Market Analysis: Sue Martin

Market Analysis: Sue Martin

Jul 31, 2020  | Ep4550 | Podcast

Podcast

Paul Yeager: Improved crop conditions, pressured the market despite big sales to China. As of noon on Friday, September wheat fell 9 cents for the week while the nearby corn contract lost 11 cents. Soybeans waited on China to move into the complex. The September soybean contract dumped 10 cents August soybean meal lost two 30 per ton. December cotton found $2 and 10 cents per hundred weight. In the dairy parlor, September class three meal, future's decreased a $1.43. A mixed week in the livestock sector, October cattle climbed $2.05, September feeders also climbed $2.05 and the October lean hog contract lost 85 cents. In the currency markets, the U S dollar index dropped 99 ticks September crude slid $1.32 per barrel. Metals. Well, that was a little different story. As Comex gold jumped a $68.80 per ounce and the Goldman Sachs commodity index lost $2.30 to finish at 338. 70. Joining us now to give us some of her insight is one of our regular market analysts, Sue Martin, Sue. Welcome.

Sue Martin: Thank you, Paul. It's nice to be here.

Paul Yeager: Well, here is such a relative term. We really are in two different places and that's just the way it's gone. So let's start with wheat. Brutal start to the week, uh, in that market. Is that going to continue?

Sue Martin: Well, I think the wheat market is catching so much nice rain through Kansas and Northern Oklahoma. And that is part of what's weighing on the wheat market. Uh, this is just unusual in the month of July. Seasonally, as you move into August, wheat tends to decline into September. And so not that it has to happen, but it does tend to do that. And there hasn't been an awful lot of news other than we keep seeing, first Russia's prompts doing a little better than the yields are not as good and they start downsizing their production, but it still, when you look around the world, whether it's France, Germany, um, and of course, Ukraine and Russia, uh, production is looking like it's not as good as they had hoped. It would be all in on the

Paul Yeager: Go ahead, keep going.

Sue Martin: Well, the Australian crop is better, but you don't hear a lot of talk about that. It's just a, it's so focused on Russia. And of course, Russia tends to be getting a lot of, um, Egyptian business right now, Ukraine too.

Paul Yeager: Last week, Mark Gold talked a lot about the dollar's relationship to wheat and that dollar keeps moving lower. Uh, do you see that as the commodity that's being influenced the most by the dollar?

Sue Martin: Well, I think as the dollar is moving lower, it's making us commodities in general, very competitive and cheaper. Um, you look at a wheat, you take and adjust that by the dollar or you take corn, you know, looking at corn, we're running right about just a little over $3 a bushel. Um, so the dollar is having a huge impact on the decline that is seeing, uh, in the meantime, you know, demand is good, but you know, we test had some pretty good export sales this year or running ahead of a year ago. Uh, so, you know, that's not negative news. So I would have to say, yes. The one thing about wheat is that we could be looking at a situation where the farmer may be entertaining about more wheat acres, winter wheat acres, this fall

Paul Yeager: In corn this week, Sue, we had a weather report that delivered rain, unless you looked at the radar and it looked out your window and the two didn't match, we got apparently enough rain for the, for USDA to say that crop is improved. That was a big, big weight on the market, despite everything that China's done, which one's going to win out, moving forward?

Sue Martin: Well, I think that we do need to see more Chinese business, but, um, I think weather is key. Uh, those crop condition ratings improving 3% was better than the trade was thinking. They were looking for steady to maybe 1%, 2% better. And so 3% improvement. The third week of July is a pretty unusual thing. And of course, uh, in, um, 2010, a year that this year is very similar to, we had, uh, the same crop conditional ratings then as we do now. And so, you know, it just basically at 72%, you know, the crop is doing well. You're through the end of July now. Uh, it thought that we'd have to go through the whole month of July to fulfill all of the pollination. That's done. Nothing has been jeopardized. So, you know, they'll say 90% of your yield is in pollination. And so the attitude is, is weighing over the market that we're going to have a good crop. And so we'd expect yields will probably increase in this August report.

Paul Yeager: As the yields continue to go up the price, not where anybody wants, what happens if we don't have these sales from China? Are we really hurting right now?

Sue Martin: Well, ours, our exports are a little bit behind a year ago, but we're catching up. In the meantime. Uh, you know, we need the export business because we're also dealing with less ethanol production compared to a year ago because of COVID-19. And so, and it's not just in the U.S., it's in Brazil, they're not using as much ethanol or biodiesel either because people are not traveling like they normally would. And so, you know, we're competing against fuel, crude oil, what have you, um, we're just in a very negative atmosphere, I guess, I would say. But all in all, when it comes to corn, I think the bottom line is going to end up being the weather, 'cause remember, acres are much less than what we originally started with thinking we were going to have and March on the prospective plantings to where that number came up,

Paul Yeager: Let's move in on weather, because that's a good transition to what's going on in China. And we got a viewer question that came, uh, one came via our Facebook page and it's, uh, John and Rice Lake, Wisconsin. He's asking, "When is the massive flooding and China going to influence the markets? It seems like it's a pretty bad situation there. And there doesn't seem to be a lot of talk about it. "

