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Market Plus: Market Analyst Sue Martin

posted on July 20, 2012


Pearson: This is the Friday, July 20, 2012 version of the Market Plus segment. Joining us now is Sue Martin. Thank you, Sue. Let's talk a little bit. We are talking about prices going up $10 corn. I have a question here Virgil in Newkirk, Oklahoma wants to know if that is a possibility. What do you think?

Martin: I think it is. I think that there is a possibility we could see a 25 to 30 percent reduction in this crop. That might even be - maybe it gets worse than that depending on what Mother Nature does. But I think it does. I think what we're going to see is that the supply of feed or protein for poultry, hogs, cattle is going to become so tight that what is going to happen is that we’re going to see a push and DDGs actually gets higher priced in value than what we see in the price of a bushel of corn. And I think that - it is almost like we're going to just as we go into 2013 we are going to be tiptoeing back and forth and just kind of doing a tap dance. But I think $10 corn is a possibility  especially if we have any problem at all and if we turn into an El Nino. El Nino tends to bother Brazilian crops not so much the southeast and Argentina seems to slide by. So, if that happens you could see a problem where maybe their second crop corn doesn't do good or their first crop and all of the sudden the markets are a little bit concerned. Maybe we have an open winter and after the year we are having the concern of dryness as you go towards spring, it could happen. The interesting thing is if we go in and we have more issues there is even a possibility of price counts to 15. So, I think - I almost hesitate to say that. But producers that are priced in or have taken the fall price option in their insurance, I think that they need to be looking at some way of - that price and maybe through puts. I don't think I would do futures. I do think that we could get to that 8.52. We will pry over shoot it a little bit but I think I would really sincerely look at putting a floor under your insurance for the fall price. Because you could still be headed higher in a major bull market yet and have a temporary hard sell off and then turn around and come right back out of it. But what I am finding interesting is that the September corn is being the leader and by doing so we are looking at corn coming at harvest starting here in about another week or two and the market doesn't care. It is grabbing and I think that's what we're going to see is very good basis levels this fall when our combines roll. And I think that the end user in the commercial is going to try and grab what they can get a hold of before it goes in the bins and so the basis level should be very good. But you might want to get some flooring as a producer if you have got that type of a division or product in your insurance and then leave your top side open and talk to your broker about option strategies there but do the puts rather than selling futures. If you get up that 8.52 area maybe that's where you really want to get more serious about it. But I don't think we will go much over 9.26 between now and the turn of the year.

Pearson: Ok. All right. We've got another question here and it is something we didn't get to talk about on the show. DJ in Dazey, North Dakota asks what your thoughts are on feeder cattle prices given the high price in corn and I know we didn't get a chance to talk about the Cattle on Reed Report. So those two things are kind of intermingled. What are your thoughts there on feeder prices?

Martin: Well, I think feeder prices; I've been a bear on the show for quite some time on feeder cattle prices. We did hit some price targets through those limit down days. All the way through January we hit wave four which usually will stall a market and it did on the deferred and of course the August to get the defers there over slid its wave four by six dollars. But wave five is 114.85. Now that is on an August contract but the thing is I do believe that the cattle market, the feeder market, has got its days numbered here on any rise. You get some nice rallies and I think producers need to have some protection because I do think it is a possibility that we see the feeder market come closer in price to the fats.

Pearson: All right and that is my next question. Where do you see fat cattle heading?

Martin: Well, the fat market looks like it has got some issues too. We have had a little bit of demand destruction here domestically, temporarily anyway, and in the meantime the Cattle on Feed Report showed that marketing was down six percent from a year ago. Now I suspect I doubt that that's because they are holding them to make them heavier. I suspect that cattle just aren't there because of all the liquidation we saw a year ago and that type of thing. Placements was, I believe down about two percent but the interesting thing was on the placements was that the 800 pounds and over feeder cattle was the largest amount of number going into the feed lots. And then the next one that really stood out was the lightweights. The 600 pounds and under were going in and those are the animals that I think we will see a lot of because everything is moving off of grass. The one thing that could be helpful is if we can catch some rains especially this fall going into wheat country. Once they get those wheat pastures in and get them established that might give us some help on the feeder market as they put cattle out on to the wheat pastures but it is going to take moisture and all of us are grabbing for moisture.

Pearson: Ok. So, that is kind of the wild card there is that rain. Now this is a question, we didn't get to talk wheat pricing at all on the show. Tim in Crookston, Minnesota says we are starting wheat harvest here. I can get 9.40 off the combine and the basis is wide. Should I sell it anyway?

Martin: I think I would. You know even though I say wheat prices are probably going to go higher into October, I think I would sell it. That is a pretty good price. Your basis is wide. That doesn't give you much opportunity to turn around and buy calls back to protect that. But you know what? It is not a bad price coming out of the gate. But yet, still we are looking at some phenomenal markets next year. I think you are going to see new all time highs again on every ag market we have got for grains. You know the beans and I am going to throw beans back in here for a second. You know wave four counts on the upside is actually 19.22 and there is every reason in the world for this bean market to go for a wave four this year. A wave three off of 2008 lows is actually 18.88 and then of course the gap that we left over the 4th of July projects to 17.28 which is a heartbeat away. We will probably see it Monday. So, I think that we have got higher levels to go. That helps tug the corn along but it is all about beans now and they are going to gain on the corn. In the meantime you get into next year and we are going to have a tremendous acreage fight on our hands.

Pearson: All right. Any parting thoughts? Any last words? What are you thinking?

Martin: Well, I don't think our tops are in yet. I do think that we are into a wild market. It has been very - on the step up. But I think we are about to get more crazy and we are volatile. And therefore any producers out there that are along the board, they have got to have some price protection underneath them, some stops, use money management. But the one thing that I will also caution them on is; understand that this Electronic Globex that stops if the market moves through your price by five cents or more, it becomes a nonworking order. And that's a thing that could catch people also especially at night in thinner volume.

Pearson: Ok. All right. Well, thanks so much Sue. I really appreciate you taking the time to sit with us tonight and have a great week.

Martin: Thank you Mike.


Tags: agriculture commodity prices economy markets Mike Pearson news Sue Martin