Market Analysis: Sue Martin

Market Analysis: Sue Martin

May 22, 2020  | Ep4540 | Podcast

Podcast

The market shrugged off government payments plans in favor of trying to figure out if China was in or out of the U.S. grain market. For the week, July wheat gained 9 cents and the nearby corn contract was down a penny. Limited global demand has given the soy complex cold, wet feet. The July soybean contract fell a nickel. July soybean meal declined $3.40 per ton. July cotton lost 64 cents per hundredweight. Over in the dairy parlor, June Class III milk futures added 30 cents. In the livestock sector, August cattle dropped 50 cents, August feeders fell $2.28 and the July lean hog contract shed $1.60. In the currency markets, the U.S. Dollar index weakened 63 ticks. June crude continued its run higher closing up by $3.65 per barrel. COMEX Gold shed $18.10 per ounce. And the Goldman Sachs Commodity Index lost 7 points to finish at 295.90. Joining us now to give us some insight is regular market analyst, Sue Martin. Sue, good to have you in studio.

Martin: It's nice to be here.

Yeager: I tried to comb my hair since people were coming in here. I've been talking to computer screens, so forgive me.

Martin: No, you look good. 

Yeager: Well, let's talk about looking good for one day. The wheat contract, Kansas City kind of been on that run down, down, and then all of a sudden spike. Is that weather here or is that weather overseas?

Martin: It was weather overseas more than anything. Looking at the European Union, the weather there dryness that is encompassing into Germany, France a little bit, a little bit of pulling but especially more than anything Russia. Southern Russia is still dealing with dryness and the concern is that their exports are going to be down considerably as is their production. And so that is, I always think of the time when we got down into the very latter part of June and we had been talking about Russia and all the issues they were having one year and then the market exploded. And of course sometimes in a year like this you can set up an early harvest low too.

Yeager: Are we looking, are the conditions there for one of those explosions in June?

Martin: I kind of think so but I think we're going to meander. If you look in mini markets they all are sort of set up the same, very oversold, very overdone, indicators extremely like Bollinger Bands, extremely spread apart, almost like jaws and the market is now trying to level itself out, it's kind of spent itself and now we're just kind of working ourselves into a range trying to work higher. The wheat market looks to me like it's not done rallying but certainly Friday was a risk off type of day because you've got China and the U.S. kind of duking it out a little bit in words between the two Presidents and in the meantime we have a forecast that is calling for rain next week for almost every day.

Yeager: And in the area where there's wheat production in the United States where it has been dry. Real quickly before we move on, Sue, are you at the point, are you selling, waiting on this meander? Are you holding? What are you trying to do? What are you looking for?

Martin: At this moment I would hold. I would not sell. On our website we're 60% sold and now we're just sitting back and waiting, in fact we even recommended maybe replacing some of those sales on the board this week. I think that we're going to see a chance to maybe push, you might see Chicago go up around $5.40 basis July, the KC you might get up around $5.10., $5.15, maybe a little higher. But I think that then we'll have to take another look. Do I see an explosion? Not yet. I think we need to get more into June, take a look at European weather and just how tough has it really been.

Yeager: You talked a little bit about these two countries duking it out, the United States and China, as I called it that little developing country. Bradley in Upland, Nebraska is asking about this one and we had a couple of questions about it. With commodity prices so cheap can China buy enough volume to meet their Phase 1 trade deal obligations? He's also hearing reports of corn harvest basis level twice as large as last year. Do we lock in now or wait for an improvement? Do you want to cover China/U.S. trade relations first?

Martin: Yes. I think they can. You have to remember, China is a country of about 1.4 billion people. They've lost some through the COVID but they need everything, they needed everything before. And they've made trade deals around the world with many countries and now that, I think this is a trend that we're going to start seeing, especially if we see COVID break out again, which won't shock me if it does, but I think you're going to see countries going back to something we used to see until the early '90s, late '80s, early '90s when we started going into just in time inventorying. I think countries are going to start building reserves and having food on hand. And of course this week China, Beijing told their state agencies like Sinograin and Cofco International Grain, which we've talked about before in various shows, but they were told to go ahead and start buying more mainly because the country is concerned that if they get into another situation the last thing they want is to run low on food.

Yeager: We've talked about China on soybeans but it has been corn that has made more of the news here in the last two to four months. But if you're China and you continually get beat up verbally by this country and you're having a spat with Australia at the same time, why do business with either one of those countries? I'll just do all my business with Brazil.

Martin: Well, that's an interesting thing that you say, China certainly has been avidly taking beans out of Brazil very aggressively. But they're getting low on beans themselves. They have been selling so aggressively. And in the meantime when we start getting in and looking at our fall they're going to be needing beans as we go into the turn of the year. What's really interesting about Brazil is they are now on the tip of the iceberg turning into probably one of the biggest COVID-19 cases in the world and they're not really, we have to remember Brazil is an emerging economy so their social network isn't really set up quite like the U.S. and maybe China and others. But because of it we could see this impact exports on many markets, especially the meats. But Brazil is one country we better be watching real closely because they might be about ready to hit themselves pretty hard.

Yeager: And they have developed quickly in the last couple of decades. Let's get specifics here on July corn. Held pretty much even two weeks in a row, this thing is not moving. Are we going to see this pattern continue or do we have a breakout one way or the other?

