Market Plus: Sue Martin

Dec 6, 2019  | 10 min  | Ep4516 | Podcast


Howell: This is the Friday, December 6, 2019 version of the Market Plus segment. Joining us once again is Sue Martin. Sue, I'm sorry I had to cut you off right there at the end of the program. We were talking about the hog market as it relates to proteins and how it is impacting really the global protein market.

Martin: It is. In fact, it's rather interesting because the United Nations World Food and Agriculture Service or organization came out and indicated or said that global food prices increased about 9.5% from January to current compared to a year ago. That's a big jump and of course a major portion of that is protein or meat prices. And then veg oil is another one. And so when we look at China and the demand that they have and we look at the cheap, I should say the oversold implied bullish consensus up 14% and the lowest since either August 2009 or August 2005, it's one or the other, but for some time that usually, something comes into the marketplace and turns the market and gives you a rally. Still traders were in disillusionment today, you couldn't get the futures to move higher. It seems like every time we get some good news they use it and sell into the hog market. One thing about the hog market that bothers me is the fact that the deferred contracts are so premium to the fronts. That concerns me because they should be a little bit the different side if we've got a truly demand led market it should be being pulled from the front and not the rear.

Howell: And we had a question in this week, I'm glad you mentioned that, because Ryan sent us a question here on Facebook that was asking just that. Why are we seeing the futures never close to the cash hog prices in the December hog contract?

Martin: Well, and I think it's because, it's interesting, we have a huge amount, record amount of hog numbers and yet we're chewing through them. They're going somewhere because cold storage supplies are tight in pork and they're tight in beef and I think poultry is the only thing that we have an abundance of. It seems to me that when you have a good demand led market we should be pushing that front and that doesn't seem to be quite happening. Now the spread is narrowed and that's okay and the thing is if we had a delivery situation in hogs like we do in cattle, in fat cattle, that might be a little different story but we don't. It just expires like feeders and then it is cash settled. So I think when I look at the hog market my concern is that until we get something dicey, I hate to sell it down here just because of the low bullish consensus, but on the same token until we get something going and following through to where we can narrow the spreads, and I guess that would be the thing to do is watch the front contracts versus the deferred like June and July and see how those spreads change. If those spreads are getting overdone then you'll get a flip in the spreads and then the fronts will start to come up and try to align better with the deferreds. But for now I'm afraid you get one off and the other one just drops down to align with it. And that is not a good situation. Another thing that bothers me on the hog market is I have these indicators that I watch on cattle that they work very well and they're working on hogs too. I never used to use them on hogs but they're working on hogs. On a very long-term outlook it looks beautiful for in 2020 on cattle yet and that doesn't mean you can't get breaks because we had one this year and it came right back out of it and those indicators never quivered, but on hogs they look the opposite.

Howell: Meaning what?

Martin: Meaning that the market on rallies, it means we can get rallies, but it means to be careful because they may not be a bull trend.

Howell: May not be supportive for very long.

Martin: Yeah.

Howell: Okay. Sue, what's going on in the cotton market? I know you brushed up on your cotton for us today.

Martin: Well, when I look at cotton, first off technically it is against a trendline on the March contract from the highs of the year which would be like June 4th or something like that, early summer. And so we need to get through that trendline to kind of start changing the complexion of the marketplace. I think that when we look at cotton, exports maybe not as good as what we had hoped for, we had hoped to see a better export picture going towards China and we had a little bit it's like a pittance, and in the meantime I think that we could still push maybe another couple of dollars higher or so. I'm just wondering if the $70 level isn't going to be a little staticky for a little bit longer.

Howell: Okay, 70 level is what we'll continue to watch in the cotton markets. Sue, we've got another question here. Trade was obviously a big deal this week with USMCA, we had the trade tiffs maybe with Brazil and Argentina, we also had the finalization of the Japan deal. So we've got a question here from Jordan in Nichols, Iowa wanting to know, how soon will the markets respond to the U.S./Japanese trade agreement? And how much movement in the markets could we see out of this agreement?

Martin: Well, I think it's a step in the right direction especially for beef and of course Japan is a very major corn buyer too, but beef especially. It goes to show that, I don't mean this politically, but it goes to show that President Trump was right in doing what he did when he pulled us out of TPP, the Transpacific Partnership, because we weren't being treated equally as other trade partners. And this is his forte I guess because that is what he is doing with China, with Europe, with Brazil and I look at that one as being a little more minor, and then the U.S./Mexico/Canadian agreement like for dairy it's a big thing for our dairy producers and many of them are hurting right now and we're losing dairy producers. So he had the right thing and he's the only President we've had that has done this and these were changes he has seen that we needed to make. Well this is step one. I guess the U.S./Mexico/Canadian agreement is step one and then this is step two. All of this combined just starts to help us form the complexion of beef exports going out the door and it isn't probably going to just be beef, it will probably be other things following behind it. I guess when I look at the whole global picture I see demand for proteins growing and now just because China has got their issue, I see it growing because economies are moving and your transmoving people that tend to eat all kinds of cuts of meat. And I think that is a big plus. That is also going to be a big plus in the end for corn long-term.

Howell: And also rising middle classes that can afford to buy hopefully some of those protein sources as well.

Martin: That's right, the more money they make, they spend it on food first.

Howell: Sue, there's a lot of factors then that are going to impact our corn and beans here for the next couple of months. We've got a question here from Shane in Bloomfield, Nebraska wanting to know what is the range for corn and beans to trade in assuming that there are no big surprises?

Martin: Well, if we were to, interestingly enough the studies that I looked at one the years ending in a zero and what have you, I looked at old crop, I looked at July contract and November contract in beans and I looked at July corn and December corn. And I went back through all of the years that I looked at whether it was the year of a rat, a zero, the year of 1970 or a year ending in a zero. For example, corn seven out of eleven of those previous that I have data on, and I got that data off of the USDA, so when somebody tries to say oh there wasn't anything, they don't know what they're talking about, but bottom line it was interesting seven out of eleven times in those years corn made higher highs in the year of a zero.

Howell: In what month?

Martin: Oh, I would have to say July yes, really the new crop especially. Sometimes it was the new crop and it could be, I'm talking corn as well, it could be that they would, the new crop would peak with the old crop and then start its move down. I do think this coming year is going to be a little bit on a traditional side but I think we're going to see higher highs in 2020. I think this year beans didn't make higher highs this year but corn did and I think we're in a year where we're just kind of stepping so to speak. So it's not going to be a runaway thing and it's not going to be without some issues. But I think we're looking at a year ahead that will give us the opportunity to have some pricing at better highs and that would include soybeans.

Howell: All right, Sue Martin, thank you so much, always a pleasure.

Martin: Thank you.

Howell: Join us next week when peel back the layers to look at falling protein levels in soybeans and John Roach is back 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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