Market Analysis: Sue Martin

Market Analysis: Sue Martin

Dec 6, 2019  | Ep4516 | Podcast

Podcast

On Friday, the Chinese Finance Ministry said it would waive tariffs on U.S. soybeans and pork products. The details of the offer were limited as the commodity markets worked through the news. For the week, March wheat fell 17 cents, while the nearby corn contract dropped a nickel. Big questions like total tonnage and how buyers apply for exemptions were missing from the Chinese statement. The news had little to do with the 13 cent gain in the January contract. January meal moved $6.20 per ton higher. March cotton improved 74 cents per hundredweight. Over in the dairy parlor, January Class III milk futures lost 13 cents. The livestock sector finished on a low note. The February cattle contract shed $1.22 and January feeders cut 73 cents. The February lean hog contract dropped 63 cents. In the currency markets, the U.S. Dollar index lost 50 ticks. January crude oil expanded $3.99 per barrel. COMEX Gold fell $7.90 per ounce.  And the Goldman Sachs Commodity Index gained more than 11 points to finish at 421.45. Joining us now to offer insight on these and other trends is one of our regular market analysts, Sue Martin. Sue, welcome back.

Martin: Thank you, Delaney, it's nice to be back.

Howell: Sue, wheat had a very rough week this week. Why the selloff midweek?

Martin: Well, I think wheat got itself a little overbought. The spread between Chicago and Minneapolis had gotten extremely inverted. It doesn't happen often but when it does it doesn't usually last super long and then you see huge corrections in the other direction towards Minneapolis. I think also one thing that weighed on wheat was the fact that there is a seasonality where early December you buy soybeans and sell wheat. And I think that too, your seasonal traders were hitting into that spread. But it was more of an overbought condition than anything.

Howell: Sue, was it seasonality or is it seasonality that is putting corn not far from our lows? Or is there potential here to do some sideways trading? What's going on?

Martin: Well, corn is kind of disappointed because it's not getting much in the export business news. And because of that it is kind of dullsville I guess, it's just kind of caught in a flux. It didn't follow wheat higher by very much and likewise it was catching pressure at that time from a selloff in soybeans. So it was kind of caught between the two and there was no news to really send it running higher. And in the meantime we continue to have an extended harvest, which we should be probably around 96%, maybe 97% harvested I'm thinking on Monday. But that harvest pressure, that late crop that a lot of times goes to the elevator that creates hedge pressure. And so it's a combination of several things but huge disappointment the fact that we just can't garner a pick-up in export sales.

Howell: And Sue, since you opened the door there on the harvest I want to ask just your brief thoughts. We've got another WASDE report coming out next week. Is there any reason to see the USDA change numbers when it comes to corn or soybean acreage or yield?

Martin: Well, they tend to not do that in the December report. It will come in January in the final. I think what everybody is looking towards is because exports have been so poor we may see another drop in export total for the year expectation by the USDA and because of that that will probably ramp up the carryout just a little. The December reports tend to not be big market movers and so because of that I don't think we're expecting a whole lot. Argentine production maybe stays about the same. If anything it would drop a little. They're still in the process of planting. And then you look at Brazil and they keep talking about the rains that they're catching. What is interesting is when you look at vegetative maps they look brown, a chunk of Brazil and Argentina has brown in it, and I'm thinking why when they're supposedly catching all these rains through the forecast. It's almost like hope springs eternal and we keep talking about the rain and the forecasts of the GFS or the European and that they're going to keep catching rains, 85% coverage, what have you. If that is the case then these vegetative maps should start showing changes.

Howell: Sue, I want to take a quick social media question here looking at corn new crop prices before we transition to talking about soybeans from Mitch in Hull, Iowa. What price targets should producers have in mind for new crop 2020 corn?

Martin: Well, it's interesting you ask that because it's kind of quirky. I always look at a year of like years ending in a certain number and of course I have looked at the years ending in a zero. They're not too far different than a year ending in a nine as far as pattern goes. What's interesting is it shows new crop extremes, either you're going to have your highs for the year in November/December or you're going to have your lows for the year in November/December. So then I added in China, and I don't know what, it was just a quirky thought, I looked at years where, you're the year of the rat. It's kind of interesting because when they had the year of the pig they had African swine fever. Now we're into the year of the rat coming up and to me that sounds like a bad name, but to them it means wealth. And so I looked at corn prices and I didn't go as far back as I could have. The year of a rat happens every 12 years. And so I started in 1972 and started forward looking at every year of a rat. Ironically it fits the pattern of a year of a zero. So then I thought okay, there's one other thing this market feels like. I've been in this market a long time and I got into it when things started getting exciting back in the early '70s, this feels like the early 70s all over again to me which is good news for farmers. And it started off back in the early '70s Secretary of Agriculture Earl Butz was working, getting us out of the storage, the government out of storing grain and then you had Russia come in and they kind of cleaned house when it was all said and done and we had a grain robbery.

