going into our sixth year next year in the cyclical council, the producer always heard sell, sell, sell and he has. Some I'm finding are over speculating to the short side and these funds know that that hedge money is out there. They are running it and they're going after it and, you know, the feedlots will stick. The are very business oriented, they'll stick, they'll answer their margin calls and treat it like a business. But the little guy out there with the producer on his own farm may not and especially if he's specking, you know, if they run these cattle up towards $1 look out and there is a trend line, a very major trend line that comes from 1995 forward that hits on the Feb. cattle here in January I believe it is, even in December at 102.50. So, that would be the extreme I would see on the Feb. cattle. I think 99.92 is going to be tough.

Pearson: Alright, Sue Martin, as usual some great insights. Sue Martin joining us this week, one of our senior market analysts... For all of us here on Market to Market, I'm Mark Pearson. Have a great week.

Tags: agriculture commodity prices corn markets news soybeans