Market Plus: Sue Martin

Jan 4, 2019  | 12 min  | Ep4420 | Podcast

Podcast

Howell: This is the Friday, January 4, 2019 version of the Market Plus segment. Joining us now is Sue Martin. Sue, welcome back.

Martin: Thank you, Delaney.

Howell: Well, Sue, we certainly have a lot to touch on here that we teased in the regular portion of the show but I want to start out here first with hogs. This week we had, or the latest case, outbreak of African Swine Fever was almost 100,000 head herd culled, completely culled. What size herd, does a size herd like that have enough impact in China's hog markets to have them turn to the U.S. for hog production or for pork? Or is that still something that we need to continue to watch?

Martin: Well, I think first off China is the world's largest producer of pork, they own half of the hogs in the world and they still import. And they're going into their Lunar New Year, which is February 5th, and so pork is one of the staples for the holiday season along with veg oil to do cooking. I think what is happening is it's such an important item because the size of this facility that it broke out in, I think it was in Heilongjiang that it happened in, is one of the largest yet that it has showed up and it has been found in almost everywhere there's hogs in the country. And so it's a big, big situation. So the Chinese government came out with regulations late this week and stated that any hog in a facility, they have to, now they process hogs all from each section of the country in that facility. They have to, they cannot intermix different provinces and they have to do blood testing, they have to draw blood and if this shows the virus, the hogs are of course they're culled anyway or processed, but the meat cannot go into the consumer chain, it has to be destroyed. The packing house will be closed for two, 48 hours, so for two days. I think it shows how concerning the situation really is because the virus lives outside the host for a very long time. And it is being spread even by the movement of the meat. And so it is a very big concern. Meat and bone meal or blood meal so to speak, they found it in that, and --

Howell: They found it in feedstuffs too I think this week.

Martin: Yes, and that was being put into feedstuff and so that is having to be pulled away because they cannot prove if it's not there or it is. So I think when we look at what is happening in China it's a big, big deal and it's one that they can't hardly get their arms around. It's going to take I'm going to guess three years at least to get their arms around this and even then it might take longer. So what is going to happen is in the meantime even though African Swine Fever virus does not affect humans it is the thought process, the psychological process of thinking about it and being concerned. So Chinese people are starting to back away from their local or domestic product. And so importing pork is probably going to be a big thing. They can pull pork from Europe, they can get it from Russia, although Russia has African Swine Fever as well. And they can get it from Ukraine. But at the end of the day we have Smithfield Farms here that is owned by Shuanghui and so they can get product from there and move it over. But I think it's not only bullish to hogs but I think it's more bullish to beef because they'll switch.

Howell: You're saying the Chinese consumers switching to beef instead or pork?

Martin: Beef, exactly. And they'll eat cuts that we don't eat like tripe and different things. But I think they'll make that switch and once they get a taste for that. The thing we have to keep in mind is China has the world's largest, not world's largest middle class because India has that, but it has the world's fastest growing middle class and that is a draw for meat proteins. And so it will probably help with fish and chicken but more so I think it's going to be the beef market that really gets attracted. And of course they have already made deals with JBS out of Brazil and of course JBS has packing houses here as well. And so I think it's going to be that exports of beef are going to continue to be very good and the demand. But there's one other thing that I think is affecting the meat markets that is really not given enough credit to and I've kind of talked on it once I think on the show a long time ago but it's the immigration, the movement of people around the world moving from the Middle East into Europe and through European countries, moving from Central America into the U.S. These people if you look at the migration yes there's women in children in it but the majority is the young men, they like protein and meat and I think that has made a big change on all this demand for meat in our global market.

Howell: Interesting. Yeah the immigration factor isn't one we commonly hear. So I'm glad you brought that up. I think the other thing we teased during the show here a little bit was rice which is also a huge staple to the Chinese diet and I'm guessing that is why we've seen people import so much or why we've seen China recently import rice. We've got a question from Rich in Appleton, Wisconsin, who specifically asks that, Sue. He said, why did China buy our rice and what U.S. areas benefit from this purchase?