Howell: You've talked about that a lot on the show.

Martin: Yes, and I think that is what we're going to end up seeing with China when it's all said and done. And it will be inflationary. So I went back to the year of 1970 because '69 was kind of on the edge of it, but '70, '71, '72 was where we really started getting that shift and then of course we had a weather market in '73. But what happened was the market performed very similar to a year of a zero. I thought that was rather interesting.

Howell: That is very interesting. Sue, I hate to move you right along here but we've got to talk about the soybean markets. They have had a 90 plus cent drop since harvest highs here. Are we starting to form a bottom here?

Martin: Yes we are. The indicators are extremely overdone and they haven't even really gained a whole lot and we've added 20 cents back on. I think we closed higher for the week and so that should portend higher highs this next week, even before we fall back, but many times there is that old saying, the bears get their turkey for Thanksgiving and the bulls will get it for Christmas or vice versa. In this case it looks like the bull may get his chance. And then with all the talk, the 15th is when President Trump had said he would add $160 billion worth of tariffs on Chinese products and China doesn't want that. And so they're making some innuendos, efforts, good faith statements. But the market this next week is going to be more I think pro--positive than negative but then come Friday it will be like okay guys, what are you doing to do? Are you going to carry your positions over the weekend and take a chance? Or are you going to take your money and go home and see what happens? I think that when we come push to shove I think President Trump will not put the tariffs on.

Howell: Hopefully delay those a little bit longer for producers.

Martin: Yes, I think he'll kick that can down the road. Will he roll back tariffs on the other original products? I don' think so because of the fact we still have phase two and three and I just don't see him being willing. I think he said originally he would not take tariffs off until this was a done deal. This is only one phase.

Howell: It is. Still something to continue watching. Sue. Looking at the cattle complex we saw some pullback this week. Is there some consolidation going on right now in the live cattle industry?

Martin: Well, it seems like it in the futures, we're just not going anywhere, it's like we're in this narrow range, maybe about $5 from low to the highest that we've gotten so far. But I've noticed we have some trending indicators that we watch or averages and they're, on the February cattle they're both just kissing about ready to roll over. That's concerning because that could portend a nice little dicey break here and it's not uncommon to break and put lows in around the 5th to the 8th or 9th of December and we're right in that window. But the other thing is we have indicators that we really, really like on cattle and they are extremely low and have turned positive on feeders I believe, two out of three are positive for sure and then one is very close. On fats they are just in a heartbeat of turning positive too. So they're almost overdone. But until they turn positive anything can happen here. So we have not sold it short. But we haven't bought it either. We're waiting to buy. I think that we have a chance -- here's another thing, we're having a, we should kill this week 670,000 plus head of cattle.

Howell: Which is friendly.

Martin: Yes it is for the first week of December. And if you go back and look at years since 2000 and even in 1996 which was a high grain price year, I went back and I looked at February cattle futures in all those years and every one of them saw February cattle move very nicely making higher highs. There might have been some break in there but it came right back out of it and make higher highs into February. So I think we have a chance for February cattle to make it up towards $130. This year's high was a little over $130 with the April contract. I think that we have a chance to try to come back and push towards that.

Howell: Higher highs. All right, in the live cattle markets. Sue, what about in the lean hog markets? Is this U.S./China trade announcement of China lifting some waivers here on U.S. hogs going to be the action we need to spur prices higher?

Martin: Well, this is kind of quirky but I thought today when I was reading the news, I thought pork and beans, that would be a Campbell's thing. Anyway, I look at hogs and I think the biggest problem they have had is everybody has been jumping on the bandwagon too easily and probably the small trader as easily as anyone. That is not the right mix. You have to have the smart money there first and then everybody else kind of comes along. And we knew all along, we really had to guess all along that China was getting pork when Shuanghui owns Smithfield. It would just be, it wouldn't take a rocket scientist to think and now we finally get that information that yes they have been shipping pork and they aren't the only ones, there's others that have been doing it too. So they have been catching a fair amount of pork. And pork prices, pig prices in China are up 159% from January to current and it's a huge thing. And so fundamentally you go forward down the road and it should be positive. I think it's positive to all proteins actually. So when I look at hogs on a weekly chart bullish consensus is down to 14%. That's pretty low. That means that most of the trade is bearish or trading more bearishly inclined and therefore it's about the lowest since I think August of 2009, maybe 2015 or '05.

Howell: Sue, I'm going to cut you off right there. I'm going to save the rest of your answer for Market Plus so more people will tune in then. Thank you so much.

Martin: Thank you.

Howell: That wraps up the broadcast portion of Market to Market. But we will keep this conversation going on Market Plus where we’ll answer more of your questions. You can find it on our website at Market-to-Market.org. Also on our site are links to our YouTube page so you can see all our videos we produce in one location. Or just search YouTube.com/Market to Market. Join us next week when peel back the layers to look at falling protein levels in soybeans. So until then, thanks for watching and have a great week!

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