Sue Martin: That is true. You know, the river basin, the Yangtze River Basin has had their share of flooding, uh, over the next week, week and a half. They should start to settle down and maybe see more favorable weather. Uh, but that area should start after the 10th of August to see another surge of horrific rains. The monsoonal rains in China have been record. And so they're catching plentiful rain. It's heavy rains moving into the Northeastern part of the grain belt, or you do see a lot of corn, some soybeans being raised. That's not good for that, but in the meantime, it's also moving into the southeastern part of the country as well, or the southern part of the country. Here's the thing though, if these rains, um, that they're worried about the Three Gorges Dam and other dams that also feed along the tributaries and what have you, but should these rates continue to kick in and remain heavy, and we start to see another resurgence of these rains coming downstream to that Three Gorges Dam, the fear is that there could be a black swan situation in China where you could have earthquakes set off and they could be a five magnitude on the Richter scale, something like that, uh, because of all the weight of this water that is sitting on top of these tectonic plates. And if that was to happen and breach that Gorges Dam, you would have 480 million people in China, jeopardized, they would be lost. And so you'd lose a generation of people, but more, not more importantly, but a concern is China's agriculture would just be lost. It would be horrible for them. And that's a black swan event. It may not happen, but if it does, and you put that at the same time that we're running with, COVID-19 here running with Phase One and they have to be buying all of a sudden, is there enough to take care of them if that black swan event was to happen .

Paul Yeager: Right. Well, and that is a little bit of the concern, a little bit of the concern in the corn market that maybe China's out of corn. Cause that's why they've been buying Brazil, maybe out of beans. So real quickly. So in 30 seconds, soybeans in the United States, if you're a producer, are you buying or selling a right now that contract?

Sue Martin: Well, I think right now, um, I would probably be marketing a little bit on the rally. We're going to close higher for the month of July on beans and we're moving into August on being month. But in beans, I'm looking at the year in 1980 and I think we're patterning after that. And interestingly, the year of 2010 on corn and the year of 1980 on beans, we made higher highs for the year in November. And I think if we can keep this pattern, what I believe is in August, it's going to be very serious as to what the weather does because we may see a drop in yields from August to September and from September into October. But with the less acres in corn that we've got, you know, and the demand that we've got. And then if you were to put a black swan with it, oh my goodness, that would just be horrific.

Paul Yeager: We have a lot of weather to watch and a lot of things to watch. We're also looking at the weather in the Plains when it comes to feeder lot conditions or pasture conditions, but let's talk live cattle first. And, uh, they've been kind of back on the rally here. Is this still a COVID-thing or is this something else?

Sue Martin: No, I think cattle, if you remember, we had low placements for several months and, um, I think though the weights of a, or 120 days or more cattle on feed, I think that we have a tighter supply there in that timeframe. Um, I also think that once we kind of get our, our, the concern is that restaurants and that type of thing, school lunch programs they buy. Um, but on the same token, this market looks to me like it's building more of a premium of where, what we used to have, where cash would be discount to the futures. And, um, I think that you're going to see the situation here where the box beef has bottomed, and that's going to help us out. Packer margins, maybe aren't going to do as well, but they're not going to be a disaster. I, they, the packers are really in a fortunate situation. I think that October cattle have potential to go to $115. Maybe it takes us into October. I think in cattle, we're looking at a year similar to the year of 2015.

Paul Yeager: You look at the October chart when it comes to the feeders. And that one was a little bit of newsworthiness, this week. We had a little website after cattle on feed from Friday is my neck sore from looking at that. And will it continue while I get some relief next week?

Sue Martin: Well, my indicators are, we're a little over done and turns negative. We caught a quick, quick break, um, both in fats and feeders. And then we started and we were moving very quickly on my indicators that I, it's not normal to see them move so quickly, but they were. So we're now turning and pushing. But the one thing that I will say, the weekly indicators that I use are very vulnerable. Now, not none of them are negative yet. They're still positive, but when those turn negative, I'm going to be a little concerned, but that could take us all the way through August into early September. Um, I think that we have a market demand for feeder cattle. So very good. We're current in the north for fats. Um, one wonders. I hear both sides of the story that maybe we are backed up with cattle numbers as we once thought. And then you have the pasture conditions are absolutely wonderful in these, you know, in Kansas and Oklahoma, we have to be, uh, thinking that that's also a blessing for this cattle market and those pasture conditions turned hot and dry. That could have been the disaster for the feeder market.

Paul Yeager: Do we have any blessings in live hogs?

Sue Martin: Well, they haven't showed up yet, but I do think that the hog market, when you go back and look at October house, and this is more of a technical thought, but when you go back and you look at October hogs and take a monthly chart and put a Bollinger Band on there, whenever you, since 1971, since August of 1971, whenever the hog chart, the hog price has dropped through the lower Bollinger Band, doesn't spend much time there, it's happened, I think eight or nine other times and we've always turned and came back and we add towards the 20 multiple of an average. As many times, we even eventually get up to the upper Bollinger Band. I think we're in that mode and I'm, I'm just waiting for, um, my trending indicators to start to turn positive. But, uh, I wouldn't be selling hogs down here. They're too cheap. Um, you know, look at pork adjusted in dollars here again, cheap

Paul Yeager: Sue. My timer just went off. Thank you so very much for joining us here in Market to Market. That will do it for the installment of the program. We will continue our discussion in MarketPlus. So join us there. You can find it and podcast form or video form at markettomarket.org. Next week, we'll look at how the livestock sector is studying pain management in food animals until then, thanks for watching and have a great week.

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