Martin: Well, you'll have areas like in the South and also out of towards California that has rice. But I think rice what is so important about it, one it is a market for our rice growers that they didn't have and so that's a good thing. But more importantly it just shows a continued draw, a tightening of supplies globally and here in the U.S. as we continue to tighten our coarse grain supplies, stocks to usage is very tight, corn and wheat is coming down and I think once we start getting into the spring and we find out how low the acres are on hard red winter wheat and maybe even the soft red but especially the hard red, I think we're going to find again that rice going out the door to another export market is also another way of tightening our supplies again between coarse grains and interchangeable markets that we have. It's a bullish thing.

Howell: Yeah, I understand. What about, we talked also a little bit there, has South American weather, Brazil and Argentina, has it been priced into the soybean markets? You said, refresh us.

Martin: I think we have to some degree because we've been lifting, this week especially we have been lifting on the talk of weather and even wheat kind of got some of that too because of Argentine weather being so wet and while the Buenos Aires Grain Exchange has not lowered their estimate on production of wheat, which is like 19 million metric tons, you still are hearing talk and rhetoric about concern that they could be losing another 2 to 3 million metric tons of that 19 million metric tons due to quality issues and maybe moving it into the feed sector. So that has helped rice, or I mean wheat, kind of stabilize and get a little lift here too. But for corn I think it's still a factor to come. And so as we move through the latter part of this month they are forecast to continue to be dry. And the temperatures are more seasonably but they're running in the upper 80s, low 90s so we'll see what happens but I think as we move in through February it's going to be really key to be watching how well the crops come out, how the weather has been because here there has been the old saying, plant your corn in the dust and your bins will bust. Does that ring true for Brazil? I'm not sure. But I will say the safrinha crop they had high hopes for that. They might find that they're over optimistic on that crop. They are too which just adds another little support under our market.

Howell: Sue, we've got a couple of questions and I'm going to skip down on the list here because we don't usually get questions about cattle so we've got a couple of great questions I want to get your thoughts on before we wrap up here. We've got Ryan in Dike, Iowa. He said, August live cattle, should we buy puts now or just let her ride?

Martin: I think I would, we have so much going on in the world, and we had a break here, we have timing for a low on Monday in the cattle and that is hinted more towards feeders and fats but up toward the front contracts. But I think what is going to happen is because there are indicators on the longer term like the weeklys are so negative that we're going to get a bounce in the market and I think the trade has now got attention that they were bullish and all of a sudden now they're thinking ooh, this market doesn't feel the same as it did, we better start hedging and they're going to kind of cap those rallies. So I think what I would do with the stock market rolling like it is and talk about global economies being concerning of which I think currencies is one of the things they're going to be addressing in their talks with trade between the U.S. and China. But I think it's probably a prudent thing to buy some puts, that way you've got yourself floored and you leave that top side open because I'm very friendly cattle for this year. Like I said, it's one of my favorite markets for 2019.

Howell: And I think that sums it up nicely here for our last question. Jon in Chilton, Wisconsin said, do you deem it necessary for the live cattle and feeder cattle markets to move in unison or can they operate independently of each other? And what do you see for this year?

Martin: Well, they can operate independently but this past year, for example, feeders led the way up and they led the way down and back up and back down. They have been a bigger mover. I think when we look at this next year the indicators that I have on cattle work very well on cattle and they're looking at the quarterly data, this is one of the reasons I'm very positive is they're just getting a nice go, both fats and feeders. I think feeders, when we look at the cow slaughter we've had this past year and we look at, and I think cattle have been counted twice to some degree in our reports, but when we look at the feeders and the bitterly cold weather, so far we've had these weather patterns hit in cattle country and I think that's going to really continue. Once we start those patterns they seem to stay and I'm looking at this weather, I love what we have going right now, but I'm afraid it's not here to stay and when we start to turn back bitterly cold the blast could be that polar vortex air coming back out of Canada, I fear that the cattle aren't going to be putting the weight on like they should, which adds to more feed usage, but I think the demand for feeder cattle is going to be good this next year. I think feeders are going to surprise us how high they get.

Howell: All right. How high, Sue? How high are you thinking?

Martin: Well, they got up in the 150s this last year. I'm thinking, first off, I think fats will go through 130 and I think the feeders will probably have a potential to get up around 170, 175.

Howell: Oh wow. Okay. Sue Martin, thank you so much.

Martin: Thank you.

Howell: Join us again next week when we’ll explore how one group of farmers are growing crops without sunlight and Darin Newsom will join me at the Market to Market table. Until then, thanks for watching, listening or reading. I’m Delaney Howell. Have a great week!

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