Martin: Well there's an old saying, never sell a quiet market or kick a sleeping dog because they'll both bite. And corn has kind of been that way, beans too, when we start to set back they get sort of quiet. But a week ago corn closed lower, after making higher highs closed lower for the week. Then it turned around this past week and took out that high, again closing lower for the week. I've been on deck of thinking ever since January that corn would go down into June and I still believe it's going to. What I would love to see is that it comes down, takes the low out, and I know that's not a popular thing to hear, but take the low out and all of a sudden you run out of sellers. You've got a market that option volatility is extremely low. You have managed funds that are over 230,000 contracts short. You have a beautiful recipe for the market to turn around in a heartbeat, all it needs is a trigger.

Yeager: All we need is a trigger. All right. I'll ask you the trigger in Market Plus. I need to get to soybeans now. Again, this is a market where limited demand from China but at some point there's some buying. At some point is it just a shrug of your shoulders of China buying or is there something else underlying with this market in soybeans?

Martin: I think in beans we look at Argentina and they are a country that is going to have to file for a $65 billion debt loan that they need to refinance and farmers are holding tightly because of inflation and the peso is dirt cheap and so they're not selling and Argentina needs those exports and they're not getting them. So I think that when we look at soybeans the crush is pretty good, soy meal is struggling, came down to the lowest levels it has had on a weekly basis since 2016 and that is probably being helped a little bit by the drop in livestock numbers through euthanization and what have you and aborting sows farrowing and what all. But when I look at the bean market I think here's another market too that has potential once we get into June. Now, the market seems to get quiet on breaks. Granted, we had a risk off day. There's good support on the June, or the July, around $8.28 to $8.32 area. But there's thoughts that feeding the bear is expectations that we're going to increase bean acres at the expense of corn, especially in the Northern Plains.

Yeager: If you can get in the field.

Martin: If you can get in the fields is absolutely right. I think if I was a farmer in North Dakota and I had corn that I needed to be getting planted I probably would opt to take prevent plant rather than plant beans.

Yeager: All right, I need to get to the livestock sector because, Sue, I think we have talked over the years about this market has consolidated. We have things where packer doors are shut, we're not taking things, the cattle all of a sudden you hear about profit margins and finally a little bit of a selloff this week. What is, is it all about supply? Is it all about we’re catching up with what has happened over the last month?

Martin: Well, I think the packer this week the cash was ranging from about $117 to $120. It depends on how willing the packer is to dole out a little bit of his profitability because he knows the government is kind of checking in and investigating. But on the same token you want to keep your people that are supplying you in business and you still have a situation in the feedlots where we're backed up. Cattle numbers are backed up. We're not increasing beef production because we aren't processing the numbers we need to do. And we always thought there would be a little bit of a tighter supply as we went into August and September. Now you're going to have numbers fulfilling that hole so maybe it isn't quite as a detriment as you'd think, but it would have been more friendly had we had that hole. But we're spreading the beef production or meat production out. In the meantime here again Brazil with packing houses, if JBS for example in Brazil was smart enough to learn off their experience in the U.S. and there's some others that are doing testing now, then they'll skinny by and be okay. But it wouldn't shock me if they have a huge problem and then all of a sudden you have a global tight supply of meat and proteins. Here's the thing, if we've got a minute --

Yeager: Barely. Yes, go.

Martin: Okay, here's the thing. We've had a change in our weather outlook for the month of June. But still looking at heat in July and August. What would happen in the Western Corn Belt if we were to have some 100 degree days? What would happen if our grasses, if we turned drier and our grasses started to deteriorate? We would be in a mess. So, I think when we get a chance here on these feeders getting them lifting, get some hedges on them. If nothing else buy puts, just get something there.

Yeager: Quickly, cattle on feed, what did you see from that report?

Martin: Well, the one thing that I was pleased about, we all knew that placements were going to be way down, you can't get them in the feedlots. But the marketing number, the trade was looking for an average guess of around 74.7 I think and it came out at 76. So yes it is still down quite a bit but it was a little better than what the trade was expecting. So that should be a plus for the June come Tuesday.

Yeager: Right, placements down 22%.

Martin: The on feed was neutral, right in line.

Yeager: Hog wise, final minute --

Martin: I'm bullish hogs.

Yeager: You're bullish hogs. Why?

Martin: Yes. I think that first off we're cutting numbers, we know that. Yes, same situation you can't push them through as fast as you'd like to. And labor is the big issue. But on the same token I think here again Brazil is a big producer of pork and I think we've got awfully good demand, I think China will be coming in for more, they need it, they want it and I also believe that when we look at this July hogs, June hogs, doesn't matter, either one, you've got the indicators so overdone and they're starting to pull away from the lower Bollinger Bands and usually that will push you at least to a 10 week moving average and maybe even through it.

Yeager: All right, I'll have to take you and put you on point about prices later. Thank you, Sue Martin, good to see you. That will wrap up the broadcast portion of Market to Market. But there is still more to talk about and we'll cover it in Market Plus where we'll answer more of your questions. We had some great ones this week. You can find it on the web at MarketToMarket.org. Our YouTube channel is the quickest way to find our video stories from the week and dig in the archives. Find our channel by searching Market to Market. Join us next week when we'll examine the supply lines handling the reopening of America. Thank you so very much for watching. Have a great week